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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