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Intro to Economics for SE (Rational Self-interest & the SE (The…
Intro to Economics for SE
What is Managerial Econ?
Micro-econ - studies behavior of individual consumers & firms in the market
Managerial Econ - applying micro-econ to problems of managerial decision-making
Methodology
Normative Economics
(what ought to be),
Positive Economics
(what is)
Exogenous
- states that growth is fueled by technological progress independent of economic forces.
Endogenous
- maintains that economic growth is primarily the result of internal forces, rather than external ones.
It argues that improvements in productivity can be tied directly to faster innovation and more investments in human capital from governments and private sector institutions.
Scarcity - scarce resources must be allocated to competing ends- concerned with individual incentives
Efficiency - economics is concerned with the nature of efficient (and inefficient) resource allocation
Technical Efficiency
- A firm is efficient if it cannot reorganise its methods of production and organisation in order to produce more outputs from the same inputs
Pareto Efficiency (resource efficiency)
- Resources are allocated efficiently if we cannot produce more of one good without producing less of another good
Ex. thinking strategically, determining size + scope of firms; comprehensive cost analysis
Supply, demand, and market exchange
Economist assumption - goods are exchanged on "markets" where prices are set.
There are 2 types of market traders:
Supply - people who sell
Demand - people who buy
There are 2 categories of markets:
Output markets (goods and services)
Factor Markets (inputs):
Land (rent)
Labor (wages)
Capital (interest rates)
Markets & Market Failure
Intro to Social Entrepreneurship
traditional (commercial) firms maximize profit and
social entrepreneurs maximize social welfare
Entrepreneurship -
"new entry"
towards the creation of viable business
All entrepreneurship generates a combo of social + economic wealth
Social + Commercial
Hybrid
Maximization of economic welfare versus identifying opportunities arising from “neglected problems in society involving positive externalities”, (Santos, 2013) - social welfare
Rational Self-interest & the SE
self-interested behaviour is termed rational
we assume all agents (consumers, workers, firms) maximise net benefits (NB) from any action. They do this by choosing the amount of the action that maximises the difference between total benefits from the action and total costs of the action
The fundamental behavioural assumption is that individual agents pursue their own self-interest, though this can be broadly defined, and do so in a calculated manner
Application: The firm seeks to maximize profits (net benefits) equal to revenue (benefits) minus costs
Application: The individual seeks to maximize utility subject to their income
In equilibrium, individuals equalize ratio of marginal utility to price of each good
Max Net B(x) = B(x) – C(x)
The increment benefit is marginal benefit & the increment cost is marginal cost
Net benefits are maximised at x, where Marginal Benefits = Marginal Costs
