This course weds business strategy with the principles of microeconomics. It offers valuable a powerful toolbox together with cases and lessons across all major functions of business, management, from finance, operations management, and marketing to human resource management, organizational behavior, statistics, and, of course, business strategy.
The Fundamental Concepts of Microeconomics & Course Overview
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En provenance du cours de University of California, Irvine
Strategic Business Management - Microeconomics
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À partir de la leçon
Introduction to Microeconomics for Managers
Rencontrer les enseignants
Dr. Peter NavarroProfessor
Paul Merage School of Business
[MUSIC]
Let's conclude this lesson now with a quick overview of the various major
components of this course and how they might apply in a business environment.
In the next lesson we will parse the three most famous words in economics,
supply and demand.
In particular, we will take a very good look at how the forces of supply and
demand reach an equilibrium pricing quantity in most markets.
This figure shows just such an equilibrium.
Note that the price of the goods in this case,
Corn Flakes, is on the vertical axis.
And the quantity of the Corn Flakes is on the horizontal axis.
Note also that the demand curve slopes downward.
This reflects the idea that the lower the price,
the more Corn Flakes the consumers will want to buy.
Similarly, the supply curve slopes upward, indicating that
as prices rise businesses will be willing to provide more Corn Flakes.
The powerful idea behind this figure is that the price in the market
will tend to be set where the supply and demand curves cross.
And here's the punch line.
In order to understand exactly why this market equilibrium happens,
we're going to spend a lot of time in the first part of our studies
understanding each of the components of these curves.
In particular, to understand the downward slope and shape of the demand curve, and
indeed why that curve may also shift,
we will spend all of lesson three on the theory of consumer and household behavior.
And your time spent here will yield a treasure trove of insights for
businesses and marketing executives seeking to price and
position their products most profitably.
By the same token, to figure out why the supply curve slopes upward,
we will look at so called production theory, that's the focus of lesson four.
Production theory not only examines why firms price and
produce products they way they do.
It also provides business executives, particularly in the realm of
operations and supply chain management, the number of key insights
to achieve least cost production and distribution methods.
These insights focus on key decisions like, where should I locate my warehouses?
And should I build my own factories or outsource my production?
Of course, once we come to understand these demand and
supply curves through the miracles of consumer and production theory,
it will become very apparent why price in a market tends
toward equilibrium where the supply and demand curves intersect.
You will also come to understand things like why the market outcome
is typically efficient when the supply and demand curves cross.
And why market shortages and
attendant inefficiencies can arise when prices are artificially suppressed.
[MUSIC]
Now, after mastering consumer and producer theory and
the intricacies of supply and demand, we will move on in a series of lessons
to the broader issue of how markets are organized and structured.
This is pretty fun stuff as once we enter this world,
we will also enter the intricate world of business strategy and tactics, and
interesting tools like game theory.
In this stage, we'll see that when a market needs Adam Smith's test to being
perfectly competitive, it's invisible hand truly is a wondrous
mechanism that allocates resources in the most efficient way possible,
without any help or interference of the government.
However, in this part of our studies, we'll also
come to understand that in the real world, as opposed to 18th century theory,
markets are prone to various kinds of market failures
that may require the government to intervene to correct these failures.
In fact, this key concept to market failure is one of the most important in
microeconomics, and one of the biggest market failures of all is
that of imperfect, rather than perfect competition.
Such imperfect competition comes in many guises.
It can be a monopoly where there is only one seller, it can also be oligopoly,
where oligopolistic industries are effectively controlled by a few sellers.
In the cases of both monopoly and oligopoly, we will see that Adam Smith's
invisible hand gets quickly broken, and the result is often higher prices and
fewer products sold, along with sufficient market inefficiencies.
From the government's point of view, the existence of imperfect competition
provides a major rationale for regulating markets.
And taking policy actions like blocking mergers and
acquisitions by the biggest players in a market.
And here's where it gets fun, too, because strategically
managing a company in an imperfectly competitive world is much more complex.
This is because the task becomes not just to mindlessly produce
at lowest costs, and sell as much as you can into a market.
You must also try to outsmart and
outmaneuver your rivals using clever tools like product differentiation,
and equally clever moves like buying up one of your parts suppliers.
It's all good stuff, and I think you will be particularly liking of the game theory
examples we will use, including the famous prisoner's dilemma.
[MUSIC]
In next part of our journey, we will sequentially move our way through lessons
that deal with the three major factors of production, land, labor, and capital.
Here we will be particularly interested in how the prices for
each of these factors of production are set.
This table summarizes what we actually call the prices
of these particular factors of production.
For land, the price is rent, for labor it is wages,
or more accurately total compensation, and for capital we refer to interest rates.
How each of these is determined is a critical task for microeconomics and
a valuable source of information for businesses.
For example, land economics will be particularly interesting to those of you
who may want to enter the building construction and real estate industries.
A key insight here is that it is the landlords that tend to make the big bucks,
not those who actually lease the land for their businesses.
As for the economics of labor, this is something you will want to understand
first and foremost from an employee's point of view
when it comes to negotiating your own wage and compensation package.
Hey, if this course can help make you a better negotiator, that's all to the good.
But labor economics is equally interesting from an employer's point of view,
particularly if you are interested in human resource management at a firm, or
learning how to control your labor costs.
Finally, understanding how capital is priced
is absolutely essential to those of you interested
in everything from corporate finance to investment management.
Some key ideas here involve understanding how risk affects the rate of return of
an investment and how interest rates are affected by both time and risk.
Of course, one of the biggest questions this lesson will help you answer
is whether or not any given investment is likely to be profitable.
[MUSIC]
In the penultimate part of our journey,
we will come back to the topic of market failure and explore two of the biggest
reasons why government often intervenes in the free market.
These reasons include the market failures of externalities and public goods.
On the externalities front, and as we have previously briefly discussed
the classic negative externalities, that of pollution.
The key idea here is that, when companies pollute, it imposes costs on the broader
society, the government must step in and environmentally regulate the companies.
But, there are also positive externalities as well.
And the classic one here is that of the individual decision
whether to immunize oneself against a disease like polio.
Just what is the positive externality here?
Well, if you get vaccinated you, won't get polio and
if you don't get polio, you won't infect others with polio.
So, it is not just you benefiting, it's also the rest of society.
Which is the positive externalities argument for
the government to provide free or subsidized vaccinations
against communicable diseases, especially severe ones like polio.
Of course, in the cases of both positive and negative externalities,
the perceived social good can clash with individual liberties.
Some people are strongly opposed to vaccinations, but
that's why countries have political systems, to resolve such conflicts
[MUSIC]
Now in the final part of our journey, we will look at the quite related
topics of taxation, public finance, and income distribution.
Here, we will see that while the tax system is often used simply to
raise revenues to finance the building of public goods like roads and
bridges and to provide essential services like police and fire protection.
It is also true that the tax system
is often used to redistribute income from the rich to the poor.
And in some cases, from the poor and middle class to the rich.
Understanding the implications of tax policy and public finance, and
broader issues associated with income inequality is essential for
any business executive operating in a world where
modern public infrastructure is critical to business success.
And where taxes can indeed impose a heavy burden on businesses and
make it difficult to compete, not just with domestic rivals but
with foreign competitors as well.
[MUSIC]
Here then is the overview of the course and
the very interesting journey we are about to take together.
To prepare for that journey, please study this overview carefully,
as it is in essence a road map of what lies ahead.
Of course, our journey will entail a lot of hard work, but
it should also be quite enjoyable.
So when you are ready, off you go to the next lesson and the mysteries and
intricacies of supply and demand.
From University of California Irvine, I'm Peter Navarro, we'll see you next time.
[MUSIC]
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