Indo-U.S trade policy

8/14/2019 Indo-U.S trade policy

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MANAGERIAL

ECONOMICS

- A BriefCompendium

FACILITATOR: Dr. V S

GAJAVELLI

PRESENTED BY:-

KARANSOOD

HITANSH

VIJ

CHANDNI

BERI


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CHANDNI

CAUL

BEN C

KURIAN

MANAGERIAL

ECONOMICS:

-A Brief synopsis

Economics in todays world is ubiquitous. It permeates every possible

strand of the not only the corporte arena but life in general. A thorough

working knowledge of how economics shapes the different institutions,

more specifically business units is imperative to an MBA or for that matter

any scholar. Manangerial Economics is a branch of economics that appliesmicroeconomic analysis to decision methods of business entities or other

management units. It refers to the application of economic theory and

the tools of analysis of decision science to examine how an organization

can achieve its aims or objectives most efficiently.

Managerial economics essentially deals with the allocation of scarce

resources to attain the optimally desired results. Every organization faces

managenent decision problems, as it seeks to achieve its goal or

objective, subject to the constraints it faces.the organization can solve its

problems by the application of economic theory and the tools of decision

science. Economic theory refers to microeconomics and macroeconomics.

It forms an integral part of Mnagerial economics.

Decision sciences also constitue a major chunk of this particular branch of

economics. Mathematical economics and econometrics are the tools it

employs to construct and estimate decision models aimed at determining

the optimal behaviour of the firm. Mathematical economics is used to

formalize the economic models postulated by economic theory.

Econometrics then applies statistical tools to real-world data to estimatethe models postulated by economic theory.


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The subject matter of managerial economics aside, it is the functional

areas of business administration studies (which include accounting,

finance, marketing, personnel and production) which provide he

background for managerial decision making. Hence, managerial

economics can be regarded as an overview course of study that integrateseconomic theory, decision sciences and the functional areas of business

administration studies.

Managerial Economics consists of the following subdivisions which by their

very nature define it:

The Basic Process of Decision-Making

The Basic Theory of the Firm

The Nature and function of Profits

Business ethics

The Basics of Demand, Supply and Equilibrium

THE BASIC PROCESS OF DECISION-MAKING

Decision making can be regarded as an outcome of mental processes

(cognitive process) leading to the selection of a course of action among

several alternatives. Every decision making process produces a final

choice. The output can be an action or an opinion of choice.

Human performance in decision making terms has been the subject of

active research from several perspectives. From a psychological

perspective, it is necessary to examine individual decisions in the contextof a set of needs, preferences an individual has and values they seek.

From a cognitive perspective, the decision making process must be

regarded as a continuous process integrated in the interaction with the

environment. From a normative perspective, the analysis of individual

decisions is concerned with the logic of decision making and rationality

and the invariant choice it leads to.

Yet, at another level, it might be regarded as a problem solving activity

which is terminated when a satisfactory solution is found. Therefore,


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decision making is a reasoning or emotional process which can be rational

or irrational, can be based on explicit assumptions or tacit assumptions.

Regardless of the type, all decision-making processes involve or can be

subdivided into five basic steps:

1. Defining the problem

2. Determining the problem

3. Identifying the possible solutions

4. Selecting the best possible solutions

5. Implementing the decisions.

BASIC THEORY OF THE FIRM

A firm is an organization that combines and organizes resources for thepurpose of producing goods and/or services for sale. Proprietorships,

partnerships and corporations are the various types of firms existing

around the world. They account for more tham two-thirds of all goods and

services produced. The non-feasibiltiy of enterpreneurs to involve

themselves extensively int eh various taxing stages of the production

process is the prima facie reason for the existence of firms.

Managerial economics begins by postulating a theory of the firm, which itthen uses to analyze managerial decision making. Originally, the theory of

the firm was based on the assumption that the goal of the firm was to

maximize current or short-term profits. Conversely however, firms often

sacrifice short-term profits for the sake of increasing future or long-term

profits.since both are equally important, the theory of the firm now

postulates that the primary goal or objective of the firm is to maximize the

wealth or the value of the firm, which is nothing but the present value of

all expected future profits of the firm.


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In trying to attain its objective, a firm invariably faces various constraints.

The limitations on the availability of the essential inputs essentially gives

rise to these constraints. Inability to procure the desired raw material or

the labour, factory and warehouse space and adequate capital are the

several limitations which lead to constraints. Legal restrains are yetanother source of concern for the firm, since they are inflicted by the

society to bring about equitable social welfare. These constraints emanate

a phenomenon called CONSTRAINED OPTIMIZATION. That is, the primary

goal or objective of the firm is to maximize wealth or the value of the firm

subject to the constraints it faces.

NATURE AND FU NCTION OF

PROFITS

Profit is the making of gain in business activity for the benefit of the

owners of the business. Profit plays a vital role in determining theperformance of a company. The nature of profit can be categorized into

two heads:

1) Business Profit is the difference between the revenue of the firm

and the cost of bringing the product to the market starting from the

production cost.

2) Economic Profit is the difference between a company's total revenue

and its opportunity costs of the capital.

While the concept of business profit is may be useful for accounting

purposes, it is the concept of economic profit that a manager must use in

order to reach correct investment decisions.

BUSINESS ETHICS

Business ethics is a form of applied ethics that examines ethical andmoral problems that arise in a business environment. Business Ethics


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seeks to proscribe behavior that businesses, firm managers, and workers

should not engage in. It circumvents all aspects of business and

individual conduct and is relevant to business organizations as a whole.

Applied ethics is a field of ethics that deals with ethical questions in fields

such as medical, technical, legal and business ethics.

Business ethics can be both a normative and a descriptive discipline. As acorporate practice and a career specialization, the field is primarilynormative. In academia descriptive approaches are also taken. The rangeand quantity of business ethical issues reflects the degree to whichbusiness is perceived to be at odds with non-economic social values.Historically, interest in business ethics accelerated dramatically during the1980s and 1990s, both within major corporations and within academia.For example, today most major corporate websites lay emphasis oncommitment to promoting non-economic social values under a variety of

headings (e.g. ethics codes, social responsibility charters). In some cases,corporations have redefined their core values in the light of businessethical considerations (e.g. BP's "beyond petroleum" environmental tilt).

Corporate ethics policies

As part of more comprehensive compliance and ethics programs, manycompanies have formulated internal policies pertaining to the ethicalconduct of employees. These policies can be simple exhortations in broad,

highly-generalized language (typically called a corporate ethicsstatement), or they can be more detailed policies, containing specificbehavioral requirements (typically called corporate ethics codes). Theyare generally meant to identify the company's expectations of workersand to offer guidance on handling some of the more common ethicalproblems that might arise in the course of doing business. It is hoped thathaving such a policy will lead to greater ethical awareness, consistency inapplication, and the avoidance of ethical disasters.

An increasing number of companies also requires employees to attendseminars regarding business conduct, which often include discussion ofthe company's policies, specific case studies, and legal requirements.Some companies even require their employees to sign agreements statingthat they will abide by the company's rules of conduct.

Many companies are assessing the environmental factors that can leademployees to engage in unethical conduct. A competitive businessenvironment may call for unethical behavior. Lying has become expectedin fields such as trading. An example of this is the issues surrounding theunethical actions of the Salomon Brothers.

Not everyone supports corporate policies that govern ethical conduct.Some claim that ethical problems are better dealt with by depending upon

employees to use their own judgment.


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Others believe that corporate ethics policies are primarily rooted inutilitarian concerns, and that they are mainly to limit the company's legalliability, or to curry public favor by giving the appearance of being a goodcorporate citizen. Ideally, the company will avoid a lawsuit because itsemployees will follow the rules. Should a lawsuit occur, the company can

claim that the problem would not have arisen if the employee had onlyfollowed the code properly.

Sometimes there is disconnection between the company's code of ethicsand the company's actual practices. Thus, whether or not such conduct isexplicitly sanctioned by management, at worst, this makes the policyduplicitous, and, at best, it is merely a marketing tool.

To be successful, most ethicists would suggest that an ethics policy shouldbe:

Given the unequivocal support of top management, by both wordand example.

Explained in writing and orally, with periodic reinforcement.

Doable....something employees can both understand and perform.

Monitored by top management, with routine inspections forcompliance and improvement.

Backed up by clearly stated consequences in the case ofdisobedience.

Remain neutral and nonsexist.

Related disciplines

Business ethics should be distinguished from the philosophy of business,the branch of philosophy that deals with the philosophical, political, andethical underpinnings of business and economics. Business ethicsoperates on the premise, for example, that the ethical operation of aprivate business is possible -- those who dispute that premise, such aslibertarian socialists, (who contend that "business ethics" is an oxymoron)do so by definition outside of the domain of business ethics proper.

The philosophy of business also deals with questions such as what, if any,are the social responsibilities of a business; business management theory;theories of individualism vs. collectivism; free will among participants inthe marketplace; the role of self interest; invisible hand theories; therequirements of social justice; and natural rights, especially propertyrights, in relation to the business enterprise.

Business ethics is also related to political economy, which is economicanalysis from political and historical perspectives. Political economy deals

with the distributive consequences of economic actions. It asks who gains


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and who loses from economic activity, and is the resultant distribution fairor just, which are central ethical issues.

THE BASICS OF DEMAND, SUPPLY AND

EQUILIBRIUM

DEMANDrefers to how much (quantity) of a product or service is desired

by buyers. The quantity demanded is the amount of a product people arewilling to buy at a certain price; the relationship between price and

quantity demanded is known as the demand relationship.

The Law of DemandThe law of demand states that, if all other factors remain equal, the higher

the price of a good, the less people will demand that good. In other words,

the higher the price, the lower the quantity demanded.


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SUPPLYrepresents how much the market can offer. The quantitysupplied refers to the amount of a certain good producers are willing to

supply when receiving a certain price. The correlation between price and

how much of a good or service is supplied to the market is known as the

supply relationship.

The Law of SupplyLike the law of demand, the law of supply demonstrates the quantities

that will be sold at a certain price. But unlike the law of demand, the

supply relationship shows an upward slope. This means that the higher

the price, the higher the quantity supplied

Equilibrium

When supply and demand are equal (i.e. when the supply function and

demand function intersect) the economy is said to be at equilibrium. At

this point, the allocation of goods is at its most efficient because the

amount of goods being supplied is exactly the same as the amount of

goods being demanded. Thus, everyone (individuals, firms, or countries) is

satisfied with the current economic condition. At the given price, suppliers

are selling all the goods that they have produced and consumers are

getting all the goods that they are demanding.

SHIFT IN DEMAND AND SUPPLY

CURVES


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A shift in the demand or supply curve to the left or right on a price

quantity diagram.

A shift in thedemand curve can arise because of a change in the income

of buyers, a change in the price of other goods, or a change in tastes for

the product. An increase in demand caused by an increase in consumer

incomes shifts the demand curve to the right; as a result, the equilibrium

quantity bought increases, but the equilibrium price also rises.

A shift in the supply curve can arise because of change in the costs of

production, a change in technology, or a change in price of other goods. .

A rise in labour costs leading to a fall in supply shifts the supply curve to

the left; as a result, the equilibrium quantity sold falls while the

equilibrium price rises.

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Indo-U.S trade policy