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