Economics

Economics is the study of the behaviour of human beings in producing, distributing and consuming
material goods and services with limited resources.
Entrepreneurship is the willingness to take certain risks in pursuing business goals.
Management is the discipline of organizing and allocating firm’s limited resources to achieve its desired
objectives.
Managerial economics is the use of economic analysis to make business decisions involving the best use (
allocation ) of an organization’s limited resources.
Managerial economics is the study of how managers can apply economic principles and analyses as well
as quantitative tools in making an effective business and managerial decisions involving the best use
(allocation) of the organizations scarce resources to achieve their objectives.
The economics of a business refers to the key factors that affect the ability of a firm to earn an acceptable
rate of return on its owners’ investment. The most important of these factors are •competition
•technology, Customers. The impact of changing economics of established companies can be better
understood with a four-stage model of change.
Four Stage Model of Change
Stage I •“the good old days” •high profit margins •cost plus
Stage II •cost management •cost cutting, downsizing, restructuring
Stage III •limits to the growth in profits •revenue management •“top-line growth”
Stage IV •revenue plus
Microeconomics is the study of behavior of individual consumers and producers in the market. It focuses
on how the households and firms make decisions or choices, and how they interact in specific markets. It
covers: •demand and supply •pricing of output •production process •cost structure.
Macroeconomics is the study of the aggregate economy and deals with issues related to : •national output
(GDP) •Inflation •Unemployment •fiscal and monetary policies •trade and finance among nations
Scarcity is the condition in which resources are not available to satisfy all the needs and wants of a
specified group of people.
Opportunity cost is the best alternative that we sacrifice, or give up, when we make a choice or a decision.
Because of scarcity, an allocation decision must be made. The allocation decision of a society is
comprised of three separate choices: •What and how many goods and services should be produced? •How
should these goods and services be produced? •For whom should these goods and services be produced?
Market process: The use of supply, demand, and material incentives to answer the questions of what,
how, and for whom.
Command process: The use of the government or some central authority to answer the three basic
questions.
Mixed Economy : it has properties of both market and command process.
A firm is a collection of resources that is transformed into products demanded by consumers.
The goal of the firm is to maximize profits. – profit-maximization hypothesis • What is profit? – revenue
minus cost.
Do Companies Maximize Profit? • Criticism: Companies do not maximize profits but instead their aim is
to “satisfice.”– Two components to criticism:
•Position and power of stockholders- Most stockholders are not well informed on how well a corporation
can do and thus are not capable of determining the effectiveness of management.
•Position and power of professional management. – High-level managers who are responsible for major
decision making may own very little of the company’s stock.