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MBAC 6012 Spring 2017

I. Introduction

A. What is Economics?

Study of allocation of scarce resources among competing needs


Free market economics focuses on efficiency

B. Microeconomics versus Macroeconomics

Micro (Managerial 1)
fundamental issues of what, how, and for whom
study of choices at the individual level
behavior is analyzed on the margin
focus of the managerial economics course (Professor VanWesep)
more under the control of management (endogenous)

Macro (Managerial 2)
Fundamental issues are full employment, price stability,
and growth
Combine choice processes from the entire economy
ex. Consumption (of ALL goods and services)
Not under the control of management (exogenous)

Macro issues typically include

Employment & Output


1946 Full Employment Act
Humphrey-Hawkins bill

Economic Growth
1) As population increases, labor force increases
2) Unlimited wants/needs of society(sustainability?)
3) Better chance at income redistribution/ equality/
political stability ?????

Price Stability
Business prefers a price stable environment
Consumers prefer a price stable environment

Distribution

Social programs and policies have been aimed at


equity
II. The Nature of the Economic System

A. Truly a Mixed Economy (Sommers Introduction and Chapter 1)

B. Why Interpreting the Economic Environment is Important

1. Helps Us to Comprehend the Changing Arena of Public Policy and


Business Operation often referred to as the Old Economy Versus
the New Economy. This transition has occurred over the past 25+
years beginning with the acceleration of the internet in the 1990s.
Key differences between the old economy and the new
economy follow.

Old Economy New Economy


Mass Markets Niche Markets

Stable Production Rapid Turnover in Production,


Technology and Markets

Raw Materials Based Information Based, Technology


and Transport Driven

Big Business Dominated Entrepreneurial

Free from International Competition Globally Competitive

Stable Demographics Major Demographic Change

2. Enables a Better Understanding of the Growth and Importance of


International Business

3. Extremely Useful in the Forecasting and Planning Process both


from a business and personal perspective.

Income, Profits, etc.

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C. Areas of Government Involvement in the Economy

1. Fiscal Policy

Government Spending and Taxation

2. Monetary Policy

Money Supply, Interest Rates, New tools

3. Incomes Policies

Wage and price controls (minimum wage)

4. Regulation/Antitrust/Trade (Public Policies)

Economic and Social Regulation


Price setting
Safety
Antitrust
M&A
Price Fixing
Price Discrimination

Trade
NAFTA, TPP

D. Positive versus Normative Economics

What is versus what ought to be

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E. Business/Government Relationship

Different than other parts of the world

F. A Very Brief History of Economic Thought

(Introduction to the Origins of Microeconomic and Macroeconomic Analysis)

1. Classical School of Economic Thought (1776-1850)

Developed a theory of supply

2. Marginalist or Utilitarian Period (1850-1900)

Developed a theory of demand

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3. Neoclassical Period (1900-1929)

Combined supply and demand theory

Price

Supply

Demand

Quantity
Q

4. Macro interventions & Policies (1930-2015)

This period will be broken down in various time frames


We will discuss in greater detail during the term.

Price Level Aggregate Supply

Price
Level

Aggregate Demand

Output Real Output (GDP)

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III. Macroeconomics

A. National Income Accounting

1. Basic Circular Flow (S&N MACRO page 86)

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2. National Income Accounts

a. G.N.P./G.D.P.-
difference in ownership (GNP)
versus location(GDP)

dollar value of all final goods and services produced


in an economy in a given period of time

i. Monetary measure

ii. Must be final goods and services

Value added concept

b. Issues or critiques on using G.N.P./G.D.P. as a measure

i. does not adequately reflect changes in product


quality

ii. does not reflect purpose

iii. does not include non-market transactions

iv. distribution not considered

v. does not indicate leisure changes (work week)

vi. environmental impacts may not be included


(carbon footprint)

c. National Income Accounting/Circular Flow


(please see next page)

Key measures or indicators: G.D.P.


G.N.P
National Income
Personal Income
Disposable Personal Income