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Business Economics (ECO 341)Fall Semester, 2012
Khurrum S. Mughal
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Required Texts & Readings: Economics, 19th Edition by Paul A. Samuelson &
William D. Nordhaus
Recommended Readings: Articles from Economics, 4th Edition by David H. Hyman Economist Weekly, Business Section.
Course Material
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Class Participation 5
Quizzes
10
Assignments 10
Presentation 10
Two Mid Term Examinations 25
Final Exam 40
100
Grading Criteria
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5
Economics
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Definition:How societies use scarce resources to produce
valuable goods and services and distribute them among different individuals.(Economics, 19th Edition by Paul A. Samuelson & William D. Nordhaus)
Economics
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ScarcityProduction is never high
enough to meet everyone’s demand
Wants are unlimited
EfficiencyAn economy is producing
efficiently unless no individual’s economic welfare can be improved unless someone else is made worse off
Economics
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Microeconomics Study of economics at smaller scale Adam Smith: Markets, Firms, & Households Wealth of Nations (1776): Determination of prices of land, labour, &
capital; and strength and weaknesses of market mechanism
Macroeconomics Study of overall performance of the economy General Theory of Employment, Interest & Money, John M Keynes
(1936) What causes business cycles, with alternating spells of high
unemployment and high inflation
Fallacies Encountered in Economic Reasoning: The post hoc fallacy - causality Failure to hold other things constant The fallacy of composition
Basics of Economics
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Positive EconomicsBased on facts of an economy
Normative EconomicsInvolves ethical precepts and norms of fairness
Basics of Economics
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Types of EconomiesMarket Economies: Individual and private
firms make the major decisions regarding production and consumption (laissez-faire economy)
Command Economies: Government makes all important decisions about production and distribution
Mixed Economies
Basics of Economics
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Limited Resources: Land Labour Energy Factories and tools Technical knowledge etc.
Allocation among innumerable possibilities Choice of input and output allocation
Factors of Production: land, labour and capital
Basics of Economics
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Basics of Economics
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Opportunity Cost: The cost of giving up any activity when one makes a choice to choose the best possible alternativeExample: Choosing between production of
computers and printers by a firm on PPF
Basics of Economics
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Marginal Analysis: How much you get from using one more unit Marginal Utility
Marginal Product
Marginal Revenue
Marginal Cost
Basics of Economics
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Time Dimension:Short Run
Operating period in which at least one factor of production is in fixed supply
Long Run Operating period in which all factors of production
are in variable supply
Short Run Profits Vs Long Run Success of Business
Basics of Economics
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Limited Resources: Land Labour Energy Factories and tools Technical knowledge etc.
Allocation among innumerable possibilities Choice of input and output allocation
Factors of Production: land, labour and capital
Basics of Economics
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Inputs and Outputs
The Production Possibility Frontier
Application of PPFs
Poor Vs High Income Nations
Choice among Public and Private Goods
Economic Growth
Current Vs Future Consumption
Unattainable Vs Inefficient Points on PPF
Society’s Technological Possibilities
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Application of theory and tools of analysis of decision science to examine how an organization can achieve its aims and objectives most efficiently
Business Economics
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Managerial Economics
Management Decision Problems
Economic Theory:Micro & Macroeconomics
Managerial Economics:Application of economic theory
and decision tools to solve managerial decision problems
Decision Science:Mathematical Economics and Econometrics
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Relationship to economic theory:Linked to individual firms investment decision,
production and preferences of consumers.Macroeconomic conditions in which a firm is
functioning.
Economic theories aim to predict economic behaviour
Theory of the firm is of utmost importance for Managerial Economics
Relationship to Economic Theory
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Mathematical Economics is used to formalize the economic models of economic theory in the form of an equation
Econometric tools are used to statistically analysis the models using real world data
The tools are used for forecasting as well.
For Example: Demand of Education
Relationship to Decision Sciences
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Integration of Economic Theory, Decision Science Tools, and Business Areas of Study
Managerial Decision Process:Establishing the objective of the firmProblems and Obstacles towards achieving the
objectiveIdentifying the range of possible solutionsSelecting the optimal solutionImplementation of the solution
Relationship with Business Administration
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Types of Business Decisions
Price and Output Decisions
Demand Estimation
Choice of technique of production
Advertising Decisions
Long-run Production Decisions
Investment Decisions
Relationship with Business Administration
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y=f(x) or y=g(x,z) or y=h(x1, x2,…..xn)
Total, Average and Marginal ProductsExample: Labor to be employed in
Construction
Economic Models: Experiments similar to Natural science experiments by holding everything else constant
Functional Relationships in Economics
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Example of Demand and SupplyDemand Function
Qd=a-bP where b<0Supply Function
Qs=c+dP where d>0
Equilibrium
Qd=Qs
Economic Models