Transcript Chapter 1
Managerial Economics Professor Changqi Wu Oil Reserves Introduction Slide 2 Oil Crisis? The proven crude oil reserves: 1,028,500,000,000 barrels. International Energy Agency estimates the global crude oil production in 2005 is 84,700,000 barrels a day. Question 1: How many barrels of crude oil will be produced in the year of 2005? Question 2: How many years does the crude oil reserve on earth can last? Introduction Slide 3 Topics Introduction to managerial economics Course organization Introduction Slide 4 1. Introduction Methodology of economic analysis Scope of managerial economics Major themes Introduction Slide 5 1.1. Economic Analysis How to allocate scarce resources to achieve desirable outcome Economic agents are rational able to make decisions (choices) to advance their own interests responsive to incentives Assumption or reality? Introduction Slide 6 Microeconomics is... To study the behavior of individual economic agents Examples pricing mobile phone services investment decision Introduction decision of internet startups to falling asleep Slide 7 Why Going to Sleep? Introduction Slide 8 Macroeconomics is ... To study the structure and fluctuation of an economy and government policies that influence the performance of the economy Macroeconomic issues Why do some nations grow faster than others? Should China revalue its currency? Does government’s stimulate package help economic growth? Introduction Slide 9 Economic Growth in the Long Run GDP Per Capita in biilions of 1990 international dollars Year 0 1000 1500 1820 1995 World $425 $420 $545 $675 $5,188 The West $439 $406 $624 $1,149 $19,990 West Europe 450 400 670 1,269 17,456 North America 400 400 400 1,233 22,933 Japan 400 425 525 675 19,720 The Rest $423 $424 $532 $594 $2,971 Other Europe 400 400 597 803 5,147 Latin America 400 415 415 671 5,031 China 450 450 600 600 2,653 Other Asia 425 425 525 560 2,768 Africa 400 400 400 400 1,221 Source: Angus Maddison, Chinese Economic Performance in the Long-Run, 1998. Introduction Slide 10 Predicting the Future Economic Power Levels of World Performance and Potential, 217 Countries, 1995 and 2015 (population: millions at mid-year; per capita GDP in 1990 international $; GDP in billion 1990 int. dollars) 1995 per capita GDP Population 2015 GDP per capita GDP Population China 2,653 1,204.9 3,196 6,398 7 Dynamic Asia 6,236 350.1 2,183 12,408 India 1,568 916.5 1,437 3,120 31 Other Asia 1,445 543.7 786 2,147 Japan 19,720 125.6 2,476 25,533 United States 23,377 263.1 6,150 30,268 32 Advanced Capitalist 16,810 436.6 7,339 22,199 44 Latin America 5,031 489.0 2,460 6,776 15 Former USSR 3,590 290.9 1,044 5,882 12 Eastern Europe 5,145 116.8 601 9,292 16 Middle East 4,138 211.9 877 5,049 56 Africa 1,220 715.2 873 1,489 217 World 5,194 5,664.0 29,421 7,323 Source: Angus Maddison, Chinese Economic Performance in the Long-Run, 1998. Introduction GDP 1,470.2 9,406 444.4 5,514 1,210.3 3,776 776.8 1,668 130.7 3,337 308.5 9,338 463.6 10,291 645.7 4,375 296.7 1,745 116.8 1,085 333.8 1,686 1,172.0 1,745 7,369.4 53,966 Slide 11 1.2. Methodology Economists use economic models to define relationship between the actions of economic agents and the outcomes. Harvard school versus Chicago school Analysis of an economic model can reveal relationship between two factors otherwise difficult to see. Partial analysis assumes all other things remain unchanged Introduction Slide 12 Economics in Action Predicting the closing level of Hang Seng Stock Index Hemline index Investing by the moon Economic analysis reveals the causal relationship between actions and outcomes. Introduction Slide 13 Hem-line Index Introduction Slide 14 The Marketplace Many buyers and sellers transact their goods and services All transactions are voluntary Price reflects both demand and supply conditions The invisible hand Introduction Slide 15 The Market Mechanism Price ($ per unit) S The curves intersect at equilibrium, or marketclearing, price. At P0 the quantity supplied is equal to the quantity demanded at Q0 . P0 D Q0 Introduction Quantity Slide 16 1.3. Managerial Economics Managerial economics applies the tools of microeconomic analysis to managerial and business issues How to assess the market potential? Which How market to enter? to compete in marketplace? How to motivate employees to do or not to do certain things? Introduction Slide 17 Major Themes of the Course Market mechanism Demand and supply analysis Market structure and imperfect competition Managing in imperfect markets Introduction Slide 18 2. Course Organization Objectives Classroom protocol Grading Textbook Introduction Slide 19 2.1. Course Objectives Conceptual knowledge Skills Analytical Introduction techniques Slide 20 Course Objectives: Conceptual Knowledge By the time you finish the course, you will ... be able to understand the key concepts useful in analyzing the factors that shape the outcome of the market competition. be able to diagnose sources of economies of scale and scope, and to understand how they shape the structure of a market. be able to assess, how much of the value a business unit creates and how the owners will be able to capture it in the form of economic profitability. be able to characterize a business unit’s competitive position and to formulate intelligent options for improving that position. Introduction Slide 21 Course Objectives: Skills By the time you finish this course, you will have developed skills in ... identifying managerial issues. formulating options to deal with those issues. forming robust and sensible intuitions about what issues are likely to be important in different business situations. Introduction Slide 22 Course Objectives: Analytical Techniques During the course, you will learn several specific analytical techniques including ... marginal analysis estimation and forecasting value-added analysis Introduction Slide 23 2.2 Classroom Protocol: Responsibilities and Expectations The classroom environment should approximate that of a professional meeting. This imposes responsibilities on me and on you Punctuality Preparation Listening Attendance Introduction Slide 24 Punctuality My responsibility: I will always be on time for class and will be ready to begin teaching on time. My expectation: I expect you to show the same punctuality by being in your seats by the beginning of the class and returning to your seats after break. Introduction Slide 25 Preparation My responsibility: I will always be prepared to teach the material I assign for the day and will have spent many hours thoroughly preparing for lectures. My expectation: I expect that you will prepare seriously for the class and will participate in a serious, constructive way in class discussion. Introduction Slide 26 Listening My responsibility: I will listen carefully when you participate, and I will make every effort to call on students who wish to participate. My expectation: I expect that you will refrain from side conversations during class and turn off your mobile phones which disrupt and distract others who are trying to learn. Introduction Slide 27 Grading Class Participation Attendance is compulsory. Absence from class without good reason is subject to punishment. Points Action 2 Raise right questions and help the class moving. Make comments with supporting evidence and with well-argued logic. 1 Attend but not active in participating class discussion. 0 Not attend class Introduction Slide 28 Teams Teams are working units for assignments and case projects Team size should be limited to 4-5 members Introduction Slide 29 2.3 Grading Homework and case studies: 30% Class attendance and participation: 20% Final exam: 50% Introduction Slide 30 Textbook Ivan Png: Managerial Economics Other available managerial economics/microeconomics textbooks, for instance: Robert Pindyck and Daniel Rubinfeld: Microeconomics A package of readings and cases. Introduction Slide 31 Key Dates The start of the class: September 3, 2005 The national day, October 1: regular class. The written test: October 22. Introduction Slide 32