INDUCTION COURSE

ECONOMICS

Batch 2021-23

MBA A, MBA HCM

K J Somaiya Institute of Management, India

K J Somaiya Institute of Management, India
Outline...

 What is an economy?
 What is economic decision?
 Five Ws
 Scarcity as economic problem
 Micro and Macro economics
 Positive and Normative economics
 Why “Economics” in Managementt?

K J Somaiya Institute of Management, India

 Why foundation course in economics

Economics-the mother of mgt sciences.

….
The word economy - Greek word for “one who manages a
household.

Economics - cause and effect of all the economic decisions

Management students after the completion of this course
will have to take various economic decisions in different
capacities.

K J Somaiya Institute of Management, India

 A household and an economy
face many economic decisions:

Who will work?

What goods and how many of them should be
produced?
What resources should be used in production?
At what price should the goods be sold?
Cond. .

K J Somaiya Institute of Management, India

Five Ws:
What to produce
How to produce
How much to produce
Where to produce
For whom to Produce

In other words, economics studies how the prices of

labor, capital, and land are set in the economy, and
how these prices are used to allocate resources.

K J Somaiya Institute of Management, India

Society and Scarce Resources:

What are economic decisions?

Economic decisions are those decisions in which people have to
choose what to do in a condition of scarcity.

Therefore, the management of society’s resources is important

because resources are scarce.

K J Somaiya Institute of Management, India

Scarcity . . .

. . . means that society has

limited resources and therefore
cannot produce all the goods
and services people wish to
have. It is relative to
needs/ends .

K J Somaiya Institute of Management, India

Scarcity : The Source of Economic Problems

 Scarcity defined as-excess demand

 If Demand exceeds Supply, that thing is said to be scarce.
 Unemployment: scarcity of jobs
 Inflation: scarcity of commodities
 Higher cost of prod: scarcity of inputs
 High inventory: scarcity of consumers

K J Somaiya Institute of Management, India

Current examples

 Corona Vaccines
 Oxygen
 Healthcare workers
 Fuel
 Jobs

K J Somaiya Institute of Management, India

Scarcity cont..

 Find out the problem of scarcity faced by:

 A. Marketing manager – You are about to launch a new product
 B. Finance manager – Your organization is thinking about
diversification
 C. Finance minister – The country is facing recession
 D. Production manager – you are asked to improve the quality
of the product
 E. HR manager – There is a high attrition rate in your
organization

K J Somaiya Institute of Management, India

The Economic Problem

• “Economics studies human behaviour as a relationship

between ends and scarce means which have alternative
uses”- Lionel Robbins

• This definition is based on 3 propositions:

a) Unlimited Ends/ wants
b) Limited Means
c) Alternative Uses of Means

K J Somaiya Institute of Management, India

K J Somaiya Institute of Management, India
How Does the Economic Problem Arise?

 Ends are unlimited, multiplicity of wants

 Wants are of different importance/urgency
 Means/resources are scarce in quantity
 Scarce means have alternative uses

These are the 4 conditions which cause the economic problem

K J Somaiya Institute of Management, India

Human Wants

 Human wants are unlimited

 Any particular want is satiable
 Wants are complementary
 Wants are competitive
 Some wants are both complementary and competitive
 Wants have alternatives
 Wants vary with time, place and person

K J Somaiya Institute of Management, India

Human Wants

 Wants vary in urgency and intensity

 Wants multiply with civilisation
 Wants recur
 Wants change into habits
 Wants are influenced by income, salesmanship and
advertisement
 Wants are the result of customs and conventions

K J Somaiya Institute of Management, India

Classification of Wants

• Necessaries
a) Necessaries of Existence: Food, clothing, shelter
b) Necessaries of Efficiency: Table & Chair for a student
c) Conventional Necessaries: Social customs, societal pressures,
addictions

K J Somaiya Institute of Management, India

…Classification of Wants

• Comforts: For a better, fuller life.

• Luxuries: Something we could do without- costly furniture,
cars, designer clothes etc.
Necessaries, Comforts and Luxuries are relative terms- luxuries of
yesterday can become necessaries of today

K J Somaiya Institute of Management, India

Economics

 Science of decision making

 Helps you understand how the scarce resources can be used to maximize
satisfaction
 Helps you take the decisions related to “W”

K J Somaiya Institute of Management, India

Marginalism

 Due to scarcity resources have to be utilised carefully

 A decision regarding additional labour, input, investment, sale
of unit, etc. has to be taken in view the additional return
expected there from.
 The marginal concept measures the rate of change in the
dependent variable. E.g. marginal output of labour is the
change in total output by employing one more additional unit
of labour.

K J Somaiya Institute of Management, India

Marginal Analysis

K J Somaiya Institute of Management, India

Example of Marginal Product

 No-L Tot Out Avr O Mar Out

 1 10 10 -
 2 22 11 12
 3 36 12 14
 4 48 12 12
 5 55 11 7
 6 60 10 5

K J Somaiya Institute of Management, India

Marginalism cont..

 It relates to the relationship between independent &

dependent variable.
 It sees the impact on the dependent variable when
independent variable is changed by one unit.
 It is the ratio of change in the dependent variable; thus
it is different from average.

K J Somaiya Institute of Management, India

Marginalism cont..

 In real world it is difficult to apply this concept as

independent unit vary in bulk and not in single units.
Hence we use the concept of incrementalism where we
study how dependent variable changes due to chunk
changes in independent variables.

K J Somaiya Institute of Management, India

Marginalism cont..

 Marginal concept is utilised in

 A. marginal output of labour
 B. marginal output of machine
 C. marginal revenue of product
 D. Marginal return on investment
 E. Marginal cost of production
 F. Marginal utility of consumption

K J Somaiya Institute of Management, India

What is Value?

 Value in Economics is the Value-in-exchange and not the value

in use
 This means the purchasing power of a commodity in terms of
other commodities and services
 In order to have value, a commodity must be capable of being
bought and sold

 Attributes of Value
 Scarcity
 Utility
 Transferability

K J Somaiya Institute of Management, India

 Economics

Economics is the study of how individuals and society use, choose

and manage their scarce resources(scarcity) optimally (efficiency)
and distribute them among different people. Scarce resources refer to
men, material, machines, money, time, energy, information etc.
Five Ws are at the center stage and alternative economic systems
organizing the society.
The market economy, the command economy and the mixed
economy.

K J Somaiya Institute of Management, India

Two Economic Branches

K J Somaiya Institute of Management, India

Micro economics

 The study of individuals, households and firms' behavior in

decision making and allocation of resources. It generally applies
to markets of goods and services and deals with individual
and economic issues.
 The study of a single unit variable
 Eg. Turnover, profit of a company, particular sector, price of a
product, cost of a resource, demand and supply of a product,
etc.

K J Somaiya Institute of Management, India

Macro economics

 Study of an economy as a single unit

 A bird’s eye view of how our economy is doing
 Looks at the aggregates
 Eg. Per capita income, aggregate savings, interest rate,
inflation, population, exchange rate, etc.

 Both micro economics and macro economics are interrelated

and interdependent on each other

K J Somaiya Institute of Management, India

Assess the impact of following changes
 1. RBI reduces Bank rate.
 2. the technology which your organization has developed helps in
reducing the wastage in production
 3. Rupee appreciates – what happens if
a.You are exporting the product
b.You are importing the raw material
 4. Fuel prices rise
 5. Your close competitor reduces the price of the product
 6. Due to bad monsoon, raw material price rises.
 7. inflation rises.

K J Somaiya Institute of Management, India

Positive and Normative Economics

 Positive economics – describes the reality, explains economic

phenomena
 Explains – ‘What is’
 Doesn’t make value judgments
 Micro economics is mainly a positive sciences
 Normative economics - focuses on the value of economic fairness, or
what the economy "should be" or "ought to be.“
 Macro economics, public policy is mostly a normative science.

K J Somaiya Institute of Management, India

What is the impact of the Pandemic on the
economy? Micro level and Macro level

 Airline sector:?
 Online education technology organizations:?
 Overall unemployment:?
 Health-tech start-ups:?
 Income inequality:?
 GDP:?
 Digital payment companies:?
 OTT platforms:?
 Share market:?

K J Somaiya Institute of Management, India

Economics & Management

 Economics – Mother of management sciences

 Management as a science focuses on how to maximize the
value for the organization from limited resources
 Many branches such as marketing, finance, operations, cost
management have immerged from economics
 Both macro level and micro level changes in variables affect
the organization

K J Somaiya Institute of Management, India

Economics: Base of Mgt. Studies
Micro Economics
1.Theory of Demand & Supply
Market Research Supply chain mgt
2. Theory of Consumer Behaviour
Advertising
Consumer behaviour
3. Theory of Production
Prod & operation mgt
Prod. Planning
4. Theory of Cost
Cost Management
5. Theory of Markets, Price & Distribution
Marketing

K J Somaiya Institute of Management, India

Economics: Base of Mgt. Studies

 Macro Economics
1. Income & Employment theory
2. Theory of Consumption
3. Theory of Savings & Investment
Business Environment
1. Theory of D & S of Money
2. Theory of Growth & Development
Money & Capital market; Corporate Finance
1. Theory of Exchange
2. Theory of Public Finance
International Business Mgt

K J Somaiya Institute of Management, India

Recap

 1. True or False: The economic problem will not arise if our wants are limited.
 2. True or False: Bill Gates has so much money that he doesn’t face an economic problem.
 3. weather the following variables are Micro or Macro?
 -a. average saving
 -b. no of households below poverty line
 -c. recession faced by real estate sector
 -d. Tata’s investment in Big Basket
 4. weather the following statements are Positive or Normative:
 -a. Locating your suppliers nearby helps in reducing the cost of inventory.
 -b. Higher tax on fuel is likely to affect poor people more severely.
 -c. Taking agricultural lands to create export promotion zones is not a good idea.
 -d. Charging different prices of the same product to different consumer segments helps in increasing
total turnover.

K J Somaiya Institute of Management, India

Why to study Economics?

K J Somaiya Institute of Management, India