1. 10b11pd311 economics title: managerial economics course code: 10b11pd311 (2 – 1 – 0)...

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10B11PD311 Economics

Title: Managerial EconomicsCourse Code: 10B11PD311 (2 – 1 – 0)

ObjectiveThe course is designed to enable students to appreciate the contribution of economics to the business process and to evaluate economics of corporate objectives, market structure and costs.

Learning OutcomesThe course will develop students' capacity to:1. Think critically about the contribution of economics in business. 2. Understand the constraints the environment places on the

organization's pursuit of its goals

3. Analyze the economic environment in which an org. operates. Methodology

The course will commence with making the students understand the basic economic theories and subsequently learn about practices followed by the organizations. The tutorials focus on the core topics, articles on these topics and make use of IT tools.

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10B11PD311 Economics

Text Book Managerial Economics, (Fourth edition) H.Craig Petersen, W. Cris

Lewis

Reference books Managerial economics in a global economy, Dominick Salvatore Managerial economics, Damodaran, Suma Managerial economics, Dwivedi, D.N. Managerial economics, H.L.Ahuja Managerial economics, Truett Lila J. Managerial economics, Hirschey, Mark Modern Economic Theory, K.K.Dewitt & Navalkur S.K. Misra & V. K. Puri, Indian Economy, Himalaya Publishing House,

2011.

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Topic

Introduction

Basics of Demand, Supply and Equilibrium

Theory of Consumer Choice

Demand forecasting

Production Theory & Analysis

Cost Theory and Analysis

Market Structure

Macro Economics: Issues

Macro Economics: Concepts

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Exam % of Marks Duration Coverage

T-1 20 1 hrSyllabi covered up-to T-1.

T-2 20 1hr

Syllabi covered between T-1 & T-2.

End Sem. Exam 35 2 hr

Full Syllabi

Assignments Tutorials, Projects, Quizzes & Regularity in attendance. 25

Entire Semester

As decided and announced by the teacher concerned in the class at the beginning of the course

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10B11PD311 Economics

Economy – A system that provides living to the people

Economic activity – any activity performed for earning money for the satisfaction of human wants.

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10B11PD311 Economics

A social science concerned with those aspects of social behavior and those institutions which involve the allocation of scarce resources among unlimited and competing uses, to produce and distribute goods and services in the satisfaction of human wants, which are innumerable and insatiable.

Scarce Resources

Unlimited Wants

Alternative uses of resources

Produce & distribute goods & services

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WEALTH

WELFAREGROWTH

SCARCITY

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10B11PD311 Economics

Wealth Definition by Adam Smith a science which studies the nature, causes and

growth of the wealth of nations Adam Smith – Father of economics

Criticism No attention was paid to man for whom wealth is

really meant.

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10B11PD311 Economics

Welfare Definition by Alfred Marshall

study of mankind in the ordinary business of life; it examines that part of individual and social action which is most closely connected with the use of the material requisites of well being. Thus it is, on the one side, a study of wealth; and on the other, and more important side the study of man.

Criticism Non-material goods are not acknowledged by

Marshall. Limited to those activities which increase human

welfare.

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10B11PD311 Economics

Scarcity Definition by Lionel Robbins

is the science which studies human behavior as a relationship between ends and scarce means which have alternative uses.

Four characteristicsMan has unlimited wants or ends.The means or resources to satisfy them are limited.These resources are not specific & have alternate uses.Man has therefore to choose between wants.

CriticismAggregates of the entire economy (national income, total output etc.) and the problem of unemployment and instability

are not covered The causes and growth patterns of national income and per capita income are left untouched.

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10B11PD311 Economics

Growth Definition by Paul A. Samuelson

is a study of how man and society choose, with or without the use of money, to employ scarce productive resources which could have alternate uses, to produce various commodities over time and distribute them for consumption now and the future among various people and groups of society.

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10B11PD311 Economics

Concerns of Modern Economics

Allocation of society’s resources among alternative uses

Efficiencies and inefficiencies of economic system

Distribution of the society’s output among individuals and groups

Ways in which production and distribution change over time

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10B11PD311 Economics

Consumers

Producers

Administrators

Planners

Academicians

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10B11PD311 Economics

Studies individual units like individual household, pricing of a firm, wages of a worker, profits of an entrepreneur, and so on.

Theory of DemandTheory of ProductionPrice determination in Commodity marketPrice determination in Factor market

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10B11PD311 Economics

Microeconomic issues

choices: what, how and for whom

the concept of opportunity cost

rational economic decision making: marginal costs and marginal benefits

microeconomic objectives efficiency

equity

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10B11PD311 Economics

Deals with the average and aggregates of the system rather than the particular items in it, and attempts to define these aggregates in a useful manner and examines their relationship.

Theory of National Income GDP/GNP/NDP

Theory of Employment Unemployment, its types and rate

Theory of Money Commodity money (barter), modern money (paper),

banking and insurance, interest rates. Three purpose – transaction, saving and speculative

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10B11PD311 Economics

Theory of General Price Level Wholesale Price index, consumer price index

Theory of International Trade Balance of payment, foreign exchange rate and

purchasing power parity theoryEconomics of Growth

Four factors – human resource, natural resource, capital formation and technological changes and innovation

Business cycles, investment and savings

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10B11PD311 Economics

Macroeconomic issuesgrowthunemployment inflationbalance of payments problemscyclical fluctuations

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Examples of microeconomic and macroeconomic concernsProduction Prices Income Employment

MicroEconomics

Production/Output in Individual Industries and Businesses How much steelHow many officesHow many cars

Price of Individual Goods and Services Price of medical carePrice of gasolineFood pricesApartment rents

Distribution of Income and Wealth Wages in the auto industryMinimum wagesExecutive salariesPoverty

Employment by Individual Businesses & IndustriesJobs in the steel industryNumber of employees in a firm

MacroEconomics

National Production/Output Total Industrial OutputGross Domestic ProductGrowth of Output

Aggregate Price Level Consumer price indexProducer Price index Rate of Inflation

National IncomeTotal wages and salaries  

Total corporate profits

Employment and Unemployment in the Economy Total number of jobsUnemployment rate

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• Production The process by which resources are transformed into useful forms

• Resources/ Inputs Anything provided by nature or previous generations that can be used directly or indirectly to satisfy human wants.

• Capital Things that have been already been produced that are in turn used to produce other goods and services

• Producers Those people or groups of people, whether private or public, who transform resources into usable products.

• Outputs Usable products

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10B11PD311 Economics

Illustrates the principles of constrained choice, opportunity cost and scarcity.

A graph that shows all the combinations of goods and services that can be produced if all of society’s resources are used efficiently

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0 1 2 3 4 5 6 7 8Units of clothing (millions)

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Units of food Units of clothingUnits of food Units of clothing

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Units of clothing (millions) 26

10B11PD311 Economics

The production possibility curveThe production possibility curve microeconomics and the production microeconomics and the production

possibility curve:possibility curve: choices and opportunity costchoices and opportunity cost

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Units of clothing (millions) 28

10B11PD311 Economics

The production possibility curveThe production possibility curve microeconomics and the production microeconomics and the production

possibility curve:possibility curve: choices and opportunity costchoices and opportunity cost increasing opportunity costincreasing opportunity cost

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Units of wheat (millions) 30

10B11PD311 Economics

The production possibility curveThe production possibility curve microeconomics and the production microeconomics and the production

possibility curve:possibility curve: choices and opportunity costchoices and opportunity cost increasing opportunity costincreasing opportunity cost

macroeconomics and the production macroeconomics and the production possibility curve:possibility curve: production production withinwithin the curve the curve

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v

Production insidethe production

possibility curve

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Making a fuller use of resourcesMaking a fuller use of resourcesF

ood

Clothing32

v

x

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Making a fuller use of resourcesMaking a fuller use of resourcesF

ood

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v

x

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Making a fuller use of resourcesMaking a fuller use of resourcesF

ood

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10B11PD311 Economics

The production possibility curveThe production possibility curve microeconomics and the production microeconomics and the production

possibility curve:possibility curve: choices and opportunity costchoices and opportunity cost increasing opportunity costincreasing opportunity cost

macroeconomics and the production macroeconomics and the production possibility curve:possibility curve: production production withinwithin the curve the curve shifts in the curveshifts in the curve

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NowNow

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ClothingO

Growth in potential outputGrowth in potential output

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NowNow

5 years’ time5 years’ time

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Clothing37

10B11PD311 Economics

Managerial economics consists of the use of economic modes of thought to analyze business situations.

McNair and Meriam

The purpose of Managerial Economics is to show how economic analysis can be used in formulating business policies by Identifying possible courses of action Evaluating the revenues and costs associated

with each course of action Choosing the one course that best meets the goal

or objective of a firm

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10B11PD311 Economics

The application of economic theory and the tools of decision science to examine how an organization can achieve its aims or objectives most efficiently.

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10B11PD311 Economics

HouseholdsThe consuming units in an economy

FirmsThe producing units in an economy

Product or Output marketsThe market in which goods and services

are exchanged Input or Factor markets

The markets in which the resources used to produce products are exchanged

Labor marketCapital marketLand market

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Goods and services

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Goods and services

Consumerexpenditure

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Goods and services

Consumerexpenditure

Services of factors of production (labour, etc)44

Goods and services

Consumerexpenditure

Services of factors of production (labour, etc)

Wages, rentdividends, etc.

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Goods and services

Consumerexpenditure

Services of factors of production (labour, etc)

Wages, rentdividends, etc.

GOODS MARKETS

FACTOR MARKETS

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Engineering is a great applied science that studies how to make solutions to practical scientific problems.

•While engineering deals with how to solve these problems, economics is the complementary science of how to optimize these solutions. •Economics analyses production mathematically and statistically. For engineering, microeconomics is the invaluable tool to determine optimization with given resource constraints •The best solutions in engineering are not always the best-designed or the ones of highest quality but also the ones which are cost-effective and efficient given constraints. Economics can master these concepts.

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