Business Economics

Ummad Mazhar, PhD

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Agenda

• Introduction

• Conceptual map

• Grading

• Goals

• Lecture
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Introduction

• The course is about economics from business perspectives

• Two parts: Microeconomics and Macroeconomics

• Main focus is on firm behavior

• Conceptual map of the course contents

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Conceptual map…
• Microeconomics includes the study of
• Spending choices
• Earning choices
• Firm’s output decision
• Firm’s input decisions
• Internal organization of the firm
• Interaction of agents in perfect and imperfect markets
• This course cannot cover all the topics

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Conceptual map
• Our basic lens through which we look at external environment is firm
• First, we look at business environment

Microeconomic
environment

Macro: national
Firm
plus
Internal org
international

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 Micro environment (agents and institutions)
consumers producers market government

• Market is a platform that allows interaction between interested parties

(consumers and producers, producers and producers, and consumers and
consumers)
• Examples: Virtual platforms like OLX, Facebook, Whatsapp, Tiktok and PakWheels

• Government is an institution that determine the extent of this interaction

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What do business economists do? Description:
(of actors like consumers,
firms, and institutions like
market and govt

Analysis:
Analysis of the
choices of firms and Recommendation: of policies whether
consumers, their government should regulate or tax some
interaction in the activity etc.
market.

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Competition, demand, and supply
• Nature of competition is different in different markets
• We study: monopoly, monopolistic competition, oligopoly besides
perfect competition (which mostly serves as a standard)

• Consumer behavior is analyzed to predict demand: We study

theoretical models, practical estimations

• Supply conditions determine cost, firm’s supply in the short

run and long run, and ease of entry and exit

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Conceptual map…
Firm (inputs into outputs)

Operate
in a All firms use basic input of
market environment (ecological
inputs) (Tackle in Part V)

Consumers Producers=
Government
=Demand Supply

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 Tastes

Consumer
Responsiveness
demand

Substitutes

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 Supply

Cost Competition

Government
Technology Pricing power
policy

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 Distribution of Evaluative Instruments
Week 1 Week 2 Week 3 Week 4 Week 5 Week 6 Week 7
Class Case Case Case Case Case Case
Participation discussion discussion discussion discussion discussion discussion
Quiz Quiz 1 Quiz 2
Poster Poster
Presentation presentation
Case base Exam
exam
Text book
• Cases (all are available on LMS and in hardcopy of the course pack)

• Sloman, J., Garrett, D., Guest, J., and Elizabeth, J. (2020). Economics
for Business. 8th Edition. Pearson.

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 Lecture 1
• What is meant by the business environment?
• Business environment means
• Political,
• economic,
• social/cultural and
• technological factors.
• Economic factors are further divided into microeconomic factors
and macroeconomic factors.
• Three further factors can be included: environmental, legal factors,
and ethical factors.
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 Political factors
• Government actions, decisions, policies

• Events that affect a country or region or global economy

• Examples:

• We can observe the effect of political events on economic

decisions most easily through fluctuations in stock market activity

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Political events and economic decisions
KSE-100 index (May 17 to Aug 19)
Political uncertainty is reflected in investment
behavior.

Default risk, political uncertainty

New govt, policy uncertainty

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• Why government actions are important?

• Two reasons: government is like a referee; it sets rules of the

game

• It regulates the economic activity

• Why is regulation required?
• To avoid market excesses. What are market excesses?
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Child labor is illegal!

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 Economic factors
• Microeconomic factors
• Things happening in a particular market
• Transport market has changed because of the online platforms like Uber
and Careem
• Macroeconomic factors
• Policy actions like changes in interest rates
• Government administered prices like Petrol, exchange rate, wheat etc.
• International events like Brexit, situation in Middle East, pandemics,
financial crisis etc.

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Social/cultural factors
• The way people work, dress-up, eat, and recreate
• Every society is different
• A society has its own traditions,
• A society has its own values
• A society has its own implicit rules
• A society has its own world view
• All these define: gender norms, ethnic sensitivities,
moral values
• Should we allow TikTok?
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 Technological factors
• Technological factors effect cost of business and can also affect
social values and economic preferences

• Twenty years ago, books and magazines were not available in soft form,
now we can have them in our smart phones

• Not very long ago, female bikers were rare, now they are common

• Other examples of how technology affects social values and economic

choices ?
• Does technology make it easy for potential sellers to enter the market?
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Why firm is at the heart of our course?
• It is the nucleus of economic activities

• Other decision makers and actors interact with firm in some

way

• In market economies it is through firms that society’s

resources are allocated

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 World Bank’s Doing Business Rankings
• Russia's economy was ranked 31st in the 2019 Doing Business report with a
score of 77.37 (+0.61 year-on-year), according to the report published by
the World Bank on October 31. While Russia advanced 4 places as
compared to the previous report, it stopped short of the goal to be in the
top 20 of the rankings set by President Vladimir Putin in 2012.
• For full story
https://www.intellinews.com/russia-falls-short-of-putin-s-top-20-doing-busi
ness-goal-151146/

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• Prime Minister Narendra Modi set an ambitious target of India breaking
into top 50 nations on the World Bank's ease of doing business ranking and
said efforts are on to nearly double the size of country's economy to $5
trillion.

• Full story
https://www.business-standard.com/article/economy-policy/pm-modi-sets
-target-of-breaking-into-top-50-of-ease-of-doing-biz-ranking-11811190107
5_1.html Business Eco (Micro) 26
• Why political leaders are targeting doing business rankings?

• Why are they not targeting unemployment?

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 2. Classifying production
• To understand the structural changes in the economy
we classify production
• To detect investment opportunities
• Broad classification at the country level is
• Primary
• Secondary
• Tertiary economic activities

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Primary production activities

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Secondary production

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Tertiary sector

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Production Categories in Pakistan

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Why the share of services increasing over
time?
• As economies develop, they move from bran to brain
activities

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Classification of services sector in Pakistan …

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 3. Classifying industries
• International Standard Industrial Classification (ISIC)
• It is developed by United Nations
• Industries are classified into manufacturing, services, retail etc.
• They are further classified into subcategories
• Details are available here:
https://unstats.un.org/unsd/publication/seriesm/seriesm_4rev4
e.pdf

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• There are many other standards of classification
• For instance, stock exchanges use their own classification to
divide listed companies into different sectors
• See Business Recorder
http://fp.brecorder.com/2009/09/20090912960322/

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Next section discussion groups
• TA will divide the class in groups of 4 individuals each
• Pre-read the case
• Avail discussion room to discuss case in your group

• Discussion of case, individual participation will be recorded and

evaluated.

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