21-12-2012, 06:56 PM
Basic Concepts and Principles
Basic Concepts and Principles.ppt (Size: 285.5 KB / Downloads: 23)
Objectives
To introduce key economic concepts like scarcity, rationality, equilibrium, time perspective and opportunity cost.
To explain the basic difference between microeconomics and macroeconomics.
To help the students analyse how decisions are made about what, how and for whom to produce.
To define managerial economics and demonstrate its importance in managerial decision making.
To discuss the scope of managerial economics and its relationship with various other disciplines and functional areas.
What is Economics?
Discusses how a society tries to solve the human problems of unlimited wants and scarce resources.
Scientific study of the choices made by individuals and societies with regard to the alternative uses of scarce resources employed to satisfy wants.
Theoretical aspect and an applied science in its practical aspects.
Not an exact science; An “art” as well.
A social science.
Deals with the society as a whole and human behaviour in particular.
Studies the production, distribution, and consumption of goods and services.
A science in its methodology, and art in its application.
Types of Economic Analysis
Micro and Macro
Microeconomics (“micro” meaning small): study of the behaviour of small economic units
An individual consumer, a seller/ a producer/ a firm, or a product.
Focus on basic theories of supply and demand in individual markets
Macroeconomics (“macro” meaning large): study of aggregates.
Industry as a unit, and not the firm.
Focus on aggregate demand and aggregate supply, national income, employment, inflation, etc.
Managerial Economics
Application of economic theory and the tools of analysis of decision science to examine how an organisation can achieve its objectives most effectively.
Study of allocation of the limited resources available to a firm or other unit of management among the various possible activities of that unit.
Applies economic theory and methods to business and administrative decision-making.
Application of economic principles and methodologies to the decision-making process within the firm or organization.
Economic Principles Relevant to Managerial Decisions
Concept of margin or increment
Marginality: a unit increase in cost or revenue or utility.
Marginal cost: change in Total Cost due to a unit change in output.
Marginal revenue: change in Total Revenue due to a unit change in sales.
Marginal utility: change in Total Utility due to a unit change in consumption.
Incremental: applied when the changes are in bulk, say 10% increase in sales.