intro to business eco

8/3/2019 Intro to Business Eco

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INTRODUCTION TO

ECONOMY, ECONOMICS AND

BUSINESS ECONOMICS


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SBI targets existing customers for second home loans

What's a citizen's life worth? Are cricket matches justified even at the cost of

productivity loss?

Toyotas Liva to take on Swift, Polo, Micra.

Turbulent flight: Can Air India Survive?

Ambanis, Birlas, actors earn in multi crores: is it

justifiable?

Markets can digest only one more rate hike by RBI. Fuel price hike to push inflation into double digit.

Chinas products to be expansive due to wage rise.


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Economics

Defined as a social science which coversthe actions of individuals and groups ofindividuals in the process of producing,

exchanging and consuming of goods andservices to achieve optimization ofresource use

What decisions?


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1. Production Decisions

2. Exchange Decisions

3. Consumption Decisions


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Problems in the economy?


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The problem of scarcity

excess of human wants over what can actuallybe produced.

Production possibility curve (PPC)a curve showing all the possible

combinations of two goods that a country

can produce within a specified time periodwith all its resources fully and efficiently

employed.


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PPC

`Gives choice - rational choice that involvesweighing up the benefits of any activity against itsopportunity cost.

` Shows scarcity.

`Opportunity cost - is the cost of any activitymeasured in terms of the best alternative/sforgone. Increasing opportunity cost ofproduction when additional production of one

good involves ever increasing sacrifices ofanother.

`Growth in potential output.


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Problems of an economy

What to produce

How to produce How to distribute

How to grow


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Solve the problems


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Other questions to discuss

Q.1. Could output and consumption take placewithout money?

Q.2. If we would all like money, why does thegovt. not print a lot more? could it notsolve the problem of scarcity at a stroke?

Q.3. If there are several other things, youcould have, is the opportunity cost the

sum of all of them?


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The Materials Balance Model :theinterdependence of economic activity and the

nature- closed system and open system

Nature

Outputmarket

Factormarket

Households Firms

Energy, Air, Water,

AmenitiesAir pollution, solid

waste, waste heat, waste

pollution


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Dividing up the subject

Macro aggregate demand, aggregate supply and

determination of national output, problems of

recession, unemployment, inflation, balance of

payment, cyclical instability and policies adopted by

govt. to deal with these problem.

Micro production, consumption, exchange and

govt. regulation what, how much, how, for whom


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Case - Disney Corporation

- Pinocchio priced at $79.95 sold 100,000 copies

- priced at $29.95 and sold over 300,000 copies

- uses sophisticated pricing strategies such as:

- bundling - bundle of Disney cruise with a stay

at their Disney world theme park in Florida, a

McDonalds kids meal and action figures from

their movies and several of their cable channels

to cable customers

- price discrimination


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Case - The Boeing Company

` In 1970s managers set out two-prong approach- lowcost and technological leader

` 1980s- 81% of market share- seven fold increase with

high profits

` In 1991 $45 million profit on every 747 sold for $ 150million

` Airbus- the principal rival , a joint venture British,

French, German and Spanish aerospace firms in 1974

by 1997 captured 33% of market with technological

advances and low cost leadership

` Boeing to drop prices>earnings fell to 31% relative to

1991


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Link between economic theory and the decision sciences

problems faced

by

decision makers

in management

economic

theory

managerial economics, which

applies and extends economics

and the decision sciences to

solve management problems

decision

sciences

solution to

decisions problems

faced by managers


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Basic process of decision making

Establishobjectives

Define theproblem

Identify possiblesolutions

Select best

possible solution

Consider input andlegal constrains

Implement thesolution


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Aspects of application

- Use of optimization techniques to improveorganizational decisions

- Consideration of individual consumer

choice to understand individual and marketdemand decisions and to forecast demand

- Analyze cost and supply structure tounderstand supply decisions

- Understanding markets

- Understanding external factors likeunemployment, inflation

intro to business eco

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