Taking Economics to next level

In my last post we had discussed about the meaning of the economics. This post will take it up to its next level, where we make the readers introduce to the two broad divisions of economics. Microeconomics and Macroeconomics.

ICICI Banks net profit for current quarter increased by 40% , Production runs at Tata motors plant to get reduced in the coming year , Indian steel industry aims to boost investment in new plants in the current year. All these statements mentioned either talks about one company or one Industry in relation to company or industry product prices, cost, production or investment.  Broadly Microeconomics is the study of individual behaviour of company, industries or consumers in terms of their interaction with each other in market. Micro conics is concerned with how decrease in price of Maggie or LG television discount sales will affect the buying behaviour of consumer and how competitors will react to this decrease in price of Maggie or LG television sets .

India Gross domestic product forecasted to be 8% for the next financial year. To tame the on-going inflation RBI has hiked the interest rate from 50 basis points, Aggregate production level has shown consistent decrease in the third quarter of 2010. All the above statements have one thing in common i.e aggregate level of prices , aggregate interest rates , aggregate production, which represents the economy as a whole rather than a consumer , company or industry. A study of aggregates is called as Macroeconomics. For eg. Comparison of  GDP of GDP of emerging economies like China and India is macroeconomics.

In recent years the dimension between microeconomics and macroeconomics have reduced to great extent . For e.g taking the example of GDP comparison of China and India , before we can the compare the GDP of two countries, the prerequisites to  these is understanding of firms , consumers , workers and investors of these countries. Macroeconomist are nowadays concerned with microeconomic foundation of aggregate macroeconomic phenomenon. Therefore a manger who needs to decide on the price of the new small car manufactured by his company needs into take consideration the study of his company , automobile industry , consumer behaviour , competitor pricing as well as aggregate income and income of the population of the country as a whole. Therefore both microeconomics and macroeconomics become essential to set up the pricing strategy of the company

Question For Readers

Three managers of the tata motors are discussing possible increase in production. Each suggest a way to make this decision. 
Harry : We should examine whether our company's productivity in terms of per worker would rise or fall
. Ron : We should examine whether average cost per worker would rise or fall.
 Jack : We should examine whether extra revenue from selling the additional unit would be greater or smaller than the extra costs
. Who do you think is right and Why?

Introduction To economics

In order make this initiative successful let us begin this journey by introducing what is economics.

Before economics help make this start let me assure you that, the blog will not define economics in bookish language but will try to give you an insight that how this economics is useful in our daily life.

Idea behind this learning is that after reading, reader is able to relate to this vision from a point of view of a household, a manager working in a company, a bank manager, CEO of an MNC or may be a Finance Minister of India.

Economics  is usually associated with words like

E – Equal ,

C – Choice  ,

 O –opportunity ,

 N – next best ,

O – optimum  ,

 M – monetary ,

I – insufficient

C – cost

S – Scarce

These are some words which everyone of us use in our daily life and that is what economics associated with OIKONOMOS ( in greek it means who manages a household). As a household we face many decision such as , how much and what to buy , what to cook and not to cook, how to utilize all ingredients efficiently .

Similarly a manager in a FMCG company working at an operational level has many such decisions to make , like how many bottles of shampoos to be produced , whether 200 ml or 500 ml , whether to produce more hair fall protection shampoos or dandruff protection shampoos .

A financial Manager might be trying hard to decide in the beginning of the month whether to put his client funds in stock market or debt market.

A marketing manager while deciding the allocation of salesmen in different territories is in a fix how many salesmen in a territory to get highest sales revenue.

A  CEO of a hospital who needs to decide whether to build neonatal care facility or not.

Government needs to decide whether to invest more in agriculture or industry or services.

In all the above examples thing come out to be common is , making a choice between two or more alternatives. Why one has to make alternatives? The answer is Scarcity.

In order to implement all the above examples, one requires the use of various resources in term of material for cooking, raw materials to manufacture shampoos, funds or money to invest and government needs to check the availability of land and labour. All these resources used for different activities are limited in supply. Due to this scarcity of resources the decision maker resort to only left one method of making choices which in best terms utilizes all these resources.

Therefore economics is a study how society, household , government , a manager manages its scarce resources in making decisions.

Key Words : Resources , scarcity , choices