Economic Analysis of

CE
O Business
N
O MICRO
M Prof. Amany Fakher
IC
S
Professor of International
Economics
Dean of Faculty of Commerce
and Business Administration
Helwan University

2023
 GENERAL EXPECTATIONS

This course is aimed at helping students to understand

the real side of Microeconomics.

Topics which we will cover include

microeconomics, its causes and consequences,
and the implications of microeconomics.

I encourage (relevant) questions and discussion

during class time.

If you have problems with the material, see me

early.
 The Main Topics

1-Introduction to Economics.
2-Mathimatical Tools in Economics.
3-Basic Concepts of Demand.
4-Basic Concepts of Supply.
5-Market Equilibrium.
6-Consumer Preferences Theory.
7- Producer Equilibrium.
8-Profit theories in economic analysis.
9-Pricing policies in economic Market.
10-Decision making Process
11- An applied study of the decision-making process
 CHAPTER ONE
INTRODUCTION TO ECONOMICS

WHAT IS ECONOPMICS
Economics is social science
Economics is science of scarcity.

Scarcity: we have unlimited wants but limited

resources.

-Since we are unable to have every things, we

must make choices on how we will use our
resource.
-(how to arrange our limited resources).
 CHAPTER ONE

What is the Importance of

Economics?

Of course, the scarce resource is a problem in -

every country, developed or developing and
everyone, rich or poor, has just 24 hours in the day
to try to acquire the goods they want.

I would suggest the main importance of economics

is helping society decide on the optimal allocation
of our limited resources.
 CHAPTER ONE

What is Economics?

-Economics is the study of how humans

make decisions in the face of scarcity.
These can be individual decisions,
family decisions, business decisions or
government decisions.

-If you look around carefully, you will

see that scarcity is a fact of life.
 CHAPTER ONE
INTRODUCTION TO ECONOMICS
 CHAPTER ONE
INTRODUCTION TO ECONOMICS
 CHAPTER ONE
INTRODUCTION TO ECONOMICS

Wants Needs

Nice to have Must have

It not to survive
required to Basic things
survive

Luxuries Necessarie
 CHAPTER ONE
INTRODUCTION TO ECONOMICS

WHAT IS ECONOPMIC PROBLEM

IT IS the scarcity of all resources, where the

human wants are unlimited
Human wants:
Are goods and services, that people desire.
Wants differ greatly among individuals and over
time for the same individual
The human wants are unlimited
Resources
Are the things used to produce goods and services
which then can be used to satisfy human wants.
Economic resources are scarce or limited.
 CHAPTER ONE
INTRODUCTION TO ECONOMICS
People
Wants Resources
Economic
Goods and System labor,
services Capital,
Use land
to
Economic entrepreneurs
satisfy their
resources hip
needs
to produce
goods and
services
Unlimited Scarce
 Choices and Choices and Choices

Every society, at every level, must make choices

about how to use its resources. Families must
decide whether to spend their money on a new car
or a fancy vacation.

Towns must choose whether to put more of the

budget into police and fire protection or into the
school system.

Nations must decide whether to devote more

funds to national defense or to protecting the
 People and society have to
take decisions
By answering the next three questions

• What to produce?

• How to produce?

• For whom to produce?

 What to produce

What to produce involves decisions about

the kinds and quantities of goods and
services to produce:
➢ how many luxurious houses and how
many low- cost apartments.
➢ how many full-size and compact cars to
produce,
➢ how much food and medical services to
supply,
➢ how many civilian and defense goods to
provide.
 How to produce :

How to produce requires decisions about what

techniques to be used (how the economic
resources (labor, capital, and land) are to be
combined to produce).

➢ How goods and services can be produced with many

different techniques:
Labor intensive technique
Capital intensive technique.
➢ It is important to determine which techniques should
be used.
 For whom to produce :

Income paid to individuals determine the distribution of

output among the members of society. (who participate
in production process)

Insatiability of human wants. Insoluble problem

 Economic resources & Free resources

Free resources: such as air, and sands, are so large and

easily available that they can be obtained without charge.

The test of whether a resource is an economic or free is

the price.

Economic resources have a nonzero price, while free

resources have a zero price .
Economic resources can be classified into four
categories (land, labor, capital, and entrepreneurship
 SCOPE OF ECONOMICS

is
Micro Divided into Macro
Is concerned with Is concerned with
small parts of the the behavior of
economy and the aggregates
interrelationships affecting the whole
between these parts. economy
 Microeconomics topics

Movements in the prices of certain commodity.

Demand and supply
Market’s equilibrium
Consumer’s equilibrium.
Producer’s equilibrium.
Factor’s equilibrium market
Household income. (factor’s income)
 Macroeconomics topics

Inflation, ( General price levels)

Unemployment. ( society)
International trade (Balance of payments ).
National income growth.
 Economics

Economics basically focus on:

How individuals and firms make themselves as well off
as possible in a world of scarcity.

Individuals try to maximize their happiness

Maximum satisfaction

Producers try to maximize their happiness

Maximum Profits
 The three fundamental
questions of economics
•What to produce?
•How to produce?
•For whom to produce?
➢ All of these three questions are going to be
answered through prices mechanism.

➢ What is the prices mechanism?

 Prices mechanism

Demand Supply

Equilibrium
 Important
concepts
in Economics
 Important concepts in Economics

All decisions involve tradeoffs

Tradeoffs: All The Alternatives that we give up
when we make a choice.
(giving up of one thing to get another)
Ex. Going to a party the night before your midterm
leaves less time for studying

In other words, People have to accept less of something, for

obtaining more of something else, Scarcity
limits their options
 Important concepts in Economics

Opportunity cost : The opportunity cost is the

benefit, profit or value of something
that must be given up to acquire
something else.
Interest
A bank

A Project
Money withdrawing to invest in

Opportunity cost
 Important concepts in Economics

Rationality: Rational means, reasonable or logical. you

have to do things based on logic.

or logical behavior when taking action.

It is the result of optimal level of benefit

 Important concepts in Economics

Marginality: Economic analysis basically depends on

the marginality.

▪ It means extra, changing, or additional.

▪ Each option involves marginal benefits
and, marginal costs.

▪ In making choices rationally, you must

compare those two amounts.
 Important concepts in Economics

Marginal Marginal
cost revenue

Total cost Total revenue

Total product Total product

If this equilibrium happened, then you are rational

 Important concepts in Economics

Theoretical economics. Empirical economics.

is the process of building is the process of testing
models to try to explain models to see if they
economic phenomena, actually explain economic
Doritos phenomena

Demand Price

Is this model right or it

Qdx = a – b Px need to be tested?

Intercept Slope
 Important concepts in Economics

Positive economics. Normative economics.

is the study of the way is the study of the way

things are. Or things should be.

What is? What should be?

(demand & supply) (Equity and Efficiency)

Value Paradox Market failure
 Important concepts in Economics

Hypotheses Hypotheses is a state of words

and always needs to be tested. . But
Theories
Theories has been tested. It may subject
to be tested over time.

Assumptions: Means “Other things being equal” We

always use assumptions to isolate the effects
of other variables.
 Important concepts in Economics

Example:
If the price of a commodity increases the
quantity demanded decreases.
This is right If the other variable do not change.

The assumption here is:

Income – price of substitute – Price of complementary are fixed
or equal.
Qdx =F (Px, Ps, Pc )
 Important concepts in Economics

Mathematical tools: In Economic analysis

Economists may use many of
mathematical tools to analyze and
measure the value of relationships
between different variables.
Example: economists may use the next function
to measure the relationships between
 y = a+bx  independent
dependent   variable
variable intercept Slope

This represents a straight line on a graph

i.e. a linear function has a constant slope
= y / x
 Economic resources

Economic resources can be classified

into four categories:

➢ Land
➢ Labor
➢ Capital,
➢ Entrepreneurship
 Land

Consists of an economy’s natural resources,

such as minerals, forests, sea, rivers, and
agricultural land.

Owners of land receive rental income when it is

used to produce goods or services.
 Economic resources

Economic resources can be classified

into four categories:
➢ Land
➢ Labor
➢ Capital,
➢ Entrepreneurship
 Labor

Labor: consists of human beings,.

Labor resources can be measured in terms of the
number of people in the workforce,
People differ in skills, education, and natural ability.
Labor may be defined as the exercise of human mental
and physical efforts in the production of goods and
services.
 Economic resources

Economic resources can be classified

into four categories:
➢ Land
➢ Labor

➢ Capital,
➢ Entrepreneurship
 Capital
Capital divided to: Human Capital and Physical Capital
Human Capital : is the accumulation of past investments
in schooling, training, and health that raise the
productive capacity of people.
Physical Capital
consists of tools, equipment, machinery, buildings, and
which are used to facilitate the production of goods and
services.
Capital may be Financial capital or physical capital.
 Financial Capital

Financial capital consists of financial instruments, such

as savings accounts, bonds, and stocks,
which come when individuals save and then
lend this saving for the creation of tools,
equipment, machinery, and so on.
 Economic resources

Economic resources can be classified

into four categories:
➢ Land
➢ Labor
➢ Capital,

➢ Entrepreneurship
 Entrepreneur

Entrepreneur: Certain persons, called entrepreneurs,

posses a particular talent and perform a particular role
that can not be performed by land and capital.

Entrepreneur organizes, manages, and bears the risks

for an enterprise
 Entrepreneur

Entrepreneurs are those people:

who organize the factors of production to produce
output,
who seek out and exploit new business opportunities,
who introduce new technologies.
who have information about the best methods of
production.
who takes the risk and bears the responsibility if the
venture fails.
 FACTORS INCOMES.

FACTORS INCOMES.
The various incomes which the factors receive can
also be termed factor rewards or factor returns.

Labor receives Wages and Salaries,

Land earns Rent,
Capital earns Interest ,
Entrepreneur earns Profit.
 The Production Possibilities Curve (PPC)

The Production Possibilities Curve (PPC) is

a model used to show the tradeoffs with allocating

resources between the production of two goods. The PPC
can be used to illustrate the concepts of scarcity,
opportunity cost, efficiency, inefficiency, economic
growth, and contractions.
Production Possibilities Frontier

The Production Possibilities Curve

(PPC) is a model that captures
scarcity and the opportunity costs
of choices when faced with the
possibility of producing two goods
or services.
Points on the interior of the PPC
are inefficient,
points on the PPC are efficient,
and points beyond the PPC are
unattainable.
The opportunity cost of moving
from one efficient combination of
production to another efficient
combination of production is how
much of one good is given up in
order to get more of the other
good.
An Expanded Production Possibilities Frontier