Business economics

Business Economics

COURSE DESIGN COMMITTEE

Chief Academic Officer Dr. Sanjeev Chaturvedi NMIMS Global Access ? School for Continuing Education.

Stream Leader

Ms. Dimple Pandey

Assistant Professor, NMIMS Global Access - School of Continuing Education. Specialization: Finance.

Content Reviewer

Prof. Pooja Grover

Visiting Faculty, NMIMS Global Access - School for Continuing Education. Specialization: Economics, Finance.

TOC Reviewer Dr. Sreejith Narayanan Specialization: Economics.

Content Reviewer Mr. Kali Charan Sabat Assistant Professor, NMIMS Global Access - School for Continuing Education. Specialization: Operations

Author : Ms. Pratibha Bagga Reviewed By: Prof. Pooja Grover & Mr. Kali Charan Sabat

Copyright: 2016 Publisher

ISBN: 978-93-5119-459-0

Address: 4435/7, Ansari Road, Daryaganj, New Delhi?110002

Only for NMIMS Global Access - School for Continuing Education School Address

V. L. Mehta Road, Vile Parle (W), Mumbai ? 400 056, India.

NMIMS Global Access - School for Continuing Education

CHAPTER NO. 1 2 3 4 5 6 7 8 9 10 11

CON T EN T S

CHAPTER NAME Introduction To Business Economics

Demand Analysis Supply Analysis Consumer Demand Analysis Elasticity of Demand and Supply Demand Forecasting Production Theory Cost and Revenue Analysis Market Structure Market Failure

Case Studies

PAGE NO. 1 33 63 87 121 173 197 233 265 295 311

NMIMS Global Access - School for Continuing Education

Business Economics

c u rr i c u l u m

Introduction to Business Economics: Economics and Business Decision Making; Economics: Scope of economics; economics as a tool for decision making; Business Economics: Definition and scope; distinction between economics and Business Economics; Economic Indicators and Business Cycles

Demand and Supply Analysis: Demand, Generalized Demand Function, The law of demand, Shift and movement along demand curve, Elasticity of demand: Price, Income and Cross Price elasticity of demand, Demand Estimation: Basic concepts , Supply, Generalized supply function, Supply functions, Shifts and movement in the supply curve, Supply elasticity, Market equilibrium, Changes in the market equilibrium, Changes in demand (supply constant), Changes in supply (demand constant).

Cost & Production Analysis: Production in the short run, Total product, Average and marginal products, Law of diminishing marginal product, Production in the long run, Production isoquants, Characteristics of isoquants, Marginal rate of technical substitution, Isocost curves, Finding the optimal combination of inputs, Short run costs of production, Fixed and variable cost, Short run total costs, Average and marginal cost, Marginal cost curves, Long run costs, Derivation of cost schedule from a production function, Economies and diseconomies of scale, Economies of scope

Managerial Decisions in Competitive Markets: Features of perfect competition, Profit maximization in the short run, Profit maximization in the long run, Managerial decisions for firms with market power, Measurement of market power: The Lerner Index, Determinants of the market power: Economies of scale, Barriers created by government, Profit maximization under monopoly: output and pricing decisions, Monopolistic competition: short run and long run equilibrium, Pricing decision in an oligopoly: The Kinked Demand curve model

Market Failures and Price Regulations: Market failures and need for regulation, Regulations and market structure, Firm behavior, Price regulation

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1

Chapt e r

INTRODUCTION TO BUSINESS ECONOMICS

CONTENTS 1.1 1.2 1.2.1 1.2.2 1.2.3

1.3 1.3.1 1.3.2

1.4

1.5

1.6 1.6.1 1.6.2

1.7

1.8

Introduction Meaning of Economics

Scope of Economics Nature of Economics Assumptions in Economics

Self Assessment Questions Activity Defining Business Economics Scope of Business Economics Significance of Business Economics Self Assessment Questions Activity Distinction between Economics and Business Economics Self Assessment Questions Activity Microeconomics and Macroeconomics Self Assessment Questions Activity Laws of Economics Nature of Economic Laws Application of Economic Laws Self Assessment Questions Activity Economic Statics and Dynamics Self Assessment Questions Activity Economics and Business Decision Making Self Assessment Questions Activity

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2 Business Economics

CONTENTS

1.9

1.10

1.11 1.11.1

1.12 1.12.1 1.12.2 1.12.3

1.13 1.14 1.15 1.16

Social Accounting Self Assessment Questions Activity

Gross National Product-Concept and components Self Assessment Questions Activity

Business Cycles Nature of Business Cycles Self Assessment Questions Activity

Definition of Inflation Characteristics and Types of Inflation Concept of Money Supply Interest Rate Self Assessment Questions Activity

Summary Descriptive Questions Answers and Hints Suggested Reading for Reference

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INTRODUCTION TO BUSINESS ECONOMICS 3

Introductory Caselet

RECOVERY OF INDIA'S ECONOMY

In 2013, India was facing an economic crisis due to slow economic growth and high levels of inflation. There was a current account deficit in the country as the rupee was at its all-time low. On August 28, 2013, the value of the Indian rupee against the US dollar was recorded ` 68.80, which was the lowest till date.

During the first quarter (April-June) of the fiscal year 2013-14, the economy of India experienced a slow growth rate of 4.4%, the lowest in the previous four years. The revised forecast of economic growth rate of India by the World Bank for the year 2014 was 4.7% against the earlier estimate of 6.1%. In the opinion of economic experts, Indian economy was going through the worst economic crisis since 1991.

India's financial condition was going down as a result of the crisis. On September 04, 2013, Raghuram Rajan was appointed as the 23rd governor of the RBI for a period of three years. His major challenge was to help the Indian economy rise above the economic crisis and bring it back on the path of growth.

After his appointment as the RBI governor, the value of rupee strengthened in the international market. Raghuram Rajan was appreciated by economists and analysts who continued to keep a strict watch on economic strategies adopted by Rajan.

notes

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4 Business Economics

notes

learning objectives

After completing this chapter, you will be able to:

> Define the meaning of economics > Discuss the concept of business economics > Identify the differences between economics and business

economics

> Describe microeconomics and macroeconomics > Explain the laws of economics > Discuss economic static and dynamics > Describe the role of economics in decision making > Define the concept of social accounting > Estimate GNP > Describe business cycles > Explain inflation

1.1 INTRODUCTION

In simple terms, economics can be defined as a discipline that studies the behaviour patterns of human beings. The main aim of economics is to analyse how individuals, households, organisations, and nations use their scarce resources to achieve maximum profit. Economics is broadly classified into two parts, namely microeconomics and macroeconomics. Microeconomics is a branch of economics that studies the behaviour of individual consumers and organisations in the market. It focuses on the demand and supply, pricing, and output of individual organisations. On the other hand, macroeconomics examines the economy as a whole and deals with issues related to national income, employment pattern, inflation, recession, and economic growth.

With the advent of globalisation and rise in competition, it is of paramount importance for managers to make rational decisions. For this, managers should have a clear understanding of different economic concepts, theories, and tools. Business economics or managerial economics is a specialised discipline of economics that undertakes a study of various economic theories, logics, and tools used in business decision making. It applies various economic concepts, such as demand and supply, competition, allocation of resources, and economic trade-offs, to help managers in making better decisions.

In this unit, you will study the concept of economics, its nature, and scope. After that, you will study the concept and importance of business economics in detail.

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