business economics lecture 1
TRANSCRIPT
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Business EconomicsBusiness Economics
Lecture 1
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Welcome To Business Economics
Farhan Mehboob MBA – Herriot-Watt, Scotland BSBD –Univ of Arizona,USA CCNA, CCNP, MCSE Sun Solaris Certified Administrator Teaching irregularly since 1996 (12 years)
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Copy = FAILEasiest way to spoil your gradeGroup of copiers get ZEROCopied from internet = ZEROOnly your own original work will
be rewarded!
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Topics to be DiscussedThe Themes of MicroeconomicsWhat Is a Market?
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Economics
Economics is the study of how societies use scarce resources to produce valuable commodities and distribute them among different people.
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PreliminariesMicroeconomics deals with:
– Behavior of individual units• When Consuming
–How we choose what to buy
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PreliminariesMicroeconomics deals with:
– Behavior of individual units• When Producing
–How we choose what to produce
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Preliminaries
Microeconomics deals with:– Markets: The interaction of consumers
and producers
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PreliminariesMacroeconomics deals with:
– Analysis of aggregate issues:–Economic growth, GDP, GNP– Inflation, money supply–Unemployment–Tax & subsidy
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Microeconomics vs. Macroeconomics
The Linkage Between Micro and Macro-economics– Microeconomics is the foundation of
macroeconomic analysis
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Themes of Microeconomics
According to Mick Jagger & the Rolling Stones– “You can’t always get what you want”
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Themes of Microeconomics
Why Not?–Limited Resources–Unlimited Wants
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Themes of Microeconomics
Microeconomics–Allocation of Scarce Resources and
Trade-offs–In a planned economy (Socialist)–In a market economy (Capitalist)
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Themes of Microeconomics
Microeconomics and Optimal Trade-offs1. Consumer Theory2. Workers3. Theory of the Firm
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Themes of Microeconomics
Microeconomics and Prices–The role of prices in a market
economy–How prices are determined
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Theories and ModelsMicroeconomic Analysis
–Theories are used to explain observed phenomena in terms of a set of basic rules and assumptions.
– For example–The Theory of the Firm –The Theory of Consumer Behavior
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Theories and ModelsMicroeconomic Analysis
–Models:– a mathematical representation of a theory used to make a prediction.
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Positive Versus Normative Economics
Positive Economics–Positive economics deals with the
observations or predictions of the facts of economic life.
–For example:
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Positive versus Normative Economics
Normative Economics–Normative Economics is the value
judgments about how economics should operate, based on certain moral principles or preferences?”
– For example:
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What is a Market?Markets
–A geographically defined area where buyers and sellers interact to determine the price of a product or a set of products.
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What is a Market?Markets vs. Industries
– Industries are the supply side of the market.
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What is a Market?Defining the Market
–The market parameters must be set before an analysis of the market can take place.
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What is a Market?Arbitrage
–Buying a product at a low price in one location and selling at a high price in another
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What is a Market?Competitive vs. Noncompetitive Markets
–Competitive Markets–Because of the large number of buyers and sellers, no individual buyer or seller can influence the price.–Example: Most agricultural markets
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What is a Market?Competitive vs. Noncompetitive
Markets–Noncompetitive Markets–Markets where individual producers can influence the price.–Example: OPEC
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What is a Market?Market Price
–Competitive markets establish one price.
–Noncompetitive markets may set many prices for the same product.
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What is a Market?Market Definition - The Extent of a
Market–Market Definition
• Which buyers and sellers should be included in a given market
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What is a Market?Market Definition - The Extent of a
Market–Market Extent
• Defines the boundaries of the market–Geographic–Range of products
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What is a Market?Examples
–Geographic boundaries• Gold: Lahore vs. Karachi• Housing: Islamabad vs. Rawalpindi
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What is a Market?Examples
–Range of Products• Gasoline: regular, super, & diesel• Cameras: Polaroid, point & shoot, digital
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What is a Market?Examples
–Markets for Prescription Drugs• Well-defined markets - therapeutic drugs
• Ambiguous markets - painkillers
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Summary
Scope of MicroeconomicsThemes of Microeconomics
–Limited Resources & Trade-offs–Prices–Theories & Models
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Intro to Econs: Summary
Positive vs. Normative EconomicsMarkets
–Market Defined–Competitive vs. Non-competitive
Markets–Market Extent