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Ba7103 Economic Analysis For Business: Unit I - Introduction - Themes of Economics

Economic Analysis for Business - Unit 1 - First Sem MBA - Anna University, Chennai. Regulation 2013.

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Saravanan Shanmugam
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49 views24 pages

Ba7103 Economic Analysis For Business: Unit I - Introduction - Themes of Economics

Economic Analysis for Business - Unit 1 - First Sem MBA - Anna University, Chennai. Regulation 2013.

Uploaded by

Saravanan Shanmugam
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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BA7103 ECONOMIC ANALYSIS

FOR BUSINESS
UNIT I - INTRODUCTION
-Themes of economics
-Scarcity and Efficiency
- Economic problems
- Production Possibility Frontiers
-Economic growth and Stability & Much More

Nature of Economics
Micro economic in nature
Deals with individual units of economy.

Pragmatic
Rigid and abstract theoretical framework for managers

Related to normative economics


Distinguishes the ideal from actual management work.

Conceptual in nature
Based on a sound framework of economic concepts.

Utilises some theories of Macroeconomics


Macro economic theories to understand the environment

Problem solving in nature


Finding out optimal solutions to the business problems

Interdisciplinary

Scope of Economics

Demand analysis and forecasting


Cost and production analysis
Pricing decisions policies and practices
Profit management
Capital management
Analysis of business environment
Allied disciplines

Importance of macro economics


1. Determination of income and employment
2. Determination of general level of prices
3. Economic growth
4. Macro economics and business cycles
5. International trade
6. Income shares from the national income
7. Unemployment
8. Macro economic problems
9. Global economic system
10.Multi dimensional study

Scarcity
Scarcity is a relationship between how much
there is of something and how much of it is
wanted

Efficiency
Efficiency suggests that being able to
make a judgment about when
resources are, or are not, being used in
this best possible way is important

Types of economic efficiency

Static efficiency
Dynamic efficiency
X inefficiency
Social efficiency
Technical efficiency
Pareto efficiency
Distributive efficiency

Productive vs. Economic Efficiency


It is a part of economic efficiency
It refers to the firms cost of production and can be
applied to both long and short run.
It exists when producers minimize the wastage of
resources.
Productive efficiency supports the perfectly
competitive market.
It happens when the firm is exploiting the
available economies of scale.

3 fundamental economic problems


There are three fundamental problems of
economic, what , how and for whom,they are
1. What to produce?
2. How to produce?
3. For whom to produce?

Measures to overcome economic problems


by price mechanism
Solution of central problems in a capitalist
economy
Solution of central problems in a socialist
economy
Solutions of central problems in a mixed
economy.

Societys capability
1. What to produce and in what quantities it has
to be produced?
2. How shall goods be produced and how to use
the society?
3. For whom shall the goods be produced

Production possibility frontier


This is also called as a
-transformation curve:
- is a graph that shows the different combination of the
quantities of two goods
-that can be produced in an economy at any point of
time, subject to limited availability of resources
The curve which shows the possible combinations of
two goods that can be produced by an economy, given
available resources and technology

Production Possibility Curve


A
B
C

Limitations of Production Possibility


Curve

Hypothetical and static


No practical use
Irrelevant assumptions
No analytical device
Environmental consequences
Downside effects
Short run phenomena

Economic growth and Stability


Elements of economic growth
Human resources
Natural Resources
Capital formation
Technological change and innovations

Role of Market and Government in


stability
Role of markets
Transaction of product services and money
Provide place for market
Generation of employment
Index of economic situation
Supply versus demand adjustment

Role of Government
Regulatory role of government
Encourage saving and investment
Encourage investment from abroad
Promote education
Promote health and nutrition
Secure property rights and political stability
Promote free trade
Research and development
Control population growth
Planning role of government

Positive Externalities
Unintended external effects do not
automatically lead to greater costs for society
as a whole.
Some economic transactions generate
beneficial third party effects.
Economists call it as positive externalities

Positive Externalities Graph


D1

PRICE
D
b

P1
a

D1
S
D
Q

Q1

QUANTITY

Negative Externalities
A Negative externality occur when an
individual or firm making a decision does not
have to pay the full cost of the decision
- If a good has a negative externality then the
cost to the society is greater than the cost
consumer is paying for it.

Negative Externalities Graph


S1
PRICE
D

S
b

P1
a

P
S1

S
Q1

QUANTITY

Uses of Managerial Economics


Used for integration of economic theory
Used as solution to practical business
problems
Optimum use of scarce resources
Used for other objectives
Used for overall development
Used in making right decisions

Limitations in Managerial economics

Emergence of monopolies
Emergence of oligopoly
Exploitation of workers
Cut throat competition
Limited focus

Micro vs Macro Economics


Basis

Micro economics

Macro economics

Origin

Micro means small, it


includes households,
particular industries,
commodities and
prices

Macro means large, it


dont deal with
individuals but on a
nation as awhole.

Objective

Maximise utility

Full employment price


stability

Driving forces

Price mechanism is
the one which helps

National income
output and

Basis

Micro economics

Macro economics

Assumptions

Assumptions based on Assumptions on such


rational behavior of
variables as the
individuals
aggregate volume of
output and output of
an economy.

Equilibrium analysis

Partial equilibrium
analysis which helps
to explain the
conditions of
individual

General equilibrium
analysis which is an
extensive study of a
number of economic
variables

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