Basic Understanding of Economics Managerial Lessons

Business& Economic way of Thinking (Ideas):

Value Lessons for a Manager

Introduction:

Economics is related to our everyday life. From the moment we wake-up to till we sleep, everything can be studied through the lens of economics. Economics can be defined as the study of production and consumption of goods and transfer of resources to produce/sell/buy these goods.

Our everyday life deals with the economic activity by trying to save as much money as we can either directly or indirectly. For example, if we look at the electricity usage, the moment we wake up, we tend to switch off the fans. This not only saves the money and electricity, it also plays an important role in the thoughtful utilization of scarce resources.

Three Issues of economic organizations:

It is critical for every society to identify the following:

1. What commodities are produced
2. How these goods are made
3. For whom they are produced.

What goods are produced?

An organization must determine how much they are going to produce. This depends on the market demand, availability of inventory, skilled labour and the return of investment.

For example in Toyota case when they started manufacturing Camry’s in the USA the pattern of car production was decided, depending upon the demand for sedans, wagons, and hardtops. Depending upon the demand for variety the production pattern changed.

How these goods are made?

Organization must determine what production techniques they use. What material they use. These depend on the availability of material, infrastructure, technology and the ability of skilled labour to use these technologies and resources.

If we look at the mobile phone manufacturers, some are using aluminum for the panel and some are using plastic. Each one has its own pros and cons, like aluminum gives a premium but there is a chance of overheating and obstruction of signals. Some manufacturers are using plastic to reduce the production costs.

For whom are these goods produced?

This depends on the target segment of the organization. Depending on this target segment company designs and manufacturer’s the product. Marketing strategy also depends on this target segment.

For example, Apple designs only one phone per year targeting the premium market segment. Whereas Micromax floods the market with enormous volumes and variety to capture the lower price segment. The features and the quality of the phones vary depending on these segments.

Economics can be broadly classified into two branches: Microeconomics and Macroeconomics