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8/8/2019 Importance of Economics in Management Studies
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Importance of Economics in
Management Studies
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Major Challenge:------ to quickly revert to the high
GDP growth path of 9% and then
find the means to cross thedouble digit growth barrier
Budget 2010-11
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Nepal's GDP growth rate for FiscalYear (FY) 2010 is expected to
be 3.5%. This is less than a high
growth rate of 5.3% in 2008.
---- www.worldbank.org.np
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Introduction to Economics
The Science of
Economics is made forthe benefit and
development of the
world.- Kautilya Chanakya
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The Economic Problem
Unlimited Wants
Scarce Resources Land,
Labour, Capital, ..
Resource Use
Choices
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EconomicEconomic ProblemsProblems
The problem ofchoice makingarising out of limited
means and unlimited wants is called economic
problem.
Why do economic problems arise?
Unlimited wants
Different prioritiesLimited means
Means having alternative uses.
Multiplicity of want
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TypesTypes ofof ResourcesResources
Land: all naturally occurring resources whose supply is
inherently fixed (i.e., does not respond to changes in
price)
Labor: the physical work that is needed to make the
products or provide the services
Capital: the machines that is used to produce the
products
Entrepreneurial Talent: the bright ideas that people
contribute for making or improving the goods and
services.
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EconomicEconomic ProblemsProblems
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What goods and services should an economy produce?
should the emphasis be on agriculture, manufacturing or
services, should it be on sport and leisure or housing?
How should goods and services be produced? labour
intensive, land intensive, capital intensive? Efficiency?
Who should get the goods and services produced?
even distribution? more for the rich? for those who work
hard?
The Economic Problem
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Oikonomous one who manage
household
Economics is the study of how societies use scarce
resources to produce valuable commodities and
d i s t r i b u t e t h e m a m o n g d i f f e r e n t p e o p l e .
What is Economics?
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Objectives
To understand the subject matter & the
essence of Economics and ManagerialDecision-Making
Managerial Economics : It refers to the application of
economic theory & the tools of analysis of decision
science to examine how an organizations can achieve its
aims or objectives most efficiently. It studies the
economic aspects of managerial decision making
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Maximizing the value of the firm
(Through profit maximization)
Alternative objectives:
=>Market share maximization
=>Growth Maximization
=>Maximizing their own benefits
ManagersObjectives
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Optimal Solution to Managerial
Decision Problem
Managerial EconomicsUse of economic concept and Decision Science
Methodology to solve Managerial Problem
Managerial Decision
Problem
Decision SciencesTools and Technique
of analysis
Numerical Analysis
Statistical Analysis
Forecasting
Game Theory
Optimization
Economic Concepts
Frame work for
decisions
Theory of Consumer
Behaviour
Theory of firm
Theory of MarketStructure and Pricing
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Why do we study Economics?
You are the manager of your own business firm.
For taking any decision for your firm what
variables should you consider?
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Why do we study Economics?
To Learn a Way of Thinking
To Understand the Society
To Understand Global Affairs
To Be An Informed Voter
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Why do we study Economics?
Economic knowledge serves us in managingour personal lives, in understanding society and
in improving the world around us.
The ways that economics can help usindividually will be as different as are our
personal lives.
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Learning about stock market may help peoplemanage their own finances.
Better awareness of the determinants of costand revenue will produce better business
decisions.
The doctor, the investor and the farmer allneed to know about profit from their
businesses.
Why do we study Economics?
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Scope of Economics: Micro
Economics
The study of how households and firmmake decisions and how they interact in
specific markets
Examples: impact of foreign competition
on the Indian automobile industry
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Scope of Economics: Macro
Economics
The study of economy-wide phenomena
Examples: the effect of borrowing by theIndian government, When politicians talk
about the economy being in recession or
in BO
P Deficit they are talking aboutMacroeconomics.
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In all areas of economics, old and new,
certain pitfalls lie in the path of the
serious economist.
Falling to keep others Things Equal
The Post Hoc Fallacy
Fallacy of Composition
Pitfalls in Economic Reasoning
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The Circular-Flow Diagram
FirmsHouseholds
Market for
Factors
of Production
Market for
Goods
and Services
SpendingRevenue
Wages, rent,
interest andprofit
Income
Goods &Services sold
Goods &Servicesbought
Labor, land,and capital
Inputs forproduction
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Alternative
Economic System
Economic
System
Market EconomyCommand
EconomyMixed Economy
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Economic role of the
GovernmentEnters into the circular flow and participate in inputmarket.
Participate in the product market also.
Provides national defense, education etc.
Provides income support .
Provide Subsidy.
Control externality.
Maintain equity.Maintain economic stability.
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Theories of International
Trade
Absolute Advantage : A producer has an
absolute advantage over another in the
production of a good or service if it can produce
the same amount of output with less inputrelative to other countries.
Comparative Advantage : A producer has a
comparative advantage over another in the
production of a good or services if it can
produce that product at a lower opportunity cost
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Theory ofAbsolute
Advantage
Country Commodity
A B
Country 1 80 100
Country 2 120 90
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Theory of Comparative
Advantage
Country Commodity
A B
Country 1 80 90
Country 2 120 100
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CurrentState ofIndian Economy
GDP growth Rate: 8.6 % in the year 2009-10 whereas 7.4% in 2008-09.
Inflation rate : 9.6% in April 20009-10 as compared to 1.3 % in April2009
Fiscal Deficit has stepped down from Rs. 54158 crores in April 2009 to
Rs. 53993 crores in April 2010
Tax revenue has increased
Export growth rate has also increased
Foreign investments has increased from USD 21.3 billion to USD 66.5
billion
Foreign Exchange Reserves stood at USD 279.6 billion in April 2010from USD 251.7 billion April 2009
Source: FICCI, May 2010
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