Economics for Managers

Why Economics
 Early Version
“Management
 “Planning, organizing, directing,
coordination, and controlling“
 “The function of getting things done through
others”
“Economics”
 “Household Management”
 “Nature and Scope of Wealth of Nations”
 The Economic versus Management
approach to wealth creation
(Primitive Perceptions)
ECONOMICS:
• Market allocates resources through price
mechanism
• In economics there is no role for
management- the market allocates
resources efficiently
• Economics is the view of business activity
from afar - the "market" perspective
 The Economic versus Management
approach to wealth creation
(Primitive Perceptions)
MANAGEMENT:
• Wealth is created through collaboration of people
and technology
• Economy and markets (competitors), in
management, are only part of the external forces
or constraints in which management attempts to
create wealth.
• Management is popular world-wide in business,
government, and non-profit organizations simply
because it has been successful (Drucker).
 Changed Version
“Management“ - Drucker
 Management is an economic activity by
which resources are used to create wealth
“Economics”-Robbins
 The study of choices made by people who
are faced with scarcity of resources
 BUT
In the world of “changing environment”, the
success depends on “anticipation” and “cope” with
change.
 Micro Environment
 Macro Environment
Business Environment
 Analyzing & Responding to The
Economic Environment

Social
Economics Culture
Personnel

Product
Finance Needs Acctg.
Consumer place Technology
Political Price Wants
Legal
Promotion

Production
Monopoly Pure Competition
 Microeconomics

Definition:
The study of the choices made by households,
firms, and the government, and how these
choices affect the markets for all sorts of
goods
and services.

Why study Microeconomics?

1. To understand how markets work

2. To make personal or managerial
decisions
Economic Rationality
Towards…..
 Consumer-Optimize Satisfaction

 Producer-Maximize Profit

 Seller-Sales Revenue

 Keeping in mind the Objectives (ends) &

Constraints ( means)
Three fundamental questions of
Economics

1. What goods and services do we

produce?

2. How do we produce these

goods and services?

3. Who consumes the goods and

services that are produced?
Alternative Economic Systems
 Market Economy

 Command economy

 Mixed Economy
Economic Role of the
Government
•

Product Mkts

Households Government Business Firms

Input Mkts
Marginalism
 Scarcity- The root cause of economic
problem.
Opportunity Cost
 A concept of choosing one alternative
among various. It gives the idea of next
best alternative use.
 Macroeconomics

Definition:
The study of the nation’s economy as a whole

Why study macroeconomics?

1. To understand how a national

economy operates
2. To understand the grand debates over
economic policy
3. To make informed business decisions
Equilibrium
 Partial equilibrium- It focuses on explaining
the determination of price & quantity in a
given product or factor market when one
market is viewed as independent of other
markets.
 General equilibrium- It focuses equilibrium in
all markets when prices & quantities of all
products & factors are considered as
variables.
 Macro Economic Issues

• What explains economic growth ?

• Why are some countries doing so much
better than others ?
• What are the causes of persistent
inflation?
• How can a country adjust to a balance of
payments deficit ?
• How money supply in the economy
regulated?
 Macro Policies
• Industrial Policy
•Industrial Licensing Policy
•MRTP Act
•Price Regulation and Distribution Control
•FERA - FEMA
•EXIM Policy
•Monetary Policy
•Fiscal Policy
From a managerial point of view, do
these questions matter or should
manager know about these policies?

YES
 Because
•Predicting the economic environment in which
managerial decisions are taken is crucial to the success of
an organization

•Promoting a general improvement in the quality of

management could in itself be seen as a well thought of
macroeconomic policy

•Managers should have their say in the establishment of

the set of rules guiding macroeconomic policies

•A thorough understanding of the issues at stake is

essential if they are to make a meaningful contribution to
the debate
 ECONOMIC
ENVIRONMENT
(Prosperity…..Recession)

ORGANIZATIONAL CONSUMER
MARKETING STRATEGY EXPECTATIONS
Product - Income
Price - Job Security
Promotion - Product Prices
Phys. Distr..
MARKETING
MANAGER
DECISIONS
- Risk Level
- Capital Expenditures
- New Product Creation
Choice & Real Cost
 Unlimited consumer wants Are greater than

 the quantity of productive resources i.e factors of production ( land, labor,

capital & entrepreneurship) available to produce goods & services.

 Goods & services are scarce

 Consumers cannot satisfy all their wants & have to make a choice.

 Any choice, being an act of selecting among alternatives, involves an

opportunity cost or real cost.
Positive & Normative Economics
 Positive approach is testable by
empirical evidence.

 Normative approach states of policy

prescription.
Economic Analysis & Managerial
Decisions
1. Demand Forecasting
2. Pricing & other Marketing Decisions
3. Cost Analysis
4. Investment Appraisal
5. Specific Industry Analysis
6. Govt Regulation & Policy Impact Analysis.
7. Strategic Planning
Economics-Its Integration
 Marketing Management

E Financial Management
C
O
N Business Strategy
O
M Export Marketing
I
C
S
Operations Management
 vior
Consumer beha

ns um e
Propensity to co
r s tan ding d em and
Und e

tan d ing c omp e titors

Under s

d
Creating deman
Pricing decisions

ema nd fo r ec a s ting
D fe ren tiation
Pro d uc t dif
 g th e financial system
Un ders tandin

Cost functions

th e m onetary policy
Unders tand ing

ale
Economies of sc
Bank rates

Shutdown point
Repo rates

tes of interest Business cycle

Ma rke t ra

n g e ra tes – dev aluation,

Excha
urc e s of raising funds
v er va lua ti o n of currency
So o
Business environment

Identifying profitable sectors

Break-even point

Understanding competition
Basis for international trade

The barriers

Understanding the trade agreements

Fluctuations in balance of payments

 ro d uction
Factors of p

le p r oportio ns
v ar ia b
The laws of

o f r e tu r ns to scale
Laws

oint
Shutdown p
Thank You