Lesson 1 Overview

Two main topics will be covered in Lesson 1:

• introduction to the economic foundations of business strategy, and
• basics of demand and supply analysis.

In this lesson, we will investigate the main concepts of managerial economics. We will try to understand why it is important to study managerial economics. Many definitions will be given to introduce you to the new concepts that we will be covering. We will learn the definition of economics with a special emphasis on scarcity and trade-offs. We will understand that the objective of economics is to explain observed phenomena and predict the behavior of consumers and firms as economic conditions change.

We will investigate both microeconomic and macroeconomic environments throughout the semester. In this lesson, after learning about the major concepts in managerial economics, we will continue studying the basics of the microeconomics field of managerial economics.

Successful economic analysis for managers starts with knowing the supply and demand structures in their market. In this lesson, we also start to review the basics of supply and demand. In the textbook, you can find many real-world markets (copper, office space in New York City, wheat, gasoline, natural gas, coffee, and others). With these examples, you can understand better how to analyze these markets with the tools of supply and demand. The real-world applications are intended to show you the relevance of supply and demand analysis for business and personal economic decisions. In this part of Lesson 1, we will also start to discuss simple economic theories and models. They may be a bit abstract at the beginning, but these models and theories will lay the groundwork for a deeper economic discussion. We will see how markets can reach equilibrium and how prices are determined.

The focus is also going to be on consumers/customers. Thanks to this topic, we can gain a better understanding of what lies behind demand curves. Without understanding consumer behavior, managers cannot make correct decisions in the production process. We will learn how to obtain the market demand curve from individual-level demand curves.

Lesson Objectives

By the end of this lesson, you should be able to do the following:

• Recognize the importance of economics and managerial economics.
• Distinguish between the two branches of economics: macroeconomics and microeconomics.
• Evaluate the principles of effective management.
• Understand the basics of microeconomics.
• Define market and recognize what it means in a global context.
• Define and calculate supply and demand.
• Analyze the supply and demand mechanism in markets.
• Determine and calculate market equilibrium.
• Analyze supply and demand to predict the impacts of changes in market conditions.
• Analyze individual and market demands.
• Know the definitions of different types of goods, such as normal versus inferior goods, substitutes, and complements.

Lesson Readings and Activities

By the end of this lesson, make sure you have completed the readings and activities found in the Course Schedule.