Important Points (Economics for the Managers)

Chapter 1.
Introduction of economics
1. Introduction
2. What is economics
• Economics is a social science
• Why does the problem for making choice arise?
I. Human wants, desire and aspirations are limitless
II. Resources are scares
III. Peoples are gain maximize
3. Economics goes beyond far choices-making behavior
The scope of economics
• Microeconomics
• Macroeconomics
• Specialized branches of economics studies
I. Economics of Development
II. Public economics
III. Monetary economics
IV. International economics
V. industrial economics
VI. labor economics
VII. statistics study
VIII. economics history
IX. history of economics thoughts
X. comparative economics system
XI. regional economics
XII. industrial finance
XIII. environmental economics
XIV. managerial economics
Why managers need to know economics.
• How economics contributes to managerial functions
Major area of economics applied to the business decisions
Firm related
Production
• Available technique of production
• Cost of production
• Price structure of inputs
• Cost of competitive products
• Foreign exchange availability
Sales
• General market trends
• Competitor and their market share
• Price of competition products
• Cross elasticity of demand
• Market structure and degree of competition
• Supply position of complementary goods
The scope of managerial economics
• Microeconomics applied to operational issues
• Theory of demand
• Theory of production and production decisions
• Analysis of market structure and pricing theory
• Profit analysis and profit management
• Theory of investment and capital analysis
• Macroeconomics applied to business environment
• Issues related to macro variables
• Issues related to foreign trade
• Government policies

Chapter 2.The economics and its basic problem: scarcity and choices

1. The economics an its working

2. How an economics works
3. A simple model of an economy
4. interaction between the households and firms
5. extension of the model
Kinds of economy
1. free enterprise economy
• Private ownership
• Private grains as motivating force
• Freedom of choice
• Freedom of occupational choice
• Free competition
2. The government controlled economy
3. the mixed economics
• Mixed capitalist economics
• Mixed socialist economy
Production possibilities of an economics
1. The production possibilities frontier (PPF)
2. implication of the points away from the PPF
3. The opportunity
The basic problem of an economy
1. Microeconomics problem
• What to produce
• How to produce
• For whom to produce: how to distribute social output
2. Macroeconomics Problem
• How to increase production capacity of the economics
• How to stabilize the economy
• Other problem of the macro nature
How market mechanism solves the basic problem
1. What is market mechanism?
2. What to produce?
3. How to produce
4. whom to produce
How efficient is the market system
1 all is not with free enterprises economics
Reason for the failure of the market system
The government and the economy
• government role in the capitalist society
• government role in a socialist economics
• government role in a mixed economy

Chapter 3
The fundamental laws of market: the law of demand and supply
1. The law of demand: price demand relationship
2. the law of demand
• the law of demand
Why demand curves slops downwards to the right
Inverse relationship between price and quantity demanded are following:
• substitution effect
• income effect
• diminishing marginal effect
Exception of the law of demand
• exception regarding future price
• status goods
• Giffen goods (inferior goods)
The market demand curve
Price and quantity demanded
Determination of Market Demand
1. Price of commodity
2. price of substitutes and complementary goods
3. customers income
• essential consumer goods (ECG)
• Inferior goods
• Normal goods
• Prestige goods or luxuries goods
4. consumers taste and preferences
5. Expected utility of Equilibrium
6. Consumers Expectation
7. demonstration effect
8. consumer credit facility
9. population of the country
10. distribution of national income
The demand function
The simple demand function
• linear demand function
• nonlinear function
The Dynamics or Multivariate Demand Function
Shift in demand curve
Reason for shift in demand curve
• income effect
• substitution effect
• out of fashion
• price of complementary goods
The law of supply
The supply factor
Q1=f(px)
The supply schedule
Shift in the supply curve
• Change in input prices
• Technological progress
• Price of product substitute
• Level of competition and size of the industry
• Government policy

Equilibrium of demand and supply: Determination of equilibrium price

• The concept of equilibrium
• Demand and supply adjustment
• Graphical presentation
• Algebra of demand-supply equilibrium

Chapter 4: Elasticity of demand and supply

Price elasticity of demand
• Price and arc elasticity of demand

Nature of demand curves and elasticity

Slope of the demand curves and price elasticity

Determinants of price elasticity of demand

1. Availability of substitutes
2. Nature of commodity
3. proportion of income spent on a commodity
4. time factor
5. range of alternative uses of a commodity
6. the production of market supplied

Price elasticity and marginal revenue

1. price elasticity and total revenue
2. price elasticity and consumption expenditure
3. cross elasticity demand
4. income elasticity of demand
• nature of commodity and income elasticity
5. elasticity of price expectations
6. the uses of elasticity
7. price elasticity of supply
Determinants of the price elasticity of supply
• Time period
• Law of diminishing return
Chapter 5: Failure of the market economy and role of the government

1. Imperfect market information and market failure

2. Growth of monopolies and market failure
3. market failure in case of public goods
what is public goods
characteristics of pure public goods
1. collective or joint consumption
2. Non-rival consumption
3. Non-excludability
Public goods and market failure
1. Market failure due to Non Rival Consumption
2. Market failure due to Non- excludability
3. Problem of free riders
Externalities and market failure
Public provision of public goods
Externalities and government intervention
Treatment of external costs
Treatments of external Benefits

Chapter 6: Theory of consumer demand: Cardinal Approach

Cardinal Utility theory
The meaning and measurability of utility
The meaning of utility
Measurability of utility
Total and marginal utility
The law of diminishing marginal utility and its assumption
Consumer’s Equilibrium
Assumption
Rationality
Limited money income
Maximization of satisfaction
Utility is cardinally measurable
Diminishing marginal utility
Constant utility of money
Utility is additive
Consumers Equilibrium: One commodity case
Consumers Equilibrium: The General case – the law of marginal utility

Derivation of demand curve

Drawbacks of cardinal approach

Chapter 7: Theory of consumer demand: Ordinal Utility Approach

The meaning and nature of indifference curve
Assumption of ordinal utility theory
Rationality
Ordinal Utility
Transitivity and consistency of choice
Non satiety
Diminishing marginal rate of substitution

The diminishing marginal rate of substitution

Measuring marginal rate of substitution (MRS)
The diminishing MRS
Why does MRS Diminish
Properties of indifference curves
1. indifference curves have a negative slope
2. indifference curves are convex to origin
3. indifference curves can neither intersect nor be tangent
4. Upper indifference curves represent a higher level of satisfaction
The budget constraint and the budget line
Shifts in budget line
Slope in budget line
Consumers Equilibrium
Effects of change in Consumers income
1. income effect: the normal goods case
2. income effect: the inferior goods case
3. the Engel curve
Effects of price change
1. the price effect
2. income and substitution effects of price effect
Hichsian Approach
Slutsky Approach
Hichsian Approach vs Slutsky Approach
Income and substitution effects of price change on inferior goods
1. income and substitution effects of income change
2. income and substitution effect of price change
3. Giffen goods and Giffen paradox
Complementary and substitutability
The corner Solution: The Extreme Choice
The composite Goods case
Goods bads and neuters
Derivations of individual, demand curve
Comparison of cardinal ordinal utility approaches
Critique of indifference curve approach
Applications of indifference curve analysis
Measuring welfare effects of income and excise taxes
Measuring the welfare of price and income subsidies
The effects of price subsidy
Effects of income subsidy
Measuring gains from exchange of commodities
Derivations of supply curve
Chapter 8: Recent Developments in consumer theory
Samuelson’s revealed preference theory
Revealed preferences Axiom
Derivation of demand curve
Derivation of Indifference curve
Appraisal of revealed preference theory

Chapter 9: Consumer’s Surplus

Marshllian Consumers Surplus
Hicksian method of measuring consumer’s surplus
Hicksian’s four variations of consumer’s Surplus
The Quantity-compensating variation
The price-compensating variation
The quantity-equivalent variations
The price-eqivalent variation
Some uses of the consumer’s surplus concept