A GLIMPSE

OF
ECONOMICS
FOR
MANAGERS

SOUMYAJIT C.

L e ctur e 02 MBA 2023-25 1

 H AV E YO U WATC H E D I T ?
W H AT A R E T H E C LA S S R O O M D I F F ER EN C ES
B/W UPES SOB & HBS?
Take a Seat in the Harvard MBA Case Classroom

L e ctur e 02 MBA 2023-25 2

 RECALL, A MANAGER’S GOAL IN THE
COMPETITIVE STRUCTURE OF INDUSTRIES

L e ctur e 02 MBA 2023-25 3

 NEED TO KNOW ALREADY!

L e ctur e 02 MBA 2023-25 4

WHY HOUSEHOLD IS IMPORTANT IN ECONOMICS?

A household decides on the three

major factors, so as a society does:

1. Ability
2. Effort
3. Desire

L e ctur e 02 MBA 2023-25 5

 C L A S S PA R T I C I PAT I O N

• Economics is best defined as the study of:

A. how to predict inflation, unemployment, and stock prices.

B. how to run a business most profitably.
C. how society manages its scarce resources.
D. how the government can stop the harm from unchecked self-
interest.

L e ctur e 02 MBA 2023-25 6

 10 PRINCIPLES OF ECONOMICS

L e ctur e 02 MBA 2023-25 7

 W H AT D O W E E CO N O M I ST S ST U DY ?

How people
How much they work, what they buy, how much
make they save, and how they invest their savings? etc.
decisions?

How people How firms decide how much to produce and how
interact? many workers to hire? etc.

How the How society decides how to divide its resources

economy as a between national defense, consumer goods,
whole works? protecting the environment, and other needs? etc.

L e ctur e 02 MBA 2023-25 8

 HOW PEOPLE MAKE DECISIONS?

Principle 1: Principle 2: Principle 3: Principle 4:

• People face • The cost of • Rational • People

trade-offs something is people think respond to
what you give at the margin incentives but
up to get it may result
into
unintended
consequences

L e ctur e 02 MBA 2023-25 9

 C L A S S PA R T I C I PAT I O N

• Your opportunity cost of going to a movie is:

A. zero, as long as you enjoy the movie and consider it a worthwhile use of
time and money.

B. the price of the ticket plus the cost of any soda and popcorn you buy at
the theater.

C. the total cash expenditure needed to go to the movie plus the value of
your time.

D. the price of the ticket.

L e ctur e 02 MBA 2023-25 10
 C L A S S PA R T I C I PAT I O N

• As the manager at the local Suvidha Store, you are thinking of hiring two
more cashiers that would increase sales revenues by ₹ 4,000 per week. Each
new cashier would earn ₹ 2,500 per week. Should you hire the two new
cashiers? Why, or why not?

A. Yes, because Marginal Benefit (MB) > Marginal Cost (MC)

B. No, because Marginal Benefit (MB) < Marginal Cost (MC)

L e ctur e 02 MBA 2023-25 11

 C L A S S PA R T I C I PAT I O N

• You are selling your 2015 Honda Amaze. You have already spent ₹ 25,000 on
repairs. At the last minute, the transmission & auto-lock died. You could pay
another ₹ 20,400 to fix the transmission & auto-lock, OR sell the car “as it is.”
The value of the Amaze is ₹ 3.65 Lakhs if transmission & auto-lock work, and
₹ 3.50 Lakhs if it doesn’t. Should you fix the transmission & auto-lock?

A. Yes, because there’s some incentive

B. No, because there’s no incentive

L e ctur e 02 MBA 2023-25 12

 UNINTENDED CONSEQUENCES
• 1968’s Federal Seat Belt Law alters a driver’s cost–benefit calculation
[The Effects of Automobile Safety Regulation, JPE (1975) by Sam Peltzman,
Watch this video: Sam Peltzman on the Peltzman Effect]

• Likelihood of a car driver’s fatal injury or death ↓

BUT
1. Slow, careful driving ↓
2. Fast, careless, alcohol-abusive driving ↑

3. Number of accidents ↑

Ø Net Result: Very little change in the number of driver accidents/deaths and an
increase in the number of pedestrian accidents/deaths!
L e ctur e 02 MBA 2023-25 13
 W H AT D O W E E CO N O M I ST S ST U DY ?

How people
How much they work, what they buy, how much
make they save, and how they invest their savings? etc.
decisions?

How people How firms decide how much to produce and how
interact? many workers to hire? etc.

How the How society decides how to divide its resources

economy as a between national defense, consumer goods,
whole works? protecting the environment, and other needs? etc.

L e ctur e 02 MBA 2023-25 14

 HOW PEOPLE INTERACT?

Principle 5: Principle 6: Principle 7:

• Trade can • Markets are • Governments

make usually a can
everyone good way to sometimes
better off organize improve
economic market
activity outcomes

L e ctur e 02 MBA 2023-25 15

 W H AT D O W E E CO N O M I ST S ST U DY ?

How people
How much they work, what they buy, how much
make they save, and how they invest their savings? etc.
decisions?

How people How firms decide how much to produce and how
interact? many workers to hire? etc.

How the How society decides how to divide its resources

economy as a between national defense, consumer goods,
whole works? protecting the environment, and other needs? etc.

L e ctur e 02 MBA 2023-25 16

HOW THE ECONOMY AS A WHOLE WORKS?

Principle 8: Principle 9: Principle 10:

• A country’s • Prices rise when • Society faces a

standard of the government short-run trade-
living depends prints too much off between
on its ability to money inflation and
produce goods unemployment
and services

L e ctur e 02 MBA 2023-25 17

 P R O B A B LY Y O U K N O W A L R E A D Y !

L e ctur e 02 MBA 2023-25 18

 CLASS POLL

• In the US, which bachelor degree pays the highest after

25 years since the start of your career?

A. Economics
B. General Engineering
C. Mathematics & Statistics
D. Business Management & Administration
L e ctur e 02 MBA 2023-25 19
 WELL.. ECONOMICS IT IS!

L e ctur e 02 Source: The Hamilton Project MBA 2023-25 20

 I N FA C T. .

L e ctur e 02 Source: The Hamilton Project MBA 2023-25 21

 N E X T W E E K , B E U N C O M F O RTA B L E

Please skim through

before coming to class

L e ctur e 02 MBA 2023-25 22

 REMINDER: ASSIGNMENT 01 (TYPED)
ON GOOGLE CLASSROOM
D U E 1 1 : 5 9 P M , 0 2 ND A U G U S T, 2 0 2 3

Do a concise SWOT Analysis of ChatGPT

in a labor-intensive industry

L e ctur e 02 MBA 2023-25 23