Managerial Economics

INTRODUCTION

Necati Aydin, Ph.D.

Alfaisal University
College of Business
 Outline

PART I-WHAT/HOW/HOW MUCH/WHY

 OF KNOWLEDGE in general
OF SCIENTIFIC KNOWLEDGE
OF ECONOMICS

PART II-THINKING AND TEACHING

MY TEACHING PHILOSOPHY (HHH)
REVIEW OF SYLLABUS
Brain Exercise
Plato’s Cave
 How to be free from our cave?

Having, but not using eyes and ears

Darkness of ignorance
Seeing yourself vs hearing from others
Mind, matter, music, metaphysics
Knowledge as freedom
Knowledge as light
Knowledge as color of reality
 Which one is more trustable/reliable?

Eyes (visual experience)

Ears (audial experience)
Touch (sensual experience)
Mind (logical experience)
Things Often Are Not What They Seem To Be
Things Often Are Not What They Seem To Be
Things Often Are Not What They Seem To Be
Things Often Are Not What They Seem To Be
Knowledge and Power
Information = Reality ?
Information is money?

1 Bitcoin is
50,000 US Dollar
 Knowledge without practice in burden

‫ين ُح ِّملُوا التَّ ْو َراةَ ثُ َّم لَ ْم يَحْ ِملُوهَا َك َمثَ ِل‬ َ ‫َمثَ ُل الَّ ِذ‬
َ ‫س َمثَ ُل ْالقَ ْو ِم الَّ ِذ‬
‫ين‬ َ ‫ار يَحْ ِم ُل َأ ْسفَارًا بِْئ‬ ِ ‫ْال ِح َم‬
‫ت هَّللا ِ َوهَّللا ُ اَل يَ ْه ِدي ْالقَ ْو َم‬
ِ ‫َك َّذبُوا ِبآيَا‬
)62:5( ‫ين‬ َ ‫الظَّالِ ِم‬
“The similitude of those who were
charged with the (obligations of the)
Mosaic Law, but who subsequently failed
in those (obligations), is that of a donkey
which carries books (but understands
them not). Evil is the similitude of people
who falsify the Signs of Allah. and Allah
guides not people who do wrong.” (Al-
Jumuah, 5)
 Defining Economics

Production
• Land
• What to produce? • Human Needs
• Labor
• How to produce? • Human Desires / Wants
• Capital
• Entrepreneurship • For whom to produce?

Resources People
 Why do we need economists?
Scarcity problem
Unlimited desires?
Unlimited needs?
Functional vs.. positional goods
Defining Economics
 Why do we need economists?
Scarcity problem
Unlimited desires?
Unlimited needs?
Functional vs.. positional goods
THE KEY SECRET BEHIND THE
SUCCESS AND FAILURE OF
CAPITALISM
 The Successes of Capitalism

Recognize and act on certain elements of human

nature (three pillars of capitalism)
 Self (ego)
 Interest (nefs)
 Mind (rationality)

Effectively use market mechanism based on

 Self-interest (ego centered human nature)
 Profit driven capitalists
 Pleasure (utility) driven consumers

Unprecedented success in production and

consumption
 Capitalism and Rationality

Perfect rationality

Bounded rationality

Predictable irrationality
 The Failures of Capitalism

Ignore or deny some aspects of human nature (Adam

Smith’s “moral sentiments” and Weber’s “spirit of
capitalism”)
Create perfect conditions for economic and financial
tsunami
Fail to bring happiness (or maximize cumulative
utility) despite increase in consumption (“American
paradox” or “progress paradox”)
Capitalism and Human Nature

Animal

Spiritual Reasoning

Self
Moral Egoistic

Emotional
 The Economist as a Scientist
28

Economics
 Science
Economists
 Scientists
 Devise theories
 Collect data “I’m a social scientist,
 Analyze these data Michael. That means I
 Verify or refute their theories
can’t explain electricity
or anything like that,
but if you ever want to
know about people,
I’m your man.”
 The Economist as a Scientist
30

Scientific method
 Dispassionate development and testing of theories about how
the world works
 Observation, theory, more observation
Conducting experiments in economics
 Is often impractical
Substitute for laboratory experiments
 Economists pay close attention to the natural experiments
offered by history
 The Economist as a Scientist
31

The role of assumptions

Assumptions
 Can simplify the complex world
 Make it easier to understand
 The art in scientific thinking: deciding which assumptions to
make
Different assumptions
 To answer different questions
 To study short-run or long-run effects
 The Economist as a Scientist
32

Economic models
 Diagrams and equations
 Omit many details
 Allow us to see what’s truly important
 Built with assumptions
 Simplify reality to improve our understanding of it
 The Economist as a Scientist
33

Circular-flow diagram
 Visual model of the economy
 Shows how dollars flow through markets among households
and firms
Decision makers
 Firms and Households
Markets
 For gods and services
 For factors of production (inputs)
 The Economist as a Scientist
34

Firms
 Produce goods and services
 Use factors of production (inputs)
Households
 Own factors of production
 Consume goods and services
 The Economist as a Scientist
35

Firms and Households interact in markets

Markets for goods and services
 Firms are sellers
 Households are buyers
Markets for factors of production
 Firms are buyers
 Households are sellers
The circular flow Figure 1
This diagram is a
36 schematic representation of
the organization of the
economy. Decisions are
made by households and
firms. Households and
firms interact in the markets
for goods and services
(where households are
buyers and firms are
sellers) and in the markets
for the factors of production
(where firms are buyers
and households are
sellers). The outer set of
arrows shows the flow of
dollars, and the inner set of
arrows shows the
corresponding flow of
inputs and outputs.
 The Economist as a Scientist
37

Production possibilities frontier

 A graph
 Combinations of output that the economy can possibly
produce
 Given the available
 Factors of production
 Production technology
Brain Exercise
 What is called thinking?

“The most thought

provoking thing
in this thought-provoking time
is that we are still not
thinking”
Martin Heidegger

For human beings, thinking is most

thought-worthy. And in our
age, what is most thought-
provoking when we think about
thinking is that we are not thinking.
 The Power of Habit
41
 Although people like to think they are in control of what
they do, almost half of human behavior takes
place in the same location pretty much every
day and comes to be cued by that environment,
according to studies conducted by Wendy Wood, James
B. Duke professor of psychology and neuroscience at
Duke University. In other words, nearly 50 percent
of the actions we take are governed by habit,
not actual decisions.

 "Many of our repeated behaviors are cued by everyday

environments, even though people think they're making
choices all the time," she says. "Most people don't
think that the reason they eat fast food at lunch
or snack from the vending machine in late
afternoon is because these actions are cued by
their daily routines, the sight and smell of the food
or the location they're in. They think they're doing it
because they intended to eat then or because they like
the food.“
 What is “is”?
 In 1907, the seventeen-year-old Heidegger
asked: “If what-is is predicated in manifold
meanings, then what is its leading
fundamental meaning? What does being
mean?”
 The question of being, unanswered at that
time, becomes the leading question of Being
and Time twenty years later.
 Surveying the long history of the meaning
attributed to “being,” Heidegger notes that in
the philosophical tradition it has generally
been presupposed that being is at once the
most universal concept, the concept
indefinable in terms of other concepts, and
the self-evident concept.
 In short, it is a concept that is mostly taken
for granted. However, Heidegger claims that
even though we seem to understand being,
its meaning is still veiled in darkness.
Therefore, we need to restate the question of
the meaning of being.
I think therefore I am…

Descartes goes on to prove that 

God exists.
Bloom’s Taxonomy
 Elements of Thinking Skills

Observation
Facts
Inferences
Assumptions
Hypothesis
Opinions
Assertions
Knowledge
Information
Truth
Wisdom
 Building Blocks of Thinking

Fact: Something can be demonstrated to be true.. Exp. The sun

rises from east. Fact also refers to observation in science.
Assertion: Something is considered to be true which has not
been or cannot be proved.
Opinion: something is considered to be true by a person while
might be agreed by others.
Hypothesis: A hypothesis is an attempt to explain
phenomena.  It is a proposal, a guess used to explain
something. 
Theory: A theory is the result of testing a hypothesis and
developing an explanation that is taken to be true about a
phenomena. 
 Different Types of Thinking:

Critical Thinking
Analytical Thinking
Creative Thinking
Convergent Thinking
Divergent Thinking
Inductive Thinking
Deductive Thinking
Close/Open Questions
 Different types of thinking:

1. Critical thinking - This is convergent thinking. It

assesses the worth and validity of something
existent. It involves precise, persistent, objective
analysis. When teachers try to get several learners
to think convergently, they try to help them
develop common understanding.
2. Creative thinking - This is divergent thinking. It
generates something new or different. It involves
having a different idea that works as well or better
than previous ideas.
 Different types of thinking:

3. Convergent thinking - This type of thinking is

cognitive processing of information around a
common point, an attempt to bring thoughts
from different directions into a union or common
conclusion.
4. Divergent thinking - This type of thinking starts
from a common point and moves outward into
a variety of perspectives. When fostering
divergent thinking, teachers use the content as a
vehicle to prompt diverse or unique thinking
among students rather than a common view.
 Different types of thinking:

5. Inductive thinking - This is the process of

reasoning from parts to the whole, from
examples to generalizations.
6. Deductive thinking - This type of reasoning
moves from the whole to its parts, from
generalizations to underlying concepts to
examples.
 Holistic education

Animal learn by conditioning

Animal is driven by sensual
pleasure
Robots learn by
programming/uploading
Robots gain technical skills
Human needs to be educated in
holistic manner (taken into
consideration animal, technical,
evil, rational, emotional,
intellectual, spiritual, moral sides)
 REVIEW
THE
SYLLABUS
 Learning requires involvement of
heart, head, and hands

Why to know? What to know?

Learning
Heart:
Loving Head:
Knowing

How to use?

Hands: Doing
 Surface and Deep Learning

Surface • Get to forget

• Mind and memory
learning

Deep • Teach to reach to heart

• Mind and heart
learning
 My Teaching Method
Start with a motivational quote
Why? (Heart) What? (Head) How? (Hands)
Teach key concepts
Provide reasoning behind the topic
Use PowerPoint and online materials
Use diagrams and charts
Follow the Socratic method
Explain the benefits of learned materials in personal
and business life
My Teaching Philosophy
 Economics as a Foreign Language

 I TS B E N E F I T S
 I T S E S S E NT I A L C O M P O N E NT S
 T H E S T R AT E G Y/ S E C R E T O F L E A R N I N G
ECONOMICS
 Benefits of Learning a Foreign Language

It enriches you intellectually, educationally and

culturally
 It enables you to communicate across cultures
 It contributes to social cohesiveness through better
communication and understanding
 It enhances employment and career prospects for
the individual
It contributes to strategic, economic and
international development
What are the benefits of learning economics?
Component of A Foreign Language/Economics

Foreign Language Economics

Economic
Alphabet
thinking

Economic
Words
concepts

Economic
Sentences
models

Economic
Paragraph
analysis

Laws of
Grammar
economics
Six Secrets of Learning a Language

1) Be convinced. Convince yourself on the benefits of

learning a language.
2) Be guided. Find good teacher(s) and/or teaching
materials.
3) Be organized. Set out a well-defined study plan and
follow it.
4) Be patient. Realize that learning a language takes time
5) Be committed. Commit at least one hour every day to
study and practice.
6) Be like a child. Practice, practice, practice! (if you do not
use it, you will certainly lose it!)