Session 1 Micro Ecox

8/8/2019 Session 1 Micro Ecox

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Economics forManagerial Decision Making

Friday, May 29, 2010


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About MyselfCareer: Manager Corporate Affairs - Ceon

Sales Manager- Radio Salaam Namaste

Asst.Manager CSR- Tata Chemicals Ltd Visiting faculty-IIPM, Ahmedabad

MBA-Marketing (NMIMS,Mumbai)

B.A(Economics)

Certification: Entrepreneurial Motivation Trainer

Training facilitation and communication for community

leaders


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Economics for Managerial Decision Making

Scope &

Structure

Why Study Economics?To Learn a Way of Thinking

Session 1: Essence of EconomicsSession 2: Demand Analysis

Session 3: Consumer BehaviorSession 4: Supply Analysis and PriceSession:5 Production AnalysisSession:6 Cost Analysis

To Understand SocietyTo Understand Global AffairsTo take decisions

The Scope of EconomicsMicroeconomics andMacroeconomics

The Diverse Fields of EconomicsThe Method of EconomicsTheories and ModelsEconomic Policy

ess on: evenue urvesSession:8 Perfect CompetitionSession:9 MonopolySession:10 Monopolistic CompetitionSession:11 Oligopoly

Session: 12 Revision of concepts


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Essence of EconomicsDecisionMaking

Choice

Multi le

Wants

Scarcity

Economics studies Human behavior in relation to satisfying unlimited ends with limitedresources which have alternative uses!


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Economic/Managerial Problems

What goods and services should an

economy produce? should the emphasis beon agriculture, manufacturing or services,should it be on sport and leisure or housing?

ow s ou goo s an serv ces eproduced? labour intensive, land intensive,capital intensive? Efficiency?

How Much to produce?

Who should get the goods and servicesproduced? even distribution? more for therich? for those who work hard?


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Solutions Single entity-Individual, firms

Resources are constant

Studies land,labour,capital andenterpriseMicro

economics

Larger context, Aggregate

National Income,employment,inflation,monetary policy, Consumption and

Investment

Macroeconomics


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Marginalism

Rationality

Building Blocks

Opportunity Cost

General and Partialequilibrium


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Marginalism

An integral part of mainstream economics and

decision making

Central concept arises from marginal utility

Marginal utility should be greater than Marginalcost

Often criticized as being immeasurable since

additional units are often small


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Rationality in economics

A central principle in decision making

Under given circumstances an individual willalways chose an action that maximizes his/her

rofit

Limitation: Managers often take decisions basedon incomplete/imperfect information

Managers can only explore a given no. of options


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Opportunity Cost

Definition the cost expressed in terms of the next

best alternative sacrificed Helps us view the true cost of decision making

Implies valuing different choices


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General and Partial equilibrium In partial equilibrium analysis, the determination of the price ofa good is simplified by just looking at the price of one good, andassuming that the prices of all other goods remain constant.

The Marshallian theory of supply and demand is an example ofpartial equilibrium analysis.

General equilibrium refers to the equilibrium in which, , ,

determined simultaneously for all goods produced andconsumed in the economy.

One of the major virtues of the general equilibrium model is itsability to trace the consequences of large changes in a particularsector through- out the entire economy


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General and Partial equilibrium Most of the empirical work in economics has relied on partial

equilibrium analysis.

This type of analysis concentrates on a single market and

quantifies the changes in supply, demand, prices, quantities andwelfare brought about by exogenous shocks.

This approach is well suited to markets with limited size or with.

problems do not fit easily into this category, however.

The economic sector analyzed is often large, and changes inthat sector can have important repercussions economy-wide.

Such problems are more appropriately dealt with using generalequilibrium analysis in which all the sectors in the economy areseen as one linked system where changes in any part affectprices and output economy-wide.


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Decision Making and Fallacies

Bad arguments are called fallacies.

Fallacies tend to exploit common psychologicalaspects of our mind: many people think that theyare ood ar uments.

Fallacies usually follow certain patterns, so thereare several categories of common fallacies.

You can see fallacies around you all the time

once you recognize these patterns.


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Fallacies in decision making Fallere: to deceive

Flaw in the logic of an argument Unintentional or intentional


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Post Hoc, Procter Hoc After this, therefore because of this

Establishes a questionable cause-and-effect

relationship between events Because event Y follows event X, event X causes

event Y

ere are str es a ter sc eme was ntro uce ,hence VRS scheme led to strikes

There was a dropdown in sales after a price hike,therefore price hike led to drop in sales


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Fallacy of Black &White Theorists argue that we have two choices: we MUST

do either THIS or THAT

Typically one of the two options is clearly non-

desirable or bad; hence, the conclusion that wemust do the alternative

The product has a drawback, we must start over fromscratch

Or, we have come too far not to launch the product;

starting over would mean failure


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Fallacy of Subjectivity Studies based on hypothesis

Conclusions more probabilistic than deterministic Theory valid only when assumptions are more

realistic

ro uc pac ag ng s no a ac or n r v ng sa esvolumes, people buy a good product not a goodpackage

Hygiene factors need not be present in a workenvironment, essential are good enough


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Fallacy of broken window Broken window- good or bad for economy?

Good for carpenter- short run

Opportunity cost of broken window for theeconomy

ong erm ana ys s s oss Unproductive employee- Gain of job consultant,

loss of company

War- good for some, bad for whole


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Fallacy of composition True for one- true for all?

Example- counterfeit note printed by one

Savings good for one , not for society

Product is not selling in western region, hence

pro uc s no goo One laptop from Sony had a defect, so all Sony

laptops are defective


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Fallacy of assumption Dubious assumption

Leads to false dilemma-If not a Capitalist then aSocialist

We shouldnt give aid to countries where people are,

completely.

One action necessarily leads to another

If you are leaving office early/on time, you are not

productive/sincere


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Fallacy of syllogism Logical fallacy due to a syllogism

One proposition is inferred from two others

All men are mortal-Socrates is a man- Socrates ismortal

sa espeop e are man pu a ors- o an s asalesman- Rohan is a manipulator

Good employees work on weekends- Rohandose not work on weekends- Rohan is a bademployee


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Lets Recapture Economics and its basic tenets

Micro vs. Macro

Problems of an economy

Decision making and fallacies

Next Session : Demand Analysis

Documents

Session 1 Micro Ecox