1. Some Concepts of Economics, Relevant to Business
Human wants are the starting point of all economic activities. They refer to the lack of satisfaction, a state of discomfort which every individual desires to eliminate.
They can be Necessities, Comforts or Luxuries.
Wants are unlimited.
Recurring in nature.
Cannot be satisfied either simultaneously or fully.
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2. Some Concepts of Economics, Relevant to Business
Human wants are the starting point of all economic activities. They refer to the lack of satisfaction, a state of discomfort which every individual desires to eliminate.
Lionel Robbins indicated that Wants are unlimited while means or resources available to satisfy them are limited or scarce.
Resources have alternative uses.
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3. Some Concepts of Economics, Relevant to Business
UTILITY
is the capacity of a good to satisfy a human want .
Total utility is the aggregate of utilities derived by the consumer from all the units of the commodity consumed.
Marginal utility is addition to total utility made by the consumption of an additional unit of the commodity
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4. TUn = MU1st + MU2nd + MU3rd ……..+ MUnth
Some Concepts of Economics, Relevant to Business
UTILITY
Thus Total Utility
TUn = MU1st + MU2nd + MU3rd ……..+ MUnth
therefore TU = ∑ MUs
Whereas marginal utility is
MUnth = TUn – TUn-1
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5. Some Concepts of Economics, Relevant to Business
DEMAND
Demand =
Desire to buy + Ability to pay + Willingness to pay
See the chapter Three on Demand Analysis
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6. Some Concepts of Economics, Relevant to Business
SUPPLY
supply of any commodity refers to various amounts of commodity which the sellers are willing to sell at a different possible prices at any given time.
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7. Some Concepts of Economics, Relevant to Business
PRODUCTION
► Commonly understood, production refers to creation of something which can be used to satisfy human want.
► In Economics , the process of addition of utilities to the existing matter *by changing its form, place and keeping it over time is referred to as production**.
Technically in production inputs* are transferred to output** using Land, Labour, Capital & Organization
- termed Factors of Production.
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8. Some Concepts of Economics, Relevant to Business
DISTRIBUTION
► The term refers to the sharing of the wealth produced in the community among various factors of production.
Land gets Rent
Labour gets Wages
Capital gets Interest &
Organization gets Profits.
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9. Some Concepts of Economics, Relevant to Business
DISTRIBUTION
► The term refers to the sharing of the wealth produced in the community among various factors of production.
however, in general, the term distribution is loosely used to denote the process by which the goods & services produced, are made to reach, through different stages, to the final consumers.
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10. Some Concepts of Economics, Relevant to Business
CONSUMPTION
► in Economics, implies destruction or use of utilities for satisfying human wants.
however, as the consumer goes on consuming more and more units of the commodity , the total utility from the commodity increases, although the marginal utility from the additional unit of commodity consumed goes on diminishing.
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11. Some Concepts of Economics, Relevant to Business
CONSUMPTION
► in Economics, implies destruction or use of utilities for satisfying human wants.
► however as the consumer goes on consuming more and more units of the commodity , the total utility from the commodity increases, although the marginal utility from the additional unit of commodity consumed goes on diminishing.
If the price of the commodity is to be considered the consumer will go on buying commodity until
Marginal Utility of X = Price of X. or
MUx = Px
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12. Some Concepts of Economics, Relevant to Business
CONSUMPTION
If the price of the commodity is to be considered the consumer will go on buying commodity until
Marginal Utility (MU) of X = Price (P) of X.
Since the consumer consumes a combination of commodities
The Law of equi - MU indicates that
MUx = MUy = MUz
Px Py Pz
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13. Some Concepts of Economics, Relevant to Business
CONSUMPTION FUNCTION
The psychological law of consumption as given by Keynes indicates that as income (Y) goes on increasing consumption (C) also increases, but at a rate less than increase in income; in such way that the savings (S) will also be increasing with the increase in income.
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14. Some Concepts of Economics, Relevant to Business
CONSUMPTION FUNCTION
Thus
C = f(Y) and S = f(Y)
Average Propensity to Consume is the ratio of consumption to income i.e. APC = C ÷Y.
Marginal Propensity to Consume is the ratio of change in consumption to change in income i.e.
MPC = ΔC ÷ ΔY.
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15. Some Concepts of Economics, Relevant to Business
CONSUMPTION FUNCTION
Thus
C = f(Y) and S = f(Y)
Average Propensity to Save is the ratio of savings to income i.e. APS = S ÷Y.
Marginal Propensity to Save is the ratio of change in savings to change in income i.e.
MPS = ΔS ÷ ΔY.
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16. Some Concepts of Economics, Relevant to Business
CONSUMPTION FUNCTION
Average Propensity to Consume & Save
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17. Some Concepts of Economics, Relevant to Business
Marginal Propensity to Consume and Save.
CONSUMPTION FUNCTION
Note how the graph indicates that
as income increases
consumption increases
at a lesser rate
but savings at higher rate.
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18. Some Concepts of Economics, Relevant to Business
COST
Production involves cost.
it is aggregate of the expenditure incurred by the producer in the process of production.
it is also the valuation placed on the use of resources
We have several concepts of costs like fixed, variable, average, marginal, money, real, private, social costs etc. We study them later.
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19. Some Concepts of Economics, Relevant to Business
PRICE
The value of anything expressed in terms of money is the ‘Price’ of that thing.
Market price is the price which actually prevails in the market at a given point of time.
Normal price is that price which is normally expected to prevail in the long run.
Market price is influenced by demand, as in a short period, supply is inelastic.
Normal price is influenced by supply as in a long period , supply is expected to adjust itself to demand.
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20. Some Concepts of Economics, Relevant to Business
MONOPOLY
► Monopoly is that market category in which there is a single seller.
► It occurs when there is only one producer of a commodity for which there is no substitute.
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21. Some Concepts of Economics, Relevant to Business
PROFIT
► is a reward which goes to the organization
( entrepreneur ) as a factor of production for its participation in the process of production.
► In common terminology profit is excess of revenue over its cost.
Gross Profit = Revenue less explicit costs &
Net Profit = Gross Profit less Depreciation & Taxes.
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22. Some Concepts of Economics, Relevant to Business
OPTIMIZATION
‘ making best possible use of available
resources to obtain the maximum
possible desirable quality of output.’
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23. Some Concepts of Economics, Relevant to Business
AVERAGE & MARGINAL
The concepts are applicable to both revenue as well as cost.
Total cost (TC)
Average cost (AC) =
Units of Output Produced
While marginal cost (MC) is additional cost for producing additional unit of output.
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24. Some Concepts of Economics, Relevant to Business
AVERAGE & MARGINAL
Either
MCnth = TCn - TCn-1
Or ΔTC
MC = ΔQ
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25. Some Concepts of Economics, Relevant to Business
ELASTICITY
► By elasticity we mean degree of responsiveness of change in one variable brought about by change in some other variable.
► The degree of responsiveness of quantity demanded of X to the change in price of X, is called as Price Elasticity of Demand.
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26. Some Concepts of Economics, Relevant to Business
MICRO & MACRO ECONOMICS - Distinction
MICRO Macro
Unit of Study Individual Aggregate
Method Slicing Lumping
Subject Matter Study of product & Study of National
Factor pricing etc. income, general level of prices, trade cycles etc.
4. Basis Based on Independence Based on inter dependence
5. Advocated by Alfred Marshall J M Keynes
6. Vision Worm’s eye view. Bird’s eye view Study of a tree. Study of a forest.
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27. Some Concepts of Economics, Relevant to Business
Concepts Studied
Wants Utility
Demand Supply
Production
Consumption & Consumption Function
Cost Price
Monopoly Profit
Optimization Average & Marginal
Elasticity
Macro & Micro Economics
We will be using and expanding on them in the rest of the course.
bye for now, get going!
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