Managerial Economics Professor Changqi Wu
Dec 21, 2015
Managerial Economics
Professor Changqi Wu
Introduction Slide 2
Oil Reserves
Introduction Slide 3
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 4
Topics
Introduction to managerial economics
Course organization
Introduction Slide 5
1. Introduction
Methodology of economic analysis
Scope of managerial economics
Major themes
Introduction Slide 6
1.1. Economic Analysis
How to allocate scarce resources to achieve desirable outcome
Economic agents are rationalable to make decisions (choices) to
advance their own interests
responsive to incentives
Assumption or reality?
Introduction Slide 7
Microeconomics is...
To study the behavior of individual economic agents
Examplespricing mobile phone services
investment decision of internet startups
decision to falling asleep
Introduction Slide 8
Why Going to Sleep?
Introduction Slide 9
Macroeconomics is ...
To study the structure and fluctuation of an economy and government policies that influence the performance of the economy
Macroeconomic issuesWhy do some nations grow faster than others?
Should China revalue its currency?
Does government’s stimulate package help economic growth?
Introduction Slide 10
Economic Growth in the Long RunGDP Per Capita in biilions of 1990 international dollarsYear 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 11
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 $; GDP in billion 1990 int. dollars)
per capita GDP Population GDP per capita GDP Population GDPChina 2,653 1,204.9 3,196 6,398 1,470.2 9,406
7 Dynamic Asia 6,236 350.1 2,183 12,408 444.4 5,514
India 1,568 916.5 1,437 3,120 1,210.3 3,776
31 Other Asia 1,445 543.7 786 2,147 776.8 1,668
Japan 19,720 125.6 2,476 25,533 130.7 3,337
United States 23,377 263.1 6,150 30,268 308.5 9,338
32 Advanced Capitalist 16,810 436.6 7,339 22,199 463.6 10,291
44 Latin America 5,031 489.0 2,460 6,776 645.7 4,375
15 Former USSR 3,590 290.9 1,044 5,882 296.7 1,745
12 Eastern Europe 5,145 116.8 601 9,292 116.8 1,085
16 Middle East 4,138 211.9 877 5,049 333.8 1,686
56 Africa 1,220 715.2 873 1,489 1,172.0 1,745
217 World 5,194 5,664.0 29,421 7,323 7,369.4 53,966
Source: Angus Maddison, Chinese Economic Performance in the Long-Run, 1998.
1995 2015
Introduction Slide 12
1.2. Methodology
Economists use economic models to define relationship between the actions of economic agents and the outcomes.Harvard school versus Chicago school
Analysis of an economic model can reveal relationship between two factors otherwise difficult to see.
Partial analysis assumes all other things remain unchanged
Introduction Slide 13
Economics in Action
Predicting the closing level of Hang Seng Stock IndexHemline index
Investing by the moon
Economic analysis reveals the causal relationship between actions and outcomes.
Introduction Slide 14
Hem-line Index
Introduction Slide 15
The Marketplace
Many buyers and sellers transact their goods and services
All transactions are voluntary
Price reflects both demand and supply conditions
The invisible hand
Introduction Slide 16
The Market Mechanism
Quantity
D
S
The curves intersect atequilibrium, or market-
clearing, price. At P0 thequantity supplied is equalto the quantity demanded
at Q0 .
P0
Q0
Price($ per unit)
Introduction Slide 17
1.3. Managerial Economics
Managerial economics applies the tools of microeconomic analysis to managerial and business issues How to assess the market potential?
Which market to enter?
How to compete in marketplace?
How to motivate employees to do or not to do certain things?
Introduction Slide 18
Major Themes of the Course
Market mechanismDemand and supply analysis
Market structure and imperfect competition
Managing in imperfect markets
Introduction Slide 19
2. Course Organization
Objectives
Classroom protocol
Grading
Textbook
Introduction Slide 20
2.1. Course Objectives
Conceptual knowledge
Skills
Analytical techniques
Introduction Slide 21
Course Objectives: Conceptual Knowledge
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.
By the time you finish the course, you will ...
Introduction Slide 22
Course Objectives: Skills
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.
By the time you finish this course, you will have developed skills in ...
Introduction Slide 23
Course Objectives: Analytical Techniques
marginal analysis
estimation and forecasting
value-added analysis
During the course, you will learn several specific analytical techniques including ...
Introduction Slide 24
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 25
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 26
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 27
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 28
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 29
Teams
Teams are working units for assignments and case projects
Team size should be limited to 4-5 members
Introduction Slide 30
2.3 Grading
Homework and case studies: 30%
Class attendance and participation: 20%
Final exam: 50%
Introduction Slide 31
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 32
Key Dates
The start of the class: September 3, 2005
The national day, October 1: regular class.
The written test: October 22.