Economics -introduction

Economics is the study of how societies use

scarce resources to produce valuable
commodities and distribute them among
different people.
Efficient use of scarce resources.
Un limited wants
Limited means. Having alternative uses

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 is
insufficient to satisfy the desire for it

Why Study Economics
To understand the world better
Youll begin to understand the cause of many of the things that affect
your life
To gain self-confidence
Youll lose that feeling that mysterious, inexplicable forces are shaping
your life for you
To achieve social change
understand origins of social problems and design more effective
solutions
To help prepare for other careers
Youll discover that a wide range of careers deal with economic issues
on many levels
To become an economist
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.
Micro economics:
Micro economics: The word micro means a
millionth part. Microeconomics is the study of
the small part or component of the whole
economy that we are analyzing. For example
we may be studying an individual firm or in
any particular industry. In Microeconomics we
study of the price of the particular product or
particular factor of the production
Microeconomics - The study of the decisions
of people and businesses and the interaction
of those decisions in markets. The goal of
microeconomics is to explain the prices and
quantities of individual goods and services.
What is micro economics
Because we cant have everything, we need to
make trade-offs and microeconomics helps us
make 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 to
produce a car
3. Who gets the good and services (allocation)
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.
Importance of micro economics:
Helpful in understanding the working of free market
economy. The micro economics helps us to understand the
working of free market economy. It tells us as to how the prices of
the 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 responsible
for the departure from achieving the optimum efficiency. It
suggests policies also which help in the promotion of economic
efficiency of the people.
Importance of micro economics:
Working of the economy without central control. The
microeconomics reveals how a free enterprise economy functions
without any central control.
Study of welfare economy. Microeconomic involves the study
of 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.
Micro versus Macroeconomics
What is the difference between micro and
macro economics?
Microeconomics: behavior of individual economic
units like consumers, producers, landowners,
families, etc. How and why do they make the
decisions they make?
Macroeconomics: analyzes how the entire
national economy performs. It analyzes
unemployment, inflation, price levels, interest
rates (many things we take as given in
microeconomics).
Macro Economics

Macro economics is the study of behavior of the economy as a
whole. 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

Macroeconomics The study of the national economy and
the global economy and the way that economic aggregates
grow and fluctuate. The goal of macroeconomics is to
explain average prices and the total employment, income,
and production
Differences..
While microeconomics stresses on the individual firms and
consumer,
macroeconomics deals with the whole economy as a single
unit.
the former takes into consideration the demand and
supply of the individual goods and services,
while the later takes into consideration the aggregate of
demand and supply of all goods and services
In microeconomics, the equilibrium occurs when the
quantity demanded equals the quantity supplied
In macroeconomics, on the other hand, equilibrium occurs
when the aggregate demand equals aggregate supply
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
& Industries
Jobs in the steel
industry
Number of employees
in a firm
National
Production/Output

Total Industrial Output
Gross Domestic
Product
Growth 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
The Business Environment
Microenvironment
Market environment
Macroenvironment

What is BUSINESS..?
Business is that complex field of
commerce and industry in which goods and
services are created and distributed-in the
hope 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.
Business Environment
refers to the totality of all the relevant forces
external, to and beyond the control of ,an individual
business 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 are staticsome only
relatively.others changing every now and then..
these are vary from country to country , even
region to region


The business environment
There is a direct relationship between successful
management and the influence and impact of
environmental change
Change is a process of constant renewal and
regeneration in every conceivable sphere of society
Business organisation as the central component of the
business environment are naturally also subject to
change
The interaction between the environment and a
business organisation is an ongoing process that results
in new problems and new opportunities
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 types
1 Micro Environment
2 Market environment
3 Macro - environment
Micro - Environment
Mission and objectives of the organisation
The organisation and its management , e.g.
marketing , financial and purchasing
management
Resources human resources , capital and
know how
Market environment
Consumers needs , purchasing power and
behavior
Suppliers
Intermediaries
Competitors
Opportunities & threats
Macro - environment
Technological environment
Economic environment
Social environment
Physical environment
Institutional political environment
International environment
Macroenvironment

Macro variables have an effect on the market
environment , decision making by management and on
one another
Emphasis is on change caused by the uncontrollables and
implications for management

1.Technology-
gd.Technology and furniture business
Originates in research and development
New processes , methods & even approaches to
management
Technology results in higher productivity
Source of competitive advantage









Macro environment
2) Economic Environment:
It is very complex and dynamic in nature that
keeps on changing with the change in policies
or 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
Economic Environment cont.

CRITICAL ELAMENTS
The institutional framework of the environment.
relative roles 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 .occupational
structure..
pattern of foreign trade .structure of savings, investment and
capital formation ..significance of primary, secondary and
territory sectors

Physical anatomy of national economy
order and strength of house hold, business, government , and
the foreign trade sectors.


Macroenvironment
Economic environment cont..
Influenced by technology , politics and the social and
international 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 Product total value of all goods and
services produced within a country
7 8 % signals an economy which grows fast to create
jobs for its country
Exports more products than it imports and stable
currency
Macroenvironment
Economic environment cont..
Inflation higher rate than countrys major
trading partners & international competitors
results with a reduction in international
competitiveness
Monetary policy affects money supply ,
interest rates and strength of the currency
Fiscal policy affects business and consumers
through taxation and tax reforms
3Non-Economic Environment:
Non-Economic Environment: - Following are included in
non-economic environment:-
(i) Political Environment: - It affects different business
units 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
4.Social environment
Demographic change increasing or
decreasing population rate
Urbanisation
Levels of education
Changing role of women
Consumerism
Social responsibility & business ethics


5.Physical environment
Population & health patterns land
degradation, pollution, malnutrition and
illness.
Food
Water
Energy and climate
Biodiversity
6.International environment
Globalisation borderless world
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

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

Advantage India
we have a young population/task force well versed in
English language and are also major contributors to
world economy
India is expected to benefit further from the
demographic dividend emanating from a higher
proportion of the young population.
the IT enabled services (ITES) have provided job
opportunities and will continue to do so
the services sector in the country has benefited from the
availability of vast skilled labour at competitive rates
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 in
the Indian economy is increasing.
The rupee is now convertible on the current account,
and exchange rates are market-determined.


Advantage India

There has been rapid progress in implementing
government commitment to the deregulation process.
Industrial policy emphasizes boosting economic growth
through encouraging the generation of income and
wealth.
The vast and growing middle-class population provides
a large domestic market.
Skilled manpower and professional managers are
available at moderate cost.
Capital markets, the banking infrastructure and the
financial services sector are well developed.
ETHICS-definitions
The word ethics is derived from the Greek word
ethos meaning character and latin word mores
meaning customs
To better understand ethics let us understand and
contrast the definition of ethics and law
Law is a consistent set of universal rules that are
widely published, generally accepted and usually
enforced. These rules describe the ways in which
people are required to act in society.
Ethics defines what is good for the individual and
for society and establishes the nature of duties
that people owe to oneself and others in society
What are ethics
The principle of conduct professional 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.
Relation between ethics and law
ETHICS-
Reflection in a companys operations of the values and
moral principles used in the communities in which they
operate
Successful markets and corporate performance are
founded on a commitment to basic ethical principles
aligned 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 in
generally stated principles that guide a companys
preferred conduct or behavior.
Most companies have put in place a code of ethics for
its employees to conduct themselves in a particular
manner while doing business.
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.
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.
Code of ethics -transition


Original
Compliance

Enforcement

Punishment

Directive

Secretive
Integrity

Inspiration

Motivation

Educational

Open

Revised
Creating the Ethical Imperative
Written code of ethics
Employee commitment
Employee training
Discipline process
Full disclosure
Building expectations
Resolution process conflict management
Assignments from 1
st
module
1. 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 and
Macro Economics?
4. Distinguish between internal and external
environment of business.
5. Explain the emerging business environment
and business ethics in India.


Scope of Micro Economics
Theory of consumption
Theory of production & cost
Theory of distribution- factor pricing
Theory of economic welfare


Methods of economic theory
Economic 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 man
will behave in the same way
Macro economic theories are based up on deductive method


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 to
purchase more.
Micro economic theories are formulated according to inductive method
Positive-Normative Distinction
Positive economic theories seek to explain the
economic phenomena that is observed

Normative economic theories focus on what
should be done