1-ten principles.pptx

8/10/2019 1-Ten principles.pptx

1/35

TEN PRINCIPLES OFECONOMICS

1


2/35

WHY STUDY ECONOMICS?

Why should I study economics?Let us count the way:Many study economics to help them get a good job

Some study economics to understand the economyof a nation. Why and how global financial crisis affectall of us?Or people want to understand what kind of policies

are good for a nations economic growthWhat it means to say when a car is made in Japan?

2


3/35

All these reasons, an many more, make good sense.Still, as we have come to realize, there is oneoverriding reason to learn the basic lessons ofeconomics: All your life from cradle to grave and beyond youwill run up against the brutal truths of economics .Without studying economics, you can't informed

about the international trade, tax policy, or thecauses of global economic crisis, etc.Choosing your lifes occupation is the most importanteconomic decision you will make.Your future depends not only on your own abilitiesbut also on how a national and regional economicforces affect your wages .

3


4/35

WHAT IS ECONOMICS?

Economics is the social science that analyzes theproduction , distribution , and consumption of goods and services .

Economics is the study of how societies use scarceresources to produce valuable goods and servicesand distribute them among different individuals .

Economics the study of how people use their scarceresources to satisfy their unlimited wants

4
http://en.wikipedia.org/wiki/Social_scienceshttp://en.wikipedia.org/wiki/Production_theory_basicshttp://en.wikipedia.org/wiki/Distribution_(economics)http://en.wikipedia.org/wiki/Consumption_(economics)http://en.wikipedia.org/wiki/Good_(economics_and_accounting)http://en.wikipedia.org/wiki/Service_(economics)http://en.wikipedia.org/wiki/Service_(economics)http://en.wikipedia.org/wiki/Good_(economics_and_accounting)http://en.wikipedia.org/wiki/Consumption_(economics)http://en.wikipedia.org/wiki/Distribution_(economics)http://en.wikipedia.org/wiki/Production_theory_basicshttp://en.wikipedia.org/wiki/Social_sciences


5/35

THE ART AND SCIENCE OF ECONOMIC ANALYSIS

You have been hearing about economics issues foryears:Unemployment, Inflation, poverty, governmentdeficits, stock prices, computer prices, etc.

When explanations of these issues go into any depth,you may feel confused and get lost.Economics is about making choicesGet part-time job or focus on your study

Live in hostel or rent a room outside campusTaking a course on Economics or Psychology orEnglishGet married or stay single

5


6/35

THE E CONOMIC P ROBLEM Unlimited Needs

& WantsLimited

Resources

WHATto

produce

HOWto

produce

FOR WHOM to

produce

Scarcity

Choices

6


7/35

THE ECONOMIC PROBLEM

Would you like a nicer home, a new car, better meals,more free time, more spending money, more sleep?Who wouldnt?

But even if we satisfy some of these desires, otherkeep popping up.The problem is that, although your wants, ordesires are virtually unlimited, the resourcesavailable to satisfy these wants are scarce.

A resource is scarce when it is not freely available.When price exceeds zero.Labour, capital, natural resources, entrepreneurialability, entrepreneur

7


8/35

WHY SHOULD AN ENGINEER LEARNECONOMICS?

An Engineer innovates new things by having aknowledge of economics and management they canforecast or can predict the utility, advantages,disadvantages of the product.

Rational Decision-Making Process

Predicting Future

To understand the large-scale engineering projects

Types of strategic engineering economic decisions

8


9/35

9

ENGINEERING E CONOMY It deals with the concepts and techniques of analysis

useful in evaluating the worth of systems, products, andservices in relation to their costs

It is used to answer many different questions

Which engineering projects are worthwhile?Has the mining or petroleum engineer shown that the mineral or oildeposits is worth developing?

Which engineering projects should have a higher priority?Has the industrial engineer shown which factory improvement projectsshould be funded with the available dollars?

How should the engineering project be designed?Has civil or mechanical engineer chosen the best thickness forinsulation?


10/35


11/35

11

ENGINEERING E CONOMIC DECISIONS

Planning Investment

Marketing

ProfitManufacturing


12/35

12

P REDICTING THE F UTURE OF A PRODUCT

Estimating a RequiredinvestmentForecasting a product

demandEstimating a sellingpriceEstimating a

manufacturing costEstimating a product life


13/35

13

Create & Design

Engineering Projects

Evaluate

ExpectedProfitability Timing of

Cash Flows Degree of

Financial Risk

Analyze

Production Methods Engineering Safety

Environmental Impacts Market Assessment

Evaluate

Impact onFinancial Statements Firms Market Value

Stock Price

ROLE OF E NGINEERS IN BUSINESS ENVIRONMENT


14/35

THINGS NEED TO BE UNDERSTANDBEFORE YOU DESIGN A PRODUCT

Strategic commitmentsDecisions that have long-term impacts and aredifficult to reverse (e.g. whether to invest in a newcapacity or introduce new products)

o Investment decisionUnderstanding of market structureMinimizing the cost and understanding differentconcepts of costs

PerformanceProduct policyCost-Benefit analysis

14


15/35

TEN PRINCIPLES OF ECONOMICS

Society and Scarce Resources:The management of societys resources is important becauseresources are scarce.Scarcity . . . means that society has limited resources and

therefore cannot produce all the goods and services peoplewish to have.

15


16/35


How people make decisions.People face tradeoffs.The cost of something is what you give up to get it.Rational people think at the margin.People respond to incentives.

16


17/35


How people interact with each other.Trade can make everyone better off.Markets are usually a good way to organize economicactivity.Governments can sometimes improve economicoutcomes.

17


18/35


The forces and trends that affect how the economyas a whole works.

The standard of living depends on a countrysproduction.

Prices rise when the government prints too muchmoney.Society faces a short-run tradeoff between inflation andunemployment.

18


19/35

P RINCIPLE #1: P EOPLE F ACE TRADEOFFS .

There is no such thing as a free lunch! There is no freelunch because all goods and services involve a cost to

someone.

19


20/35

Making decisions requires tradingoff one goal against another.

P RINCIPLE #1: P EOPLE F ACE TRADEOFFS .

To get one thing, we usually have to give up anotherthing.

Guns v. butterFood v. clothingLeisure time v. workEfficiency v. equity

20


21/35

#1: P EOPLE F ACE TRADEOFFS

Efficiency v. EquityEfficiency means society gets the most that it can fromits scarce resources.Equity means the benefits of those resources aredistributed fairly among the members of society.

21


22/35

P RINCIPLE #2: T HE C OST OF S OMETHING IS WHAT YOU G IVE UP TO G ET IT.

Decisions require comparing costs and benefits ofalternatives.

Whether to go to college or to work?

Whether to study or go for watching movie?Whether to go to class or sleep in?

The opportunity cost of an item is what you give up toobtain that item.

22


23/35


24/35

P RINCIPLE #4: P EOPLE R ESPOND TO INCENTIVES .

Marginal changes in costs or benefits motivatepeople to respond.The decision to choose one alternative overanother occurs when that alternatives marginalbenefits exceed its marginal costs!

24


25/35

P RINCIPLE #5: T RADE C AN M AKE EVERYONE BETTER O FF.

People gain from their ability to trade with oneanother.Competition results in gains from trading.

Trade allows people to specialize in what they dobest.

25


26/35

P RINCIPLE #6: M ARKETS ARE USUALLY A

GOOD W AY TO O RGANIZE E CONOMIC ACTIVITY. A market economy is an economy that allocatesresources through the decentralized decisions ofmany firms and households as they interact in

markets for goods and services.Households decide what to buy and who to work for.Firms decide who to hire and what to produce.

26


27/35

P RINCIPLE #6: M ARKETS ARE USUALLY A

GOOD W AY TO O RGANIZE E CONOMIC ACTIVITY. Adam Smith made the observation that households andfirms interacting in markets act as if guided by an invisiblehand.

Because households and firms look at prices when decidingwhat to buy and sell, they unknowingly take into account thesocial costs of their actions.

As a result, prices guide decision makers to reach outcomesthat tend to maximize the welfare of society as a whole.

27


28/35

P RINCIPLE #7: G OVERNMENTS C AN S OMETIMES IMPROVE M ARKET O UTCOMES .

Market failure occurs when the market fails to allocateresources efficiently.When the market fails (breaks down) government can

intervene to promote efficiency and equity.

28


29/35

P RINCIPLE #7: G OVERNMENTS C AN S OMETIMES IMPROVE M ARKET O UTCOMES .

Market failure may be caused byan externality , which is the impact of one person or firmsactions on the well-being of a bystander.

market power , which is the ability of a single person or firm tounduly influence market prices.

29


30/35

P RINCIPLE #8: T HE S TANDARD OF LIVING DEPENDS ON A C OUNTRY S P RODUCTION .

Standard of living may be measured in differentways:

By comparing personal incomes.By comparing the total market value of a nationsproduction.

30


31/35

P RINCIPLE #8: T HE S TANDARD OF LIVING DEPENDS ON A C OUNTRY S P RODUCTION .

Almost all variations in living standards are explained bydifferences in countries productivities. Productivity is the amount of goods and services producedfrom each hour of a workers time.

31


32/35


33/35

P RINCIPLE #9: P RICES R ISE W HEN THE GOVERNMENT P RINTS TOO MUCH MONEY.

Inflation is an increase in the overall level of pricesin the economy.One cause of inflation is the growth in the quantityof money.When the government creates large quantities ofmoney, the value of the money falls.

33


34/35


35/35

WHY STUDY ECONOMICS ?

The economics profession thrive because its modelsusually do better job of making economic sense out of aconfusing world than do alternative approaches.Economists have been appointed as policy makers,

planners, advisor, etc.

Better job opportunities with high median earnings.Economics major earned more than most of the other

professions barring engineering, physics and pharmacy.Famous Economists:Three of the last seven U.S. presidents, Billionaire Donald TrumpFormer eBay president Meg Whitman, Microsoft Chief executiveofficer Steve Ballmer, CNN founder Ted Turner, Intel president PaulOtellini, high-tech guru Esther Dyson, etc. 35

1-ten principles.pptx

Documents