REVIEWER - MANAGERIAL ECONOMICS

MODULE 1: Lesson 1

LESSON OBJECTIVES

At the end of this lesson, the students will be able to…

 ✓understand the economic theory;

✓define managerial economics;

 ✓explain the economic activity and illustrate the circular flow model;

 ✓define and differentiate demand and supply;

 ✓calculate and interpret the demand price sensitivity; and

✓explain the market equilibrium and disequilibrium.

 

ECONOMIC THEORY

Ø  Goods and Bads

good

is anything that gives a person utility or satisfaction. It can be either tangible or intangible

 e.g. a computer, a car, a watch, a television set, friendship, and love.

bad

is something that gives a person disutility or dissatisfaction.

e.g. if the flu gives you disutility or dissatisfaction, then it is a bad. if the constant nagging of an acquaintance is something that gives you disutility or dissatisfaction, then it is a bad

People want goods, and they do not want bads.

In fact, they will pay to get goods: “here is P50,000 for the computer”, and they will pay to get rid of bads: “I’d be willing to pay you, doctor, if you can prescribe something that will shorten the time, I have the flu”.

Ø  Resources

Goods do not just appear before us when we snap our fingers.

It takes resources to produce goods. (Sometimes resources are referred to as inputs or factors of production.) Four broad resources categories:

Ø  Resources

▪ land,

▪ labor,

▪ capital, and

▪ entrepreneurship.

Land

includes natural resources, such as minerals, forests, water, and unimproved land.

For example, oil, wood, and animals fall into this category. (Sometimes economists refer to the category simply as natural resources.)

Labor

consists of the physical and mental talents that people contribute to the production process.

 For example, A mechanic repairing a car is providing his labor.

Capital

consists of produced goods that can be used as inputs for further production. Factories, machinery, tools, computers, and buildings are examples of capital.

Entrepreneurship

refers to the talent that some people have for organizing the resources of land, labor, and capital to produce goods, seek new business opportunities, and develop new ways of doing things.

Ø  Scarcity

is the condition in which our wants (for goods) are greater than the limited resources (land, labor, capital, and entrepreneurship) available to satisfy those wants.

In other words, we want goods, but not enough resources are available to provide us with all the goods we want

If scarcity didn’t exist, neither would economics.

In other words, if our wants weren’t greater than the limited resources available to satisfy them, there would be no field of study called economics.

economy

comes from the Greek word oikonomos,

comes from the Greek word oikonomos,

which means “one who manages a household.”

Economics

is the science that deals with the allocation of limited resources to satisfy unlimited human wants.

Basic Assumptions of Economics

- it is the foundational beliefs held by economists, governments, and business organizations.

- it explain phenomena, understand consumer behavior, and facilitate critical decision-making based on these inferences.

- it form the basis of many economic theories and models, often used for hypothesis testing.

Basic Assumptions of Economics

▪ Unlimited Wants and Scarcity of Resources

This is the foundational problem of economics. We assume that human desires for goods and services are unlimited, but the resources available to produce them (land, labor, capital) are limited or scarce.

This scarcity forces individuals to make choices and trade-offs.

Basic Assumptions of Economics

▪ Trade-off

It is what you have to give up in order to get something else. Because of scarcity, we can't have everything we want, so we must make choices. When you make a choice, you're trading one thing for another.

The value of the thing you give up is called the opportunity cost.

Basic Assumptions of Economics

▪ Rationality

It is assumed that individuals, or "economic actors" (consumers, producers, etc.), are rational. This means they make decisions to maximize their own well-being or "utility."

For consumers, this involves choosing the goods and services that give them the most satisfaction. For firms, it means making decisions to maximize profits.

Basic Assumptions of Economics

▪ Ceteris Paribus

This Latin phrase means "all other things being equal. " It's a critical assumption used to isolate the effect of one variable on another.

For example, when economists study how a price change affects demand, they assume that factors like consumer income, tastes, and the prices of other goods remain constant.

Basic Assumptions of Economics

▪ Perfect Information

In many basic models, it's assumed that market participants have full and immediate access to all the information they need to make decisions.

For example, a consumer knows the prices and qualities of all competing products.

Branches of Economics

“It has been said that the tools of microeconomics are microscopes, and the tools of macroeconomics are telescopes.

Macroeconomics stands back from the trees to see the forest.

Microeconomics gets up close and examines the tree itself, its bark, its limbs, and its roots.”

microscopes

“It has been said that the tools of microeconomics are

telescopes.

and the tools of macroeconomics are

Macroeconomics

stands back from the trees to see the forest.

Microeconomics

gets up close and examines the tree itself, its bark, its limbs, and its roots.”

Branches of Economics

Microeconomics

▪ The prefix micro is derived from the Greek word mikros, which means “small.”

▪ It is the branch of economics that deals with human behavior and choices as they relate to relatively small units: an individual, a firm, an industry, a single market.

▪ The prefix micro is derived from the Greek word

mikros

mikros

which means “small.”

▪ It is the branch of economics that deals with human behavior and choices as they relate to relatively small units:

an individual, a firm, an industry, a single market.

Branches of Economics

Macroeconomics

▪ The prefix macro comes from the Greek word makros, which means “large.”

▪ It is the branch of economics that deals with human behavior and choices as they relate to an entire economy.

“large.”

▪ The prefix macro comes from the Greek word makros, which means

entire economy.

▪ It is the branch of economics that deals with human behavior and choices as they relate to an