Economic & Legal Impact
( ELI )
SLIM Professional Certificate in Marketing
Economic & Legal Impact
What is Economics?
…is a social science that studies,
how to allocate scarce resources
to satisfy the unlimited wants.
( i.e. Individuals, Governments, Firms and Nations )
Economics
Macroeconomics Microeconomics
Very small-scaleVery Large-scale
Economics
Macroeconomics Microeconomics
…study of
the effects of
Individual Economic Units
(Households & Firms)
…study of
aggregate effects of
Total Economic Units
(National & International)
1.1 Economics – As a Social Science
1. Fundamental
Economic Ideas
1.1 As a Social Science
1.2 Scarcity
1.3 PPC
1.4 Opportunity Cost
1.5 Money
1.6 National Income
2. Market Failure
2.1 Free Market
2.2 Market Failure
2.3 Social/ Private Cost
2.4 Social./ Priv. Benefits
2.5 Externalities
2.6 Public Goods
2.7 Merit Goods
Natural Sciences
study the Natural World.
Eg : Biology,
Chemistry,
Physics,
Astronomy
Geography
Sciences (Areas of study)
Social Sciences
study the Human Behaviour, Society and Social Patterns.
Eg : Archaeology
Criminology
Law
Political Science
International Relations
History
Human Geography
Sociology
Economics
1.1 Economics – As a Social Science
1. Fundamental
Economic Ideas
1.1 As a Social Science
1.2 Scarcity
1.3 PPC
1.4 Opportunity Cost
1.5 Money
1.6 National Income
2. Market Failure
2.1 Free Market
2.2 Market Failure
2.3 Social/ Private Cost
2.4 Social./ Priv. Benefits
2.5 Externalities
2.6 Public Goods
2.7 Merit Goods
People BEHAVE RATIONALLY at all times
and
Seek to IMPROVE their circumstances.
• Sellers/ Producers try to maximize the PROFIT
• Consumers try to maximize the UTILITY (Satisfaction)
• Governments try to maximize the WELFARE (of the people)
Economists assume :
1.1 Economics – As a Social Science
1. Fundamental
Economic Ideas
1.1 As a Social Science
1.2 Scarcity
1.3 PPC
1.4 Opportunity Cost
1.5 Money
1.6 National Income
2. Market Failure
2.1 Free Market
2.2 Market Failure
2.3 Social/ Private Cost
2.4 Social./ Priv. Benefits
2.5 Externalities
2.6 Public Goods
2.7 Merit Goods
Different Economic Systems :
1. Centrally Planned or Command EconomyAll economic decisions & choices are made by the Government.
What to produce, How much to pay, Prices for goods & Services.
Rationale : Only the government can make fair &
proper distribution for all members of society.
2. Market EconomyAll economic decisions & choices are controlled by Market forces of Demand & Supply.
Rationale : It is obvious that Market Economies generate more wealth in total, than the command economies. More Efficient !
3. Mixed EconomyThe economic decisions & choices are controlled partly by the Market forces of Demand & Supply AND partly by the Government.
Rationale : To combine the Efficiency AND Fair & Proper Distribution.
1.1 Economics – As a Social Science
1. Fundamental
Economic Ideas
1.1 As a Social Science
1.2 Scarcity
1.3 PPC
1.4 Opportunity Cost
1.5 Money
1.6 National Income
2. Market Failure
2.1 Free Market
2.2 Market Failure
2.3 Social/ Private Cost
2.4 Social./ Priv. Benefits
2.5 Externalities
2.6 Public Goods
2.7 Merit Goods
Different Economic Systems : Mixed Economy
Government is influencing to Market Forces (Demand & Supply)
1. Direct Controls (Tax, Interest Rate etc.)
2. Indirect Taxes & Subsidies affect to prices
3. Government Institutes supply Goods/ Services
4. Regulations to encourage/ discourage selected products.
5. Income taxes/ Welfare Programmes ets.
1.2 Scarcity
1. Fundamental
Economic Ideas
1.1 As a Social Science
1.2 Scarcity
1.3 PPC
1.4 Opportunity Cost
1.5 Money
1.6 National Income
2. Market Failure
2.1 Free Market
2.2 Market Failure
2.3 Social/ Private Cost
2.4 Social./ Priv. Benefits
2.5 Externalities
2.6 Public Goods
2.7 Merit Goods
1. Scarcity of Resources
2. Choice
3. Opportunity Cost
1.2 Scarcity
1. Fundamental
Economic Ideas
1.1 As a Social Science
1.2 Scarcity
1.3 PPC
1.4 Opportunity Cost
1.5 Money
1.6 National Income
2. Market Failure
2.1 Free Market
2.2 Market Failure
2.3 Social/ Private Cost
2.4 Social./ Priv. Benefits
2.5 Externalities
2.6 Public Goods
2.7 Merit Goods
1. Scarcity of Resources
There are limits to available resources !
The IMBALANCE betweenhuman WANTS and RESOURCES.
( i.e. For both Individuals AND Society / World )
Some Resources are NOT scarce !Air, Water, Sun Light, Sand (in a desert), Ice (in Antarctica)
1.2 Scarcity
1. Fundamental
Economic Ideas
1.1 As a Social Science
1.2 Scarcity
1.3 PPC
1.4 Opportunity Cost
1.5 Money
1.6 National Income
2. Market Failure
2.1 Free Market
2.2 Market Failure
2.3 Social/ Private Cost
2.4 Social./ Priv. Benefits
2.5 Externalities
2.6 Public Goods
2.7 Merit Goods
Scarcity is….
The excess human wants over
what can actually be produced.
1.2 Scarcity
1. Fundamental
Economic Ideas
1.1 As a Social Science
1.2 Scarcity
1.3 PPC
1.4 Opportunity Cost
1.5 Money
1.6 National Income
2. Market Failure
2.1 Free Market
2.2 Market Failure
2.3 Social/ Private Cost
2.4 Social./ Priv. Benefits
2.5 Externalities
2.6 Public Goods
2.7 Merit Goods
2. Choice
Choice is ;
the Selection of ‘optimum return-giving alternative’
out of available alternatives.
SUBJECTIVE !!
1.2 Scarcity
1. Fundamental
Economic Ideas
1.1 As a Social Science
1.2 Scarcity
1.3 PPC
1.4 Opportunity Cost
1.5 Money
1.6 National Income
2. Market Failure
2.1 Free Market
2.2 Market Failure
2.3 Social/ Private Cost
2.4 Social./ Priv. Benefits
2.5 Externalities
2.6 Public Goods
2.7 Merit Goods
3. Opportunity Cost
Opportunity Cost is ;
the ‘cost’ of an item measured in terms of
alternatives forgone.
( the ‘Lost Benefit’ )
1.2 Scarcity
1. Fundamental
Economic Ideas
1.1 As a Social Science
1.2 Scarcity
1.3 PPC
1.4 Opportunity Cost
1.5 Money
1.6 National Income
2. Market Failure
2.1 Free Market
2.2 Market Failure
2.3 Social/ Private Cost
2.4 Social./ Priv. Benefits
2.5 Externalities
2.6 Public Goods
2.7 Merit Goods
Example !
Selected Alternative (Choice)
Gunawathi
Karunawathi
Premawathi
Tikiri
Bindumathi
Sandawathi
1
2
3
5
4
6
Opportunity Cost
1.2 Scarcity
1. Fundamental
Economic Ideas
1.1 As a Social Science
1.2 Scarcity
1.3 PPC
1.4 Opportunity Cost
1.5 Money
1.6 National Income
2. Market Failure
2.1 Free Market
2.2 Market Failure
2.3 Social/ Private Cost
2.4 Social./ Priv. Benefits
2.5 Externalities
2.6 Public Goods
2.7 Merit Goods
Example - 2
Job - A
Job - C
Job - B
1
Rs. 22,000 , “a field Job”
Rs. 16,000 + Training Opportunities
Rs. 18,500 + Commissions (based on sales)
1.2 Scarcity
1. Fundamental
Economic Ideas
1.1 As a Social Science
1.2 Scarcity
1.3 PPC
1.4 Opportunity Cost
1.5 Money
1.6 National Income
2. Market Failure
2.1 Free Market
2.2 Market Failure
2.3 Social/ Private Cost
2.4 Social./ Priv. Benefits
2.5 Externalities
2.6 Public Goods
2.7 Merit Goods
Example - 3
Rs. 100,000/-
Fixed Deposit in a bank
Invest for a business
Lending to a friend (1 year)
Interest 10% p.a.
Rate of return 45% p.a.
Pay back with Rs.10,000/-
1.2 Scarcity
1. Fundamental
Economic Ideas
1.1 As a Social Science
1.2 Scarcity
1.3 PPC
1.4 Opportunity Cost
1.5 Money
1.6 National Income
2. Market Failure
2.1 Free Market
2.2 Market Failure
2.3 Social/ Private Cost
2.4 Social./ Priv. Benefits
2.5 Externalities
2.6 Public Goods
2.7 Merit Goods
Factors of Production(4 Types of Resources)
Factor
1. Land
2. Labour
3. Capital
4. Enterprise
Factor payment/ income
Rent
Wages (Salaries)
Interest
Profits
1.3 Production Possibility Curve – (PPC / PPF)
1. Fundamental
Economic Ideas
1.1 As a Social Science
1.2 Scarcity
1.3 PPC
1.4 Opportunity Cost
1.5 Money
1.6 National Income
2. Market Failure
2.1 Free Market
2.2 Market Failure
2.3 Social/ Private Cost
2.4 Social./ Priv. Benefits
2.5 Externalities
2.6 Public Goods
2.7 Merit Goods
…a curve showing
all maximum output possibilities
of producing 2 products/ services,
using the available resources.
PPC is….
1.3 Production Possibility Curve – (PPC / PPF)
1. Fundamental
Economic Ideas
1.1 As a Social Science
1.2 Scarcity
1.3 PPC
1.4 Opportunity Cost
1.5 Money
1.6 National Income
2. Market Failure
2.1 Free Market
2.2 Market Failure
2.3 Social/ Private Cost
2.4 Social./ Priv. Benefits
2.5 Externalities
2.6 Public Goods
2.7 Merit Goods
Assumptions….
• The economy produces only 2 Commodities.
• The BEST technologies are used.
• The HIGHEST efficiency standards are being met.
• ALL AVAILABLE resources have been utilized.
1.3 Production Possibility Curve – (PPC / PPF)
1. Fundamental
Economic Ideas
1.1 As a Social Science
1.2 Scarcity
1.3 PPC
1.4 Opportunity Cost
1.5 Money
1.6 National Income
2. Market Failure
2.1 Free Market
2.2 Market Failure
2.3 Social/ Private Cost
2.4 Social./ Priv. Benefits
2.5 Externalities
2.6 Public Goods
2.7 Merit Goods
Cars
0
500
1,000
1,500
2,000
Rice
40,000
30,000
20,000
10,000
0
Alternative
A
B
C
D
E
1.3 Production Possibility Curve – (PPC / PPF)
1. Fundamental
Economic Ideas
1.1 As a Social Science
1.2 Scarcity
1.3 PPC
1.4 Opportunity Cost
1.5 Money
1.6 National Income
2. Market Failure
2.1 Free Market
2.2 Market Failure
2.3 Social/ Private Cost
2.4 Social./ Priv. Benefits
2.5 Externalities
2.6 Public Goods
2.7 Merit Goods 10,000 20,000 30,000 40,000
2,000
1,500
1,000
500
00
Cars
Rice
Cars
0
500
1,000
1,500
2,000
Rice
40,000
30,000
20,000
10,000
0
Alternative
A
B
C
D
E
A
B
E
C
D PPC
1.3 Production Possibility Curve – (PPC / PPF)
1. Fundamental
Economic Ideas
1.1 As a Social Science
1.2 Scarcity
1.3 PPC
1.4 Opportunity Cost
1.5 Money
1.6 National Income
2. Market Failure
2.1 Free Market
2.2 Market Failure
2.3 Social/ Private Cost
2.4 Social./ Priv. Benefits
2.5 Externalities
2.6 Public Goods
2.7 Merit Goods
In Practice !
10,000 20,000 30,000 40,000
2,000
1,500
1,000
500
00
Cars
Rice
1.3 Production Possibility Curve – (PPC / PPF)
1. Fundamental
Economic Ideas
1.1 As a Social Science
1.2 Scarcity
1.3 PPC
1.4 Opportunity Cost
1.5 Money
1.6 National Income
2. Market Failure
2.1 Free Market
2.2 Market Failure
2.3 Social/ Private Cost
2.4 Social./ Priv. Benefits
2.5 Externalities
2.6 Public Goods
2.7 Merit Goods
Marketing Applications of PPC
A
B1. Advertising Budget Vs. Other Marketing Expenses
2. Producing Computers Vs. Printers (i.e. HP)
3. Marketing Research Cost Vs. Sales Commissions
4. Cost for Annual Awards Vs. Incentives/ Bonus
5. New Product Development Vs. Sales Staff Training Cost
1.3 Production Possibility Curve – (PPC / PPF)
1. Fundamental
Economic Ideas
1.1 As a Social Science
1.2 Scarcity
1.3 PPC
1.4 Opportunity Cost
1.5 Money
1.6 National Income
2. Market Failure
2.1 Free Market
2.2 Market Failure
2.3 Social/ Private Cost
2.4 Social./ Priv. Benefits
2.5 Externalities
2.6 Public Goods
2.7 Merit Goods
10,000 20,000 30,000 40,000
2,000
1,500
1,000
500
00
PC’s
Printers
B
A
Inefficiency in a PPC
1.3 Production Possibility Curve – (PPC / PPF)
1. Fundamental
Economic Ideas
1.1 As a Social Science
1.2 Scarcity
1.3 PPC
1.4 Opportunity Cost
1.5 Money
1.6 National Income
2. Market Failure
2.1 Free Market
2.2 Market Failure
2.3 Social/ Private Cost
2.4 Social./ Priv. Benefits
2.5 Externalities
2.6 Public Goods
2.7 Merit Goods
10,000 20,000 30,000 40,000
2,000
1,500
1,000
500
00
TVC’s
Sales Commissions
B
A
O/C
Opportunity Cost in a PPC
1.5 Money
1. Fundamental
Economic Ideas
1.1 As a Social Science
1.2 Scarcity
1.3 PPC
1.4 Opportunity Cost
1.5 Money
1.6 National Income
2. Market Failure
2.1 Free Market
2.2 Market Failure
2.3 Social/ Private Cost
2.4 Social./ Priv. Benefits
2.5 Externalities
2.6 Public Goods
2.7 Merit Goods
In modern Economies,
MONEY is used as
a means of
paying for Goods & Services,
and
paying for Factors of Production (i.e. Land, Labour, Capital, Enterprise).
1.5 Money
1. Fundamental
Economic Ideas
1.1 As a Social Science
1.2 Scarcity
1.3 PPC
1.4 Opportunity Cost
1.5 Money
1.6 National Income
2. Market Failure
2.1 Free Market
2.2 Market Failure
2.3 Social/ Private Cost
2.4 Social./ Priv. Benefits
2.5 Externalities
2.6 Public Goods
2.7 Merit Goods
Functions (Roles) of Money
1. a means of Exchange
2. a unit of Value
3. a standard for Differed Payment
4. a store of Value
1.6 National Income
1. Fundamental
Economic Ideas
1.1 As a Social Science
1.2 Scarcity
1.3 PPC
1.4 Opportunity Cost
1.5 Money
1.6 National Income
2. Market Failure
2.1 Free Market
2.2 Market Failure
2.3 Social/ Private Cost
2.4 Social./ Priv. Benefits
2.5 Externalities
2.6 Public Goods
2.7 Merit Goods
The sum of all incomes
which arise as a result of
economic activities of the country.
Rs.
Total Rent earned for Land = 2,000,000
Total Wages earned for Labour = 500,000
Total Interest earned for Capital = 1,000,000
Total Profit earned for Entrepreneurship = 3,500,000
National Income (National Product)= 7,000,000
1.6 National Income
1. Fundamental
Economic Ideas
1.1 As a Social Science
1.2 Scarcity
1.3 PPC
1.4 Opportunity Cost
1.5 Money
1.6 National Income
2. Market Failure
2.1 Free Market
2.2 Market Failure
2.3 Social/ Private Cost
2.4 Social./ Priv. Benefits
2.5 Externalities
2.6 Public Goods
2.7 Merit Goods
3 Production Sectors of an Economy
Rent = 2,000,000
Wages = 500,000
Interest = 1,000,000
Profit = 3,500,000
= 7,000,000
Industrial
1,000,000
500,000
200,000
800,000
2,500,000
35%
Agricul;
100,000
150,000
250,000
500,000
1,000,000
15%
Services
500,000
1,500,000
500,000
1,000,000
3,500,000
50%
1.6 National Income
1. Fundamental
Economic Ideas
1.1 As a Social Science
1.2 Scarcity
1.3 PPC
1.4 Opportunity Cost
1.5 Money
1.6 National Income
2. Market Failure
2.1 Free Market
2.2 Market Failure
2.3 Social/ Private Cost
2.4 Social./ Priv. Benefits
2.5 Externalities
2.6 Public Goods
2.7 Merit Goods
Different Concepts of National Income
1. Gross Domestic Product (GDP)
2. Gross National Product (GNP)
3. Net National Product (NNP)
4. Personal Income
5. Disposable Income
1.6 National Income
1. Fundamental
Economic Ideas
1.1 As a Social Science
1.2 Scarcity
1.3 PPC
1.4 Opportunity Cost
1.5 Money
1.6 National Income
2. Market Failure
2.1 Free Market
2.2 Market Failure
2.3 Social/ Private Cost
2.4 Social./ Priv. Benefits
2.5 Externalities
2.6 Public Goods
2.7 Merit Goods
Different Concepts of National Income
1. Gross Domestic Product (GDP)
2. Gross National Product (GNP)
3. Net National Product (NNP)
4. Personal Income
5. Disposable Income
1.6 National Income
1. Fundamental
Economic Ideas
1.1 As a Social Science
1.2 Scarcity
1.3 PPC
1.4 Opportunity Cost
1.5 Money
1.6 National Income
2. Market Failure
2.1 Free Market
2.2 Market Failure
2.3 Social/ Private Cost
2.4 Social./ Priv. Benefits
2.5 Externalities
2.6 Public Goods
2.7 Merit Goods
Different Concepts of National Income
Gross Domestic Product (GDP)
Total production value of
the economic activities
within the country.
(i.e. Locals or Foreigners)
1.6 National Income
1. Fundamental
Economic Ideas
1.1 As a Social Science
1.2 Scarcity
1.3 PPC
1.4 Opportunity Cost
1.5 Money
1.6 National Income
2. Market Failure
2.1 Free Market
2.2 Market Failure
2.3 Social/ Private Cost
2.4 Social./ Priv. Benefits
2.5 Externalities
2.6 Public Goods
2.7 Merit Goods
Different Concepts of National Income
Gross National Product (GNP)
Total production value of
the economic activities
of Sri Lankans.
( i.e. where ever in the world )
1.6 National Income
1. Fundamental
Economic Ideas
1.1 As a Social Science
1.2 Scarcity
1.3 PPC
1.4 Opportunity Cost
1.5 Money
1.6 National Income
2. Market Failure
2.1 Free Market
2.2 Market Failure
2.3 Social/ Private Cost
2.4 Social./ Priv. Benefits
2.5 Externalities
2.6 Public Goods
2.7 Merit Goods
Different Concepts of National Income
GDP + (Net Foreign Factor Income) = GNP
GDP = 100,000
(+) Foreign Factor Income Receipts 25,000
(-) Foreign Factor Income Payments (10,000) (15,000)
GNP = 85,000
1.6 National Income
1. Fundamental
Economic Ideas
1.1 As a Social Science
1.2 Scarcity
1.3 PPC
1.4 Opportunity Cost
1.5 Money
1.6 National Income
2. Market Failure
2.1 Free Market
2.2 Market Failure
2.3 Social/ Private Cost
2.4 Social./ Priv. Benefits
2.5 Externalities
2.6 Public Goods
2.7 Merit Goods
Different Concepts of National Income
Net National Product (NNP)
GNP - Capital Assets Depreciation = NNP
1.6 National Income
1. Fundamental
Economic Ideas
1.1 As a Social Science
1.2 Scarcity
1.3 PPC
1.4 Opportunity Cost
1.5 Money
1.6 National Income
2. Market Failure
2.1 Free Market
2.2 Market Failure
2.3 Social/ Private Cost
2.4 Social./ Priv. Benefits
2.5 Externalities
2.6 Public Goods
2.7 Merit Goods
Different Concepts of National Income
Personal Income
National Income =
1,000,000
+ (Transfers + Net Interest + Dividends) =
50,000
- (Corporate Profits + Social Security Tax) = (30,000)
Personal Income =
1,020,000
1.6 National Income
1. Fundamental
Economic Ideas
1.1 As a Social Science
1.2 Scarcity
1.3 PPC
1.4 Opportunity Cost
1.5 Money
1.6 National Income
2. Market Failure
2.1 Free Market
2.2 Market Failure
2.3 Social/ Private Cost
2.4 Social./ Priv. Benefits
2.5 Externalities
2.6 Public Goods
2.7 Merit Goods
Different Concepts of National Income
Disposable Income
Personal Income =
1,020,000
- Income Tax =
(100,000)
Disposable Income =
920,000
For Consumption or Saving
Thank you.
Production Possibility Curve - Exercise 1
Shirts
0
50,000
100,000
………..
………..
PC’s
100,000
………
...........
25,000
0
Alternative
A
B
C
D
E
1. Fill in the blanks.2. Draw the PPC.
‘Sharukh’ is a cellular phone service providing company. Company’s
promotional budget is Rs. 50,000,000/- for the year 2012. This can be
used for airing the TVC or for the additional sales commissions.
Other details are as follows;
1. TVC cost (per airing) = Rs. 125,000/-
2. Additional commissions (per connection) = Rs.500/-
1. Calculate the Maximum No.of TVC’s or Maximum No.of unit sales commissions.
2. Draw the PPC. (Assume the PPC is a Straight Line)
3. If the company has decided to air only 200 TVC’s during 2012, what is the number of
additional connections that the company can promote more.
4. Calculate the opportunity cost of airing a TVC.
Production Possibility Curve - Exercise 2