Economics For Managers - Session 01 | Economics | Economic System


PSG INSTITUTE OF MANAGEMENT MBA 2011-13 BATCH - I Trimester For Batch C and D

Economics as a Social Science
 Economic resources are Fossil fuel,  


water for irrigation…..fresh air! Economics is concerned with ‘how choices are made in the use of these scarce resources’. Economics in simple terms ‘studies the way in which society decides what to produce, how to produce it and who to produce it for’. Economics is based on the belief that humans behave rationally at all times and that is the reason some people make fun of economics as a subject of assumptions….!!! The desert and the canned food joke……
16th Aug 2011

EFM- Faculty- P.Uday Shankar

Economists and their famous assumptions
 Producers will seek to maximise their profits  Consumers will seek to maximise the benefits

from their income  Governments will seek to maximise to the welfare of their populations These basic assumptions of rationality are often challenged and debated. The real rationality is the debate in itself. That is the reason why economics has evolved over a period of time and various economic systems are being practiced across the world.
3 EFM- Faculty- P.Uday Shankar 16th Aug 2011

Economic Systems
Distinct Economic Systems have evolved on the basis of:  The resource allocation choices are made  The value is measured  The forms of ownership of economic wealth

Economic Systems: A. Centrally Planned Economy B. Market Economy C. Mixed Economy
4 EFM- Faculty- P.Uday Shankar 16th Aug 2011

Microeconomics and macroeconomics
Microeconomics is the study of individual economic units which are called Households and Firms.

Macroeconomics is the study of the aggregated effects of the decisions of economic units.
It could be a national economy or international economy.


EFM- Faculty- P.Uday Shankar

16th Aug 2011

The Monetary System
 Economic activities, in any economic system,

take place within a monetary economy.  Money is used as a means of paying for goods and services; and paying for labour, capital and other resources.  Money is important because it provides an easy method for exchanging goods and services…in other words for buying and selling.  From a national point of view money is important because the total amount of money in a national economy may have a significant influence the economic activity and on inflation.
6 EFM- Faculty- P.Uday Shankar 16th Aug 2011

Basic Functions of Money
 A means of exchange- an alternative

to the old barter system  A unit of account- enables to fix values for goods and services  A standard of deferred paymentcredit  A store of value- deposit, pension….


EFM- Faculty- P.Uday Shankar

16th Aug 2011

Factors of Production and Scarcity
 Land- rewarded by Rent

 Labour-rewarded by Wages
 Capital- rewarded by Interest  Enterprise- rewarded by Profit

Scarcity is the excess of human wants over what can actually be produced. (Explanation of production possibility curve on the blackboard)


EFM- Faculty- P.Uday Shankar

16th Aug 2011

Opportunity Cost
When you have more than one resource and have to choose one, the others have to be left out. Choice involves sacrifice. “Opportunity Cost is the cost of an item measured in terms of the alternatives foregone.”


EFM- Faculty- P.Uday Shankar

16th Aug 2011

Case for Discussion: Opportunity Cost concept in Microfinance
 Microfinance (mF) is a new mode of financial service

for financing poor customers at interest rates ranging between 18% to 24%.  In the absence of mF they would have to go to the bank where loans are available at normal interests (say 12%) where one has to spend much time, provide security, collateral, guarantor, hidden fees…..  The other alternative would be to go to the money lender who would charge >36%.  Through a choice of a mF loan between the two options there is an opportunity cost but the ‘opportunities’ outweigh the two choices in favour of the mF loan.


EFM- Faculty- P.Uday Shankar

16th Aug 2011

New Economic Theories
Questions being raised:  The concept of profit maximisation as the main aim of a firm is being questioned. New thought s are Profit, People and Planet. Triple bottom line.  Laissez –faire is considered to be utopian.  Free market is considered as a pipe dream of economists but then why not with good government regulation?  The most stable economies have a combination of private and public sector but then what should be the judicious combination?  Divide between the haves and the have-nots widening EFM- Faculty- P.Uday Shankar  Should we encourage Walmart or MSMEs 16th Aug 2011




EFM- Faculty- P.Uday Shankar

16th Aug 2011

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