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Economics -introduction

Economics is the study of how societies usescarce resourcesto produce valuablecommodities and distribute them among

different people. Efficient use of scarce resources.

Un limited wants

Limited means. Having alternative uses

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Introduction to Economics

What is Economics?

Two important terms:

1. Choice

2. Scarcity

Study of choice under conditions of scarcity

Scarcity

Situation in which the amount of something available isinsufficient to satisfy the desire for it

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Why Study Economics

To understand the world better

Youll begin to understand the cause of many of the things that affectyour life

To gain self-confidence

Youll lose that feeling that mysterious, inexplicable forces are shapingyour life for you

To achieve social change

understand origins of social problems and design more effectivesolutions

To help prepare for other careers

Youll discover that a wide range of careers deal with economic issueson many levels

To become an economist

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Economics: The Basics

When wants exceed the resources available to satisfy them, there is

scarcity.Faced with scarcity, people must make choices.

Economics is the study of the choices people make to cope with

scarcity.

Choosing more of one thing means having less of something else.

The opportunity cost of any action is the best alternative forgone.

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Micro economics:

Micro economics: The word micro means a

millionth part. Microeconomics is the study ofthe small part or component of the wholeeconomy that we are analyzing. For examplewe may be studying an individual firm or in

any particular industry. In Microeconomics westudy of the price of the particular product orparticular factor of the production

Microeconomics- The study of the decisions

of people and businesses and the interactionof those decisions in markets. The goal ofmicroeconomics is to explain the prices andquantities of individual goods and services.

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What is micro economics

Because we cant have everything, we need to

make trade-offs and microeconomics helps usmake those tradeoffs.

A society faces 3 key tradeoffs:1. Which goods and services to produce

2. How to produce them

How much labor and inputs should a firm use toproduce a car

3. Who gets the good and services (allocation)

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What is microeconomics

Workers need to choose how to allocate their

time between labor and leisure.

Firms need to choose how to allocate their

investment between human capital and

machines.

Households need to choose how to allocate

their incomes between savings and

expenditure.

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Importance of micro economics:

Helpful in understanding the working of free market

economy.The micro economics helps us to understand theworking of free market economy. It tells us as to how the prices ofthe products and the factors of production are determined. It

throws light as to how the goods and services produced are

distributed among the various people for consumption through

market mechanism. Helps in knowing the conditions of efficiency.

Microeconomics helps in explaining the conditions of efficiency in

consumption, production and in distribution of the rewards of

factors of production. It highlights the factors which are responsiblefor the departure from achieving the optimum efficiency. It

suggests policies also which help in the promotion of economic

efficiency of the people.

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Importance of micro economics:

Working of the economy without central control.Themicroeconomics reveals how a free enterprise economy functions

without any central control.

Study of welfare economy.Microeconomic involves the studyof welfare economics

Limitations of Microeconomics (1) Assumption of full employment in the economy

which is unrealistic

(2) Assumption of laisses fair policy which is no longer in

practice in any country of the world (3) It studies part of the economy and not the whole.

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Micro versus Macroeconomics

What is the difference between micro andmacro economics?

Microeconomics: behavior of individual economic

units like consumers, producers, landowners,families, etc. How and why do they make thedecisions they make?

Macroeconomics: analyzes how the entire

national economy performs. It analyzesunemployment, inflation, price levels, interestrates (many things we take as given inmicroeconomics).

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Macro Economics

Macro economics is the study of behavior of the economy as awhole. It examines the overall level of nations out put,employment, price and foreign trade.

Macroeconomics is concerned with aggregate and average

of entire economy. e.g. In Macro economics we study about forest not about

tree

MacroeconomicsThe study of the national economy and

the global economy and the way that economic aggregatesgrow and fluctuate. The goal of macroeconomics is toexplain average prices and the total employment, income,and production

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Differences.. While microeconomics stresses on the individual firms and

consumer,

macroeconomics deals with the whole economy as a singleunit.

the former takes into consideration the demand andsupply of the individual goods and services,

while the later takes into consideration the aggregate ofdemand and supply of all goods and services

In microeconomics, the equilibrium occurs when thequantity demanded equals the quantity supplied

In macroeconomics, on the other hand, equilibrium occurswhen the aggregate demand equals aggregate supply

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Production Prices Income Employment

Production/Output in

Individual Industries

and Businesses

How much steel

How many offices

How many cars

MICRO

Price of Individual

Goods and Services

Price of medical care

Price of gasoline

Food prices

Apartment rents

Distribution of Income

and Wealth

Wages in the auto

industry

Minimum wages

Executive salaries

Poverty

Employment by

Individual Businesses

& IndustriesJobs in the steel

industry

Number of employees

in a firm

National

Production/Output

Total Industrial Output

Gross Domestic

ProductGrowth of Output

MACRO

Aggregate Price Level

Consumer prices

Producer Prices

Rate of Inflation

National Income

Total wages and

salaries

Total corporate profits

Employment and

Unemployment in the

Economy

Total number of jobs

Unemployment rate

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The Business Environment

Microenvironment

Market environment

Macroenvironment

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What is BUSINESS..?

Business is that complex field of

commerce and industry in which goods andservices are created and distributed-in thehope profit within a framework of laws and

regulations. Business decisions& actions are in terms of

making profit & avoiding loss

Business is an important institution in society.

society cannot do with out business.

Business needs society as much.

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Business Environment refers to the totality of all the relevant forces

external, to and beyond the control of ,an individualbusiness enterprise and its management. The ideological beliefs of the ruling class

Value systems of the society

Rules & regulations laid down by the govt.

The monetary policies of the Central Bank..

some of these arestaticsome onlyrelatively.others changing every now and then..

these are vary from country to country , even

region to region

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The business environment

There is a direct relationship between successfulmanagement and the influence and impact ofenvironmental change

Change is a process of constant renewal and

regeneration in every conceivable sphere of society

Business organisation as the central component of thebusiness environment are naturally also subject tochange

The interaction between the environment and abusiness organisation is an ongoing process that resultsin new problems and new opportunities

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The business environment: examples

Technological innovation

Globalisation

Growth of poverty

Collapse of emerging markets

Shift from manufacturing jobs to service jobs

New ways of doing work

business environment: major types1 MicroEnvironment

2 Market environment

3 Macro - environment

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Micro - Environment

Mission and objectives of the organisation

The organisation and its management , e.g.

marketing , financial and purchasing

management

Resourceshuman resources , capital and

know how

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Market environment

Consumersneeds , purchasing power and

behavior

Suppliers

Intermediaries

Competitors

Opportunities & threats

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Macro - environment

Technological environment

Economic environment

Social environment Physical environment

Institutionalpolitical environment

International environment

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Macroenvironment

Macro variables have an effect on the market

environment , decisionmaking by management and onone another

Emphasis is on change caused by the uncontrollables andimplications for management

1.Technology-

gd.Technology and furniture business

Originates in research and development

New processes , methods & even approaches tomanagement

Technology results in higher productivity

Source of competitive advantage

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Macro environment

2) Economic Environment:

It is very complex and dynamic in nature thatkeeps on changing with the change in policiesor political situations. It has four elements:

(i) Economic Conditions of Public(ii) Economic Policies of the country(iii) Economic System(iv) Other Economic Factors:Infrastructural

Facilities, Banking, Insurance companies,money markets, capital markets etc

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Economic Environment cont.

CRITICAL ELAMENTS

The institutional framework of the environment.

relativeroles of private sector, public sector, joint sector etc.

The physical framework of the environment

level of economic development ,the structure of the economy ,per capita income.resource availability .occupationalstructure..

pattern of foreign trade .structure of savings, investment andcapital formation ..significance of primary, secondary andterritory sectors

Physical anatomy of national economy

order and strength of house hold, business, government , andthe foreign trade sectors.

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Macroenvironment

Economic environment cont..

Influenced by technology , politics and the social andinternational environments.

Cross influences result with change in economic growth

rate , levels of employment , consumer income , the rate

of inflation , interest rate & exchange rates

Gross Domestic Producttotal value of all goods and

services produced within a country

78 % signals an economy which grows fast to createjobs for its country

Exports more products than it imports and stable

currency

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Macroenvironment

Economic environment cont..

Inflationhigher rate than countrys major

trading partners & international competitors

results with a reduction in international

competitiveness

Monetary policyaffects money supply ,

interest rates and strength of the currency

Fiscal policyaffects business and consumers

through taxation and tax reforms

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3Non-Economic Environment:

Non-Economic Environment: -Following are included innon-economic environment:-(i) Political Environment: -It affects different businessunits extensively. Components:

(a) Political Belief of Government(b) Political Strength of the Country(c) Relation with other countries(d) Defense and Military Policies(e) Centre State Relationship in the Country(f) Thinking Opposition Parties towards Business Unit

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4.Social environment

Demographic changeincreasing or

decreasing population rate

Urbanisation

Levels of education

Changing role of women

Consumerism Social responsibility & business ethics

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5.Physical environment

Population & health patternsland

degradation, pollution, malnutrition and

illness.

Food

Water

Energy and climate

Biodiversity6.International environment

Globalisationborderless world

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Intermediaries Importance

Political and Social

System

The economic & social policies and tax

structures developed by the government should

be supportive of the Private sector

Openness to

Change

In the wake of Liberalization and globalization,

the openness of an emerging economy to reform

processes, foreign investments and commerce

Presence of Venture

Capitalist &

Securities

Financial stability governs financial performance.

Presence of strong financial institutions reflect the

confidence and stability of an economy

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Educated Talent Human resources are critical for an

organization. To optimize the performance

of an organization, talented managers act

as the linchpin

Judicial System An ineffective judicial system is an

impediment to the orientation of an

economy

Transparency in the

processes

Effective functioning and processes entail

transparency in their transactions

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d d

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Advantage India

growth has also been fueled by increased local demand,

backed by rising urban and rural incomes The top mobile operators continue to rope in millions of

subscribers every month with innovative approaches and

offers.

The role of the private sector and foreign investment inthe Indian economy is increasing.

The rupee is now convertible on the current account,

and exchange rates are market-determined.

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Advantage India

There has been rapid progress in implementinggovernment commitment to the deregulation process.

Industrial policy emphasizes boosting economic growththrough encouraging the generation of income andwealth.

The vast and growing middle-class population providesa large domestic market.

Skilled manpower and professional managers areavailable at moderate cost.

Capital markets, the banking infrastructure and thefinancial services sector are well developed.

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What are ethics

The principle of conductprofessional ethics

A system or philosophy of conduct

A discipline dealing with what is good and

bad- moral duty and obligation

A set of moral principles or values.

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Relation between ethics and law

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ETHICS-

Reflection in a companysoperations of the values andmoral principles used in the communities in which theyoperate

Successful markets and corporate performance arefounded on a commitment to basic ethical principlesaligned as much as possible to the interests of

individuals, corporations and society. Ethical standards may be expressed in a companys

formal conduct requirements, or contained ingenerally stated principles that guide a companyspreferred conduct or behavior.

Most companies have put in place a code of ethics forits employees to conduct themselves in a particularmanner while doing business.

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Purpose of Ethics

Ethics are the guiding principles. Where the proposed business activity/ operation of the

company borders on the unknown, the company needs to

apply the ethics principle to decide on the project.

Ethics help make relationships mutually pleasant and

productive- imbibes a sense of community among

members- a sense of belongingness to society.

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Why have a code of ethics?

To define acceptable behavior

To promote high standards of practice

To provide a benchmark for self-evaluation

To establish a framework for professional behavior and

responsibilities

As a vehicle for occupational identity

As a mark of occupational maturity.

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Code of ethics -transition

riginalCompliance

Enforcement

Punishment

Directive

Secretive

Integrity

Inspiration

Motivation

Educational

Open

Revised

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Creating the Ethical Imperative

Written code of ethics

Employee commitment

Employee training

Discipline process

Full disclosure

Building expectations

Resolution process

conflict management

A i t f 1st d l

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Assignments from 1stmodule1. Define Micro and Macro Economics. How

these two are helpful to managers?2. What are the major features of Micro and

Macro Economics?

3. Explain the major benefits of Micro andMacro Economics?

4. Distinguish between internal and external

environment of business.5. Explain the emerging business environment

and business ethics in India.

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Scope of Micro Economics

Theory of consumption

Theory of production & cost

Theory of distribution- factor pricing Theory of economic welfare

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Methods of economic theoryEconomic theory is a proved economic fact- observed

economic truth.Deductive method(method of logical reasoning)

It is a method , which goes general to particular

or from universal to individual.

Man is rational so he will try to purchase less

quantity at higher price. Akhil is also a manwill behave in the same way

Macro economic theories are based up on deductive method

d h d

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Inductive method

Inductive method is the process of reasoning

from particular to general or individual to

universal.

If we find that Mr. X purchases more garments when its

price falls. We observed that Mr. y,& Mr. Z behave in the

same way.finally we can generalize their behaviour

When price falls ,the customers have a tendency topurchase more.

Micro economic theories are formulated according to inductive method

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Positive-Normative Distinction

Positive economic theories seek to explain the

economic phenomena that is observed

Normative economic theories focus on whatshould be done

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