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 Odor-Making 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?