1. Business Economics (ECO 341) Fall Semester, 2012
Khurrum S. Mughal

2. Course Material 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.

3. Grading Criteria 100 Class Participation 5 Quizzes 10 Assignments 10
Presentation
Two Mid Term Examinations
Final Exam
100

5. Economics

6. Economics 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)

7. Economics Scarcity Efficiency
Production is never high enough to meet everyone’s demand
Wants are unlimited
Efficiency
An economy is producing efficiently unless no individual’s economic welfare can be improved unless someone else is made worse off

8. Basics of Economics 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

9. Basics of Economics Positive Economics Normative Economics
Based on facts of an economy
Normative Economics
Involves ethical precepts and norms of fairness

10. Basics of Economics Types of Economies
Market 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

11. Basics of Economics 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

12. Basics of Economics

13. Basics of Economics
Opportunity Cost: The cost of giving up any activity when one makes a choice to choose the best possible alternative
Example: Choosing between production of computers and printers by a firm on PPF

14. Basics of Economics
Marginal Analysis: How much you get from using one more unit
Marginal Utility
Marginal Product
Marginal Revenue
Marginal Cost

15. Basics of Economics Time Dimension: Short Run Long 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

16. Basics of Economics 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

17. Society’s Technological Possibilities
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

18. Business Economics
Application of theory and tools of analysis of decision science to examine how an organization can achieve its aims and objectives most efficiently

19. Management Decision Problems
Managerial Economics
Management Decision Problems
Economic Theory:
Micro & Macroeconomics
Decision Science:
Mathematical Economics and Econometrics
Managerial Economics:
Application of economic theory and decision tools to solve managerial decision problems

20. 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

21. Relationship to Decision Sciences
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

22. Relationship with Business Administration
Integration of Economic Theory, Decision Science Tools, and Business Areas of Study
Managerial Decision Process:
Establishing the objective of the firm
Problems and Obstacles towards achieving the objective
Identifying the range of possible solutions
Selecting the optimal solution
Implementation of the solution

23. Relationship with Business Administration
Types of Business Decisions
Price and Output Decisions
Demand Estimation
Choice of technique of production
Advertising Decisions
Long-run Production Decisions
Investment Decisions

24. Functional Relationships in Economics
y=f(x) or y=g(x,z) or y=h(x1, x2,…..xn)
Total, Average and Marginal Products
Example: Labor to be employed in Construction
Economic Models: Experiments similar to Natural science experiments by holding everything else constant

25. Economic Models Equilibrium Qd=Qs Example of Demand and Supply
Demand Function
Qd=a-bP where b<0
Supply Function
Qs=c+dP where d>0
Equilibrium
Qd=Qs