mba economics

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Economic Analysis

for business



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What does the term Economics

mean to you?



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´Economics is the study of how people allocate

their limited resources in an attempt to satisfytheir unlimited wants. As such, economics is thestudy of how people make choicesµ

´Economics is the study of how societies use

scarce resources to produce valuablecommodities and distribute them amongdifferent peopleµ



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Limited Resources?

Resources- things/ inputs used to

produce other things to satisfy

people¶s wants. They have value.

They can be put to alternative uses.

Limited- a relative term, resources are

limited in terms of unlimited wants.

Wants- all items people would want to

buy if they had unlimited income.



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Sadly, we cannot satisfy all our wants

Since resources can be put intoalternative uses, we can choose how

to utilize our limited resources.

For instance, resources like time,

income.



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Scarcity, Choices

Scarcity- a situation in which the

resources for producing the things that

people desire are insufficient to satisfy

all wants.

To put it simply, it means that we do

not ever have enough of everything,

including time, to satisfy our everydesire.



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Why does scarcity exist?

Human wants always exceed what

can be produced with limitedresources and time that nature makes

available.

That is, wants are unlimited, but

resources are limited.

Scarcity is a fact of life, like gravity.



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Scarcity and resources

Resources are insufficient to satisfy

our every desire.

Resources are the inputs used in theproduction of the things that we want.

Production?- an activity that converts

resources into products/goods that

can be used in consumption.



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Resources (factors of production)

Land- include natural resources used in the productionprocess, such as rivers, minerals, and forests.

Labor- includes physical and mental activities of individuals used to produce goods and services.

Physical Capital-includes human-made resourcesused in producing consumer goods and services such asmachinery, tools, and warehouse facilities.

Human Capital- economic characterization of education and training, pool of skills, and training, Improvesproductivity.

Entrepreneurship- human talent that combines theother resources to produce products, make strategicdecisions and bear risks.



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Wants & Needs

Needs cannot be objectively defined.

A vague wish, a want, or a life saving

necessity. People desire something

that they do not currently have.

Wants- wants are unlimited, given the

limited resources. So we cannot

satisfy all our wants.



Unlimited wants, limited resources

Problem of scarcity-

Scarcity leads to choice ( we need to make

choices).

Whenever a choice is made to produce or

buy something, something else that is also

desired is not produced or not purchased.

Whenever one want is satisfied, other wants remain unsatisfied.



Scarcity & Choice

Scarcity Choice

Whenever a choice is made, some

opportunity must be sacrificed.Therefore, every choice involves

giving up an opportunity to produce or

consume something else.

Opportunity Cost ± the value of the

next best (next-highest ranked )

alternative forgone.



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Three Fundamental economic

problem

Every society must have a way of

determining :

What commodities are produced

How these goods are made

For whom they are produced



Society¶s capability &

Possibilities

Land

Labor

Capital resources



Production Possibility Frontier

(PPF)

Societies cannot have everything they

want .They are limited by the resources

and technology available to them



Micro & Macro economics

Micro economics is the branch of

economics which today is

concerned with the behavior of

individual entities such as markets,

firms, and households.

Macro economics ,which isconcerned with the overall

performance of the economy .



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MICROECONOMICS

Studies small parts of

the economy. It deals with the

behavior of individual

economic units.

Consumers, workers,

investors, owners of

land, business firms.

MACROECONOMICS

Studies economy as a

whole It deals with aggregate

economic quantities

Level and growth rate

of national output,

interest rates,

unemployment, and

inflation.



Economic role of Government

Government have three main economicfunctions in a market economy.

Govt. increase efficiency by promoting

competition, curbing externalities likepollution, and providing public goods.

Govt. promote equity by using tax andexpenditure programs to redistribute

income toward particular groups.Govt. foster macroeconomic stability and

growth-reducing unemployment andinflation

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