Introduction
Learning Objectives:
• What is Managerial Economics?
• Why should we care about learning economics?
• How do economic concepts help run a business?
Economics is everywhere!
• We just need to pay attention to see economics behind every human
decision, action, and reaction.
• Think like an economist.
• Example: Dynamic Ticket Pricing at Indian Railways
• What is the economics behind dynamic ticket pricing?
Resources are scarce
• Scarce resources need to be optimally allocated.
• Optimization means maximizing or minimizing some objective subject
to some constraints.
• Example: The Airbus Beluga
• What determines whether Airbus produces the Beluga or not?
• Every economic decision comes with a trade off.
• Example: Former Tobacco Fields Now Grow Chickpeas To Serve
America's Growing Hummus Addiction
Opportunity Cost
• Opportunity cost of a resource is the sum of accounting cost and the
cost of giving up the next best alternative use of the resource.
• Example: Dynamic Ticket Pricing at Indian Railways
• What is the opportunity cost of one unoccupied seat on a train?
Economic Agents
• An economy is made of economic agents.
• Who are economic agents?
• Producers
• Consumers
• Government
• Each and every economic agent affects and gets affected by actions of
other economic agents.
• Example: Who is/are the economic agent(s) in the movie Cast Away?
Incentives
• Human decisions are governed by incentives.
• Example: The Wu-Tang Clan and The World's Most Exclusive Album
• What is the incentive for the band to make only one copy of the album?
Decision-making at the margin
• Economic agents take decisions in order to equate the marginal benefit
(MB) to marginal cost (MC)
• Example: How does a tea stall owner decide whether to produce one
more cup of tea or not?
Externalities
• When an economic activity creates benefits or costs for economic
agents who are not part of that activity
• Example: Judge Orders California Sriracha Factory to Halt OdorMaking Operations
• Is this a positive or negative externality?
How to Develop an Economics Project
• Define the objective of the study
• What is the problem you are trying to address
• Select the methods
• How will you solve/analyze the problem?
• Find information/data sources
• Where will you get the data/information to be used to solve/analyze the problem?
• What is the outcome of your study?
• What are the results of the exercise? Have you found a solution?
• What are the limitations of your study?