What is Economics? Thursday, September2,2021 10:00 AM Economics - The study of how individuals and societies make choices subject to constraints. The need to make choices arises from scarcity. - The study of how individuals and societies choose to utilize scarce resources to satisfy ually unlimited wants Scarcity ~ Describes the condition in which the availability of resources is insufficient to satisfy the wants and needs of individuals and society. - POV of Society as a whole: refers to the limitations placed on the production of goods and services because factors of production are finite - POV of Individual: refers to the limitations on the consumption of goods and services because of limited source of income and wealth. Economic good - commodities with a positive price. Free good - commodities with a zero price because they are relatively unlimited (air and clean water are not free goods). Factors of Production: ‘© Land - natural resources © Wildlife, minerals, timber, water, air, oil and gas deposits, arable land, mountain ss of people to produce goods and services; it is not homogenous. * Capital - manufactured commodities that are used to produce goods and services for final © Economic Capital: Machinery, office buildings, equipment, warehouse space, tools, roads, bridges, research and development, factories. ‘© Financial Capital: Stocks, bonds, certificates of deposits, savings accounts, cash. * Financial capital is used to acquire economic capital. ‘Entrepreneurial Ability - ability to recognize profitable opportun and ability to assume the risks associated with it. © Profit - return of the entrepreneur; difference between total revenue earned from production and sale, and the total cost of produ , and the willingnessLecture - Sept. 3, 2021 Friday, September 3,2021 8:12 AM Managerial Economics - systematic - Application of economic theory and tools of analysis of decision science to examine how an organization can achieve its aims or objectives most effectively. 3 Branches: ‘© Competitive Markets + Market Power * Imperfect Markets Economic Theory: ‘* Microeconomics * Macroeconomics Decision Sciences: ‘© Mathematical economics ‘© Econometrics Relationship to economic theory Organization can solve its management deci theory and the tools of decision science. - Microeconomic and macroeconomics Economic theories - Seek to predict and explain economic behavior - Usually begin with model n problems by the application of economic n sciences Relationship to decisi Mathematical economics - used to formalize the econo! theory Econometrics - applies statistical tools to real-world data to estimate the models postulated by economic theory (e.g. law of demand) models postulated by econo! Relationship to functional areas of business administration studies - Business administration include accounting, finance, marketing, personnel and production - Study the business environment in which the firm operates and such they provide the background for managerial decision making - Business decisions in relation to customers - Old economy and new economy in essentially the same way except for 2 distin aspects of the new economy - Network effects in demand -the benefit provided by the service depends on the total number of other users- Scale and scope economies - scalability is the degree to which scale and scope of a business can be increased without a corresponding increase in cost © Iflarge scale, cost will be reduced