economics for managers - session 01

8/3/2019 Economics For Managers - Session 01

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PSG INSTITUTE OF MANAGEMENT

MBA 2011-13 BATCH - I Trimester

For Batch C and D

ECONOMICS FOR MANAGERS


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Economics as a Social Science

16th Aug 2011EFM- Faculty- P.Uday Shankar2

Economic resources are scarce..eg. Fossil fuel,water for irrigation..fresh air!

Economics is concerned with how choices aremade in the use of these scarce resources.

Economics in simple terms studies the way inwhich society decides what to produce, how toproduce it and who to produce it for.

Economics is based on the belief that humansbehave rationally at all times and that is the

reason some people make fun of economics as asubject of assumptions.!!!

The desert and the canned food joke


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Economists and their famousassumptions


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 populationsThese basic assumptions of rationality are

often challenged and debated. The realrationality is the debate in itself. That is the

reason why economics has evolved over aperiod of time and various economic systemsare being practiced across the world.


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Economic Systems


Distinct Economic Systems have evolved on thebasis of:

The resource allocation choices are made

The value is measured The forms of ownership of economic wealth

Economic Systems:

A. Centrally Planned EconomyB. Market Economy

C. Mixed Economy


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Microeconomics andmacroeconomics


Microeconomics is the study ofindividual economic units which arecalled Households and Firms.

Macroeconomics is the study of theaggregated effects of the decisionsof economic units.

It could be a national economy or internationaleconomy.


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The Monetary System


Economic activities, in any economic system,

take place within a monetary economy.

Money is used as a means of paying for goodsand services; and paying for labour, capital andother resources.

Money is important because it provides an easymethod for exchanging goods and servicesin

other words for buying and selling.

From a national point of view money is important

because the total amount of money in a nationaleconomy may have a significant influence theeconomic activity and on inflation.


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Basic Functions of Money


A means of exchange- an alternativeto the old barter system

A unit of account- enables to fixvalues for goods and services

A standard of deferred payment-credit

A store of value- deposit, pension.


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Factors of Production andScarcity


Land- rewarded by Rent

Labour-rewarded by Wages

Capital- rewarded by Interest

Enterprise- rewarded by ProfitScarcity is the excess of human wants overwhat can actually be produced.

(Explanation of production possibility curve onthe blackboard)


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Opportunity Cost


When you have more than one resource and

have to choose one, the others have to be leftout. Choice involves sacrifice.

Opportunity Cost is the cost of an item

measured in terms of the alternativesforegone.


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Case for Discussion:Opportunity Cost concept in Microfinance


Microfinance (mF) is a new mode of financial servicefor financing poor customers at interest rates rangingbetween 18% to 24%.

In the absence of mF they would have to go to thebank 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 moneylender who would charge >36%.

Through a choice of a mF loan between the two

options there is an opportunity cost but theopportunities outweigh the two choices in favour ofthe mF loan.


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New Economic Theories


Questions being raised:The concept of profit maximisation as the main

aim of a firm is being questioned. New thought sare Profit, People and Planet. Triple bottom line.

Laissezfaire is considered to be utopian.

Free market is considered as a pipe dream ofeconomists but then why not with goodgovernment regulation?

The most stable economies have a combination of

private and public sector but then what should bethe judicious combination?

Divide between the haves and the have-notswidening

Should we encourage Walmart or MSMEs


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Thanks


economics for managers - session 01

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