importance of economics in management studies

8/8/2019 Importance of Economics in Management Studies

1/28

Importance of Economics in

Management Studies


2/28

Major Challenge:------ to quickly revert to the high

GDP growth path of 9% and then

find the means to cross thedouble digit growth barrier

Budget 2010-11


3/28

Nepal's GDP growth rate for FiscalYear (FY) 2010 is expected to

be 3.5%. This is less than a high

growth rate of 5.3% in 2008.

---- www.worldbank.org.np


4/28

Introduction to Economics

The Science of

Economics is made forthe benefit and

development of the

world.- Kautilya Chanakya


5/28

The Economic Problem

Unlimited Wants

Scarce Resources Land,

Labour, Capital, ..

Resource Use

Choices


6/28

EconomicEconomic ProblemsProblems

The problem ofchoice makingarising out of limited

means and unlimited wants is called economic

problem.

Why do economic problems arise?

Unlimited wants

Different prioritiesLimited means

Means having alternative uses.

Multiplicity of want


7/28

TypesTypes ofof ResourcesResources

Land: all naturally occurring resources whose supply is

inherently fixed (i.e., does not respond to changes in

price)

Labor: the physical work that is needed to make the

products or provide the services

Capital: the machines that is used to produce the

products

Entrepreneurial Talent: the bright ideas that people

contribute for making or improving the goods and

services.


8/28

EconomicEconomic ProblemsProblems


9/28

What goods and services should an economy produce?

should the emphasis be on agriculture, manufacturing or

services, should it be on sport and leisure or housing?

How should goods and services be produced? labour

intensive, land intensive, capital intensive? Efficiency?

Who should get the goods and services produced?

even distribution? more for the rich? for those who work

hard?

The Economic Problem


10/28

Oikonomous one who manage

household

Economics is the study of how societies use scarce

resources to produce valuable commodities and

d i s t r i b u t e t h e m a m o n g d i f f e r e n t p e o p l e .

What is Economics?


11/28

Objectives

To understand the subject matter & the

essence of Economics and ManagerialDecision-Making

Managerial Economics : It refers to the application of

economic theory & the tools of analysis of decision

science to examine how an organizations can achieve its

aims or objectives most efficiently. It studies the

economic aspects of managerial decision making


12/28

Maximizing the value of the firm

(Through profit maximization)

Alternative objectives:

=>Market share maximization

=>Growth Maximization

=>Maximizing their own benefits

ManagersObjectives


13/28

Optimal Solution to Managerial

Decision Problem

Managerial EconomicsUse of economic concept and Decision Science

Methodology to solve Managerial Problem

Managerial Decision

Problem

Decision SciencesTools and Technique

of analysis

Numerical Analysis

Statistical Analysis

Forecasting

Game Theory

Optimization

Economic Concepts

Frame work for

decisions

Theory of Consumer

Behaviour

Theory of firm

Theory of MarketStructure and Pricing


14/28

Why do we study Economics?

You are the manager of your own business firm.

For taking any decision for your firm what

variables should you consider?


15/28


To Learn a Way of Thinking

To Understand the Society

To Understand Global Affairs

To Be An Informed Voter


16/28


Economic knowledge serves us in managingour personal lives, in understanding society and

in improving the world around us.

The ways that economics can help usindividually will be as different as are our

personal lives.


17/28

Learning about stock market may help peoplemanage their own finances.

Better awareness of the determinants of costand revenue will produce better business

decisions.

The doctor, the investor and the farmer allneed to know about profit from their

businesses.



18/28

Scope of Economics: Micro

Economics

The study of how households and firmmake decisions and how they interact in

specific markets

Examples: impact of foreign competition

on the Indian automobile industry


19/28

Scope of Economics: Macro

Economics

The study of economy-wide phenomena

Examples: the effect of borrowing by theIndian government, When politicians talk

about the economy being in recession or

in BO

P Deficit they are talking aboutMacroeconomics.


20/28

In all areas of economics, old and new,

certain pitfalls lie in the path of the

serious economist.

Falling to keep others Things Equal

The Post Hoc Fallacy

Fallacy of Composition

Pitfalls in Economic Reasoning


21/28

The Circular-Flow Diagram

FirmsHouseholds

Market for

Factors

of Production

Market for

Goods

and Services

SpendingRevenue

Wages, rent,

interest andprofit

Income

Goods &Services sold

Goods &Servicesbought

Labor, land,and capital

Inputs forproduction


22/28

Alternative

Economic System

Economic

System

Market EconomyCommand

EconomyMixed Economy


23/28

Economic role of the

GovernmentEnters into the circular flow and participate in inputmarket.

Participate in the product market also.

Provides national defense, education etc.

Provides income support .

Provide Subsidy.

Control externality.

Maintain equity.Maintain economic stability.


24/28

Theories of International

Trade

Absolute Advantage : A producer has an

absolute advantage over another in the

production of a good or service if it can produce

the same amount of output with less inputrelative to other countries.

Comparative Advantage : A producer has a

comparative advantage over another in the

production of a good or services if it can

produce that product at a lower opportunity cost


25/28

Theory ofAbsolute

Advantage

Country Commodity

A B

Country 1 80 100

Country 2 120 90


26/28

Theory of Comparative

Advantage

Country Commodity

A B

Country 1 80 90

Country 2 120 100


27/28

CurrentState ofIndian Economy

GDP growth Rate: 8.6 % in the year 2009-10 whereas 7.4% in 2008-09.

Inflation rate : 9.6% in April 20009-10 as compared to 1.3 % in April2009

Fiscal Deficit has stepped down from Rs. 54158 crores in April 2009 to

Rs. 53993 crores in April 2010

Tax revenue has increased

Export growth rate has also increased

Foreign investments has increased from USD 21.3 billion to USD 66.5

billion

Foreign Exchange Reserves stood at USD 279.6 billion in April 2010from USD 251.7 billion April 2009

Source: FICCI, May 2010


28/28

importance of economics in management studies

Documents