Managerial Economics- Scope and Objectives

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Managerial EconomicsPGDBM 2006-08 (Term I)Graduate School of Business

Institute for Integrated Learning In Management

Managerial EconomicsPGDBM 2006-08 (Term I)Graduate School of Business

Institute for Integrated Learning In Management

Faculty:

Dr. Tarun Das

and

Mr. Sachchidanand Karna


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Introduction to the

Course

Introduction to the

Course

The master economist ... must be a

mathematician, historian, statesman,

philosopher ... He must understand symbols and

speak in words ... He must study the present inthe light of the past for the purposes of the future

(John Maynard Keynes)
http://www-groups.dcs.st-and.ac.uk/~history/PictDisplay/Keynes.html


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Jul-06 S. Karna/PG06/IILM/M rl Eco/Course Intro/1 3

Profile: Dr. Tarun DasProfile: Dr. Tarun Das

Professor & Area Chairperson Economics Area of Interest: Econometrics and Research Methodology Research Interest: Public Policy, Management of Risk and

Contingent Liabilities, Economic Reforms, etc.

Qualifications: MA in Economics (Gold Medalist), Calcutta University, 1969.

Ph. D. in Economics, East Anglia Univ., England, 1977. Work Experience:

35 yrs: Economic Advisor, Min. of Fin., (1989-2005) lastassignment

Consultant to World Bank, ADB, UN-ESCAP, UNDP, UNITAR,

ILO, etc.Contact Details:

Cubicle: #234 Tel Ext.: 234 Meeting Ours: 04:30 PM 05:30 PM E-mail: [email protected]


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Profile: Mr. Sachchidanand KarnaProfile: Mr. Sachchidanand Karna

Assistant Professor Economics

Area of Interest: Quantitative Techniques Research Interest: Econometrics, Forecasting and Estimation

Techniques

Qualifications: M.Sc. (IIT-Kharagpur), 1992

Master of Business Economics (Delhi Univ.), 2000 Industry Experience:

10 yrs in Service and Retail Industry - Gati Limited, Group4Securitas and Microtex India Limited (Live-In)

Business and Franchisee Development and Profit Center Head

Contact Details: Cubicle #217, 2nd Flr 9810210702 (cell phone) Meeting Ours: 04:30 PM 05:30 PM E-mail: [email protected] / [email protected]


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Course Introduction Discussion of Course Requirements

Introductions

Nature and Scope of managerial Economics

Business Objectives and Constraints of Firms

Concepts and Tools of Economic Analysis

Managerial Economics: Outline


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Defining Modern Economics[1]

Robbins Scarcity Definition

Robbins considers Economics as a positive science

which describes reality without stating the desirability or

undesirability of the findings.

Economics studies human behaviour as relationshipbetween ends and scarce means which have alternative

uses. Lionel Robbins

Economic problem is essentially a problem arising from

the necessity of choice, choice of the manner in whichlimited resources with alternative uses are disposed off

Economics studies the activity of husbandry of

resources - Erich Roll


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Defining Modern Economics [2]

Growth/ Development Oriented Definition

P. A. Samuelson modified the scarcity definition to

bring in economic growth over a period into

attention.

Economics is the study of how man and societychoose, with or without money, to employ scarce

productive resources which could have alternative

uses, to produce various commodities over time and

distribute them for consumption now and in the futureamong various people and groups of society. It

analyses the costs and benefits of improving patterns of

resource allocation. - Samuelson


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Central Problems of an Economy:

I. The Problem of Allocation of (Limited)Resources

II. The Problem of Fuller Utilization of

Resources

III. The Problem of Growth of Resources


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Scope of Economics: Central Problems

I. Problem of Allocation of Resources

What & How much to Produce Military Goods or Public Goods

Consumption Goods or Capital Goods

Necessities or Luxury Goods How to Produce

The alternative methods or techniques of production

combine factors in different proportions

The most efficient method will employ lesser amountof scarce resources and more of abundant resources


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Problem of Allocation of Resources (contd)

For Whom to Produce

How is the output (income generated) being allocated

among factors of production

Problem of Efficiency

Allocative Efficiency: Allocation of resources tocompeting ends is considered efficient

if by different allocation we can not increase the

production of any one article without reducing the

production of other articles.

Distributional Efficiency: The existing allocation of the output

among factor-owners is considered efficiency

if by a different allocation we cannot make even one

person better off without making other worse off.


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Scope of Economics: Central Problems [2]

II. Fuller Employment of Resources Under-utilization of resources

during depression, or

under structural / system bottlenecks of the economy

Unemployment of scarce resources is waste

III. Growth of Resources

Output of economy can grow only through

Improvement of efficiency (better allocation) Better techniques of production

Growth of resources (mostly labor and capital)


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Branches of Economics Micro Economics

Microeconomics Deals with allocation of resources in a market economy

Allocation of resources is, in fact, explained in terms of

prices of goods as well as prices of factor of production

Micro-Economic Theory

Product Pricing Factor Pricing

(Theory of Distribution)Theory of

Economic Welfare

Theory of

Demand

Theory of

Production &

Cost

Wages

Rent

Interest

Profits

(Welfare Economics)



Micro Economics [2]

Microeconomic Theoryprovides the framework

within which the economist

describes and analyses the behavior patterns and

inter-relationships of the elementary economic units

like consumers, firms, commodities and markets. explains and predicts how production, exchange and

distribution of goods respond to incentive structure

operating in a given society. - Quirk



Branches of Economics Macro Economics

Macroeconomics deals with fuller employment and growth of

resources

is concerned with the analysis of economy as a

whole not a particular one economic unit i.e.

aggregates or averages such as total - national

income and output, employment, consumption, etc.

seeks causes and cures for unemployment, inflation,

BoP, etc.

Macroeconomics deals with economic affairs at

large


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The Logic Of Economic Theory

Scientific Approach to Study Complex Economic Life

& Human Behavior Economics is not an exact experimental science;

controlled experiments can not be conducted in the real

world complex economic life.

Economics studies human behavior and hypotheses

are based on statistical propositions and hypotheses.




Methods of Logical Reasoning and Statistical

Deduction & Testing Inductive Method:

Study of facts reveal a pattern in the relationship

between variables.

Theory of relationship between variables is constructed

Theory is accepted if the facts are representative,

sufficient and no better logical explanation can be

made.




Deductive Method: Begins by making certain basic assumptions

Followed by general statement on the relation between

variables

Conclusions and predictions are derived through logicalreasoning

Theory is valid if actual facts and observations support

the predictions of the theory

If theory does not stand in the light of facts andobservations, then theory is modified or discarded.



What is Economics?What is Economics?

Study of how economic agents choose to use their

scarce resources.

Scarcity Necessitates Choice

Who are economic agents?

We develop theories and models to explain theirbehavior.

Thus, economics is the study of Human Behavior!



What is Managerial Economics?What is Managerial Economics?

Application ofeconomic theoryand analytical toolsto help managers make better decisions.

Goal of this course is to show how these tools can be

used.

Draws primarily on applied microeconomics.



Approach to this classApproach to this class

Review economic theory

Discuss relevance of economic theory and its

application to business decision making

Debate and critically analyze the issues though real

world cases Apply economic tools of analysis for decision making

through to hypothetical/ real world examples and

exercises

Goal is to apply economic theory and tools to

business analysis



Course Objectives and Learning OutcomesCourse Objectives and Learning Outcomes

Learning Outcomes: You should be able to: Develop an understanding of key micro-economic

concepts, theories and tools for decision making

Develop skills for rigorous economic analysis of

different market structures within which businessdecisions are made

Develop economic reasoning for formulation of

business policies.

Understand basic economic and government statistics-their sources, implications and uses for industry.



Components of Course AssessmentComponents of Course Assessment

Three main components: Project Work: 20%, Mid Term Exam: 20% and End Term

Exam: 60 %

Project Report, Presentation/Viva: Groups of 4-5 students will select a contemporary topic of

interest. Will prepare a broad outline, conduct a literature survey and

make a report Assessment Criteria:

Ability to interpret, critically examine / analyse literature.

Team working skills

Written presentation report (by end of 8th week)

Oral presentation (in the 9th week)

Individual assessment on the project through viva



Components of Course AssessmentComponents of Course Assessment

Mid Term Examination

Closed book examination of 60 minutes after 6 weeks Syllabus: Module 1 to 4

Assessment Criteria:

Depth of understanding

Ability to apply to business decision-making

End Term Examination Closed book examination of 90 minutes at the end of the

trimester

Syllabus: All Modules Assessment Criteria:

Depth of understanding and/ or

Ability to apply to business decision-making


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Course Outline (Contd)Course Outline (Contd)

2. Analysis of Market Demand and Supply (Contd.)

Supply-Demand equilibrium Impact of tax on price and quantity

Price effect, substitution and income effects

Normal, inferior and Geffen goods

2. Production and Cost Analysis: Production and Cost Concepts

Production and Cost Analysis in the Short Run

Production and Cost Analysis in the Long Run Beak-even and shut-down points

Economies of scale and returns to scale




4. Managerial Decision Making in Different Market

Structures: Market Structure Definitions and Concepts

Managerial Decision Making for Firms in Competitive

Markets

Managerial Decision Making for Firms with MarketPower

Strategic Decision Making for Firms in Oligopoly

4. Industrial Economics A Structure-ConductPerformance (SCP) approach

Mergers and vertical integrations

Measures of size of firms, market power and business

concentration




6. Demand Estimation and Projections: Demand Estimations, Demand Projections and Engel

Curves

Consumer Expenditure Surveys

6. Economic and Government Statistics Growth rates; Purchasing Power Parity (PPP) adjusted

GDP

Production Indices

Inflation and Price Indices Measurement of Poverty and Inequality

Human Development Index (HDI) and the UN

Millennium Development Goals (MDGs)


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Managerial Economics- Scope and Objectives