MANAGERIAL ECONOMICS

Instructor: Dr. D. S. Parmar Text Book: 1. Gupta G.S. (GGS) : ³Managerial Economics´ 18th Edition 2002, Tata McGraw Hill, New Delhi, 2. Pindyck Robert S. & Rubbinfeld Daniel L:- [P&R] ³Micro Economics´ 5th edition, 2004 prentice Hall of India Handout Sessions handouts will be distributed prior to specific sessions. Reference book: 1. Mote V.L. Paul S. & Gupta G S ³Managerial Economics´ : concept and cases. 2. Dwivedi D.N.: ³Managerial Economics´ 3. DHolakia R H & Oza A N ³ Micro economics for Management students´ 2nd edition, oxford university press.

INTRODUCTION TO ECONOMICS

Introdction :- Human being many needs²most important is t satisfy their physical requirement ECONOMIC Activity:- all human endeavour directed towards the production, Distribution and consumption of GOODS and SERVICES Constitutes the Eco. Activities. All eco. Activities needs to be studied ECONOMICS:--Origin of term µeconomics¶ lies in the Greek word ³oikon´ and ³nomos´ which to gather mean Law of Households There are two basic definitions of economics A) Adam smith, Karl Marks, Js Mill, J B say and others gave difinitions as :--Economics is a Social science which deals with human behavior pertaining to Production, Exchange and Consumption of goods and services (wealth)¶ Introduction

Neo classical Economist say ³ Economics is a analysis of universal type of problems of the allocation of resources¶ which are given and versatile, among ends, which are many and varied in significance´ This makes economics the science of choice Ends :-- Material wants = food, clothing, houses, services Means :-- Refer to resources, natural , Human, Man made limited resources CENTRAL TASK OF THE SOCIETY :-Economics is a sciences of Choice between Limited resources and Versatile resources VS Unlimited and Varying intensity needs According to Paul Samuelson major decisions of a) What to Produce? b) How to Produce? c) For whom to Produce? Central tasks in Capitalism The essential characteristics of capitalist system is the Private Ownership Of resources / means of production. It allows each individual or firm the freedom of use own resources and produce goods & services

Society consist of classes of people : Producers & Consumers Producers aim to make profit --- Consumers buy at negotiable price² This market mechanism leads to what to produce? How to produce CENTRAL TASK IN SOCIALISM A pure socialist society does not permit individual ownership of the means of production. The society or State owns the means gf production. The state or Central Planning authority makes decision ±What kinds of consumers goods to be produced and what quantity to produced decides by State (USSR-Russia). For whom to produce is determined by a variety of State decisions. CENTRAL TASKS IN MIXED ECONOMIES : The State not only plays the role of regulating the eonomy but also directly participates in production and distribution of goods and services i.e INDIA -Planning Commission Pat of the decision is centralized and rest is left to be determined by market forces India is a mixes economy

MICRO AND MACRO ECONOMICS
Prof Ragnar Frisch classifed economics into two branches : Microeconomics And Macroeconomics Microeconomics: - deals with behavior of individuals like households, workers, firms, industry. It studies Demand, Supply, & Prices of goods & services, Decisions pertaining to individuals are discussed here. Micro events may produce macro consequences and vice-se. Macroeconomics :-concerns with the behavior of the aggregate. The economy as a whole. We learn about National Income, Employment, Unemployment, Inflation, Money supply, Interest rate, Forex, Growth, Monetary policy, Fiscal policy, etc. Micro & Macro eco. Though inter depedent proceeds on diverse path. Macroeco. aims at full utilization of resources.

CONCEPTS OF NATIONAL INCOME
National income is the most comprehensive measure of the level of aggregate economic activity in an economy nation. Modern economy ±complex, involving innumerable
transactions of variety of goods & services. National income can be readily looked upon as an important yardstick of the performances of whole economy. INCOME CONCEPTS :-Several versions of National Income . Only one as I. Income : Gross National Product ( GNP ) Net National Product ( NNP) Gross Domestic Product (GDP ) Net Domestic Product (NDP ) Private Income ( PI ) Personal Income (Pe I) Personal Disposable Income ( PDI ) GNP at market price --- GNPm NNP at market price ---NNP m

Gross National Product : The GNP stands for the monetary value of all goods & services that are : a) Currently produced b) Sold through official market c) Not resold or used in further production d) Produced by nationally owned resources e) Valued at the market prices GNP is expressed I terms of money, because goods services are non additive in physical quantity due the difference in the units of measurements (tones of wheat, meters of clothes, no. of cars, etc.), and per unit of value is not equal. Two exception in calculating GNP :1) Self consumption by Producers is valued and included in GNP Thus farmer¶s consumption of their own produced wheat is part of GNP. 2) Rent on owner living houses is computed and included in GNP. Prices of these items are imputed on the bases of the comparable market prices GNP belongs to the Nation and thus it must be produced by its owned factors of production.

Gross Domestic Product :
GDP refers to the goods & services produced within the nation¶s geographical territory, irrespective of the ownership of the resources.Ex.1 :- a) Visiting Professor earned money in USA² GDP of India, but Professor¶s salary counted in USA¶s GDP b) Foreign owned firm (citi bank) makes profit in India is not part of India¶s GNP, BUT Citi bank¶s income in INDIA is India¶s GDP. In view of this, while GNP consists of income produced by the nation¶s owned resources irrespective of places of production, GDP refers to income produced within the nation¶s territory irrespective of the ownership of the resources that is produced it. GDPf = GNPf- NIA (net income earned abroad) Other Income Concept :-- Corresponding to GDP and GNP, there are NNP & NDP. The difference between the gross and the net is the capital consumption called depreciation (D). NNPf = GNPf ± D ; NDPp = GDPf - D

Component of consumption
Consumption in to three categories: -Non durable goods:- food, drinks, clothes, fruits, lighting , etc. 2) Durable goods:-- furniture, entertainment equips, kitchen appliances, 3) Services:-- Transports, banking, insurance, health, education, legal services Average propensity to consume : (APC) the ratio of Total Consumption to Total Income is APC Average Propensity to Save: (APS) The ratio of Total Saving to Total Income APC & APS must add upto 1 at all income levels ‡ 1)

Marginal Propensity to consume :-- (MPC) MPC measures the change in consumption ( ) due to the change income ( ). The MPC can be define as Marginal Propensity to Save : (MPS) MPS can be defined as MPC is positive, but it is always less than 1. CONSUMPTION FUNCTION : -- The disposable income used for consumption and saving. Consumption brings immediate benefit while saving serves needs of old age, rainy day, good occasions. What not consumed is saved & vice e versa. Consumption function is simply avaible by subtracting consumption function from dosposable income. Now Yd = C+S ; C= a + bYd,

then S = Yd ± C; Yd ± a ± bYd = S = -a ± (1+b)Yd Where Yd = disposable personal income C = consumption S = saving a, b = parameters Consumption expenditure is the most dominant component of the aggregate demand in all countries in the world. In INDIA it accounts roughly 2/3 of GDP while for other countries it ranges from 50 ± 80 % of respective GDP.

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