ICMAP FOUNDATION COURSE s ae ECONOMIC. ce & BUSINESS ENVIRONMENTS eo The Institute of Cost and ‘Management Accountants of PakistanCONTENTS Lesson i ‘No. Topic Page No. iCMAP FOUNDATION COURSE ECONOMIC & BUSINESS ENVIRONMENT AUTHOR = PROF. SAEED AHMED SIDDIQUI M.A.(Ee0.) : REVIEWER z A. KAZMI ( Pak M.A, (Beo.) Leeds (URI The Institute of Cost and ‘Management Accountants of PakistanCONTENTS SECTION -A WwW INTRODUCTION TO ECONOFIICS FUNDAMENTAL CONCEPTS OF ECONOMICS (142-2 FUNDAMENTAL CONCEPTS OF ECONOMICS (11K, BUSINESS AND PUBLIC STRUCTURE Int A MIXED ECONOMY THE MARKET, PRODUCTION, COSTS AND 7” MARKET STRUCTURES .. UTILITY AND TIIEOKY OF CONSUMER'S CHOICE . PRODUCTION FUNCTION AND THE LAW OF DIMINISHING MARGINAL RETURNS Ee COST-REVENUE ANALYSIS .....0.56: ‘SUPPLY-PRICE UNDEK PERFECT COMPETITION .. SUPPLY UNDER MONOPOLY 03 MONOPOLISTIC COMPETITION AND OLIGOTOLY'. NATIONAL INCOME ANALYSIS «hess... MONEY AND GANIING .. zs ECONOMIC GOALS AND GOVT. POLICIES INFLATION AND UNEMPLOYMENT Succ INTERNATIONAL TRADE AND FINANCE “usc INTERNATIONAL TRADE AND FINANCE (I. SECTION - B PAKISTAN'S ECONOMIC PROBLEMS & DEVELOPMENT . CURRENT ECONOMIC POLICIES AND TRENDS .. CURRENT ECUMDMIC POLICIES AND THENDS (2 NATIONA:, ECONOMIC PLANNING dicey see CS) 9-21 30-47 48-56 1 57-60 61-74 7581 62-86 87-96 97-103 104-120 Harsh 152-141 142-157 158-166 169-192 95-221 222-248 249-277FOREWARD Study of Economics, no doubt, is important in general but specifically it becomes more significant in the business environment for an industrial and Management accountant because he is held responsible to collect, (o process and to communicate the economic informations, He should have second knowledge of basic economic principles and practice to comply with his responsibilitics. Fast means of transport and communication has shrinked the world to the minimum. Whatever happens in the business and cconomic environment anywhere in the world, has its repercussions everywhere on trade and industry. Therefore, an accountant must have the Rnowledge of economic theory and practice. Since an industrial or management accountant supplics the facts and figures, he camot neglect the economic forces which have far reaching effects on his business. In the national economic sccne we find governments nionetary and fiscat policies, price policy, labour policy. Inflation controlling measures, industrial policy, agriculture policy, Economic Planning and budge cting. These policies have immediate and far reaching effects on supply. demand and prices. If an accountant is not fully aware of them, he can hardly fulfill his assigned duties. Hc must have full insight in all thesc issucs. The study plan of these notes is business oriented therefore only those tiicorctical topics have been taken into accountant which have \clical value. For example, market, production, costs, prices, Inflation trade ete are the topics having business touch. Current economic policies and trends have been discussed basing on facts and figures extracted from : fen 5 Economic Survey of Pakistan 1995-04; Year Book of Pakistan 1993-94 and ighth 5 years plan.INSTRUCTIONS TO STUDENTS There are no two opi jons about indispensibilily of knowledge economics for a management aud industrial accouniaiit. Kealisi becomnes iinparalive that the students should be instructed how to acqu knowledge. The students should be very clear thal these notes, being pr and comprehensive, are not the substilite of the books. Il is, thercfores necessary to study the notes aiongwith the prescribed books. They shout make their utinost not only to understand the economic principles but also ti put them into practice with reference to the economic anu busine: tment found within and outside the county. S environs Graphs and diagrams are the economic problem and phenomena cari best be pr ough diagrame. Cis therefore advised to pay speciai attention to draw and (o unde rsiand the diagrames. The micthod and technique of drawing of the graphs can be learned by any beginers book. It is also advised thai the students should make them habitual of going through curzeut econoinic affairs by reading economic Journals like “Business Review’. :Guf economist’. “Economic Survey’ news papers etc. Hort hand and Key of ccouomics Any) Scented th HOW TO WRITE YOUR ASSIGNMENTS ; The correct and best way to write your assignment is to read and Understand the answer of a particular question from ihe notes as well as the concerued portion of the prescribed books. Keep Ihe noles anc books aside and now start lo write your answer in your owii language and words. Avoid copying elther from (he books or frou others. Habit of copying spoils the intelligence. Brilliant and bright students never confine ineme to Ine pre- scribed books, only they should go through othe: good books on the subject also.SECTION-A keLESSON-I INTRODUCTION TO ECONOMICS WHAT IS ECONOMICS ABOUT 2 Weallare already introduced with Economics to some extent because we participate in economic activities of our socicly. It will be more correct to say that the major part of our lives is spent either in earning or consuming. If we are foresighted, we make our utmost efforts to save oul of the income. We desire to purchase goods and services on the minimum possible prices and sell our services on the maximum (wages ¢tc). Whenever, we are doing so, in fact, weare making our best to solve the economic problem. Weare compelicd to do so, as our wants arc unlimited bul the means to satisfy them are limited. Consequently, it becomes necessary to pick only (hose most urgent wants which could be satisfied within the limited means. It should be noted that the same human behavior and efforts arc the subject matter of Economics. Economics, as a subject, guides us to select the right way which can lead us to the right destination. Economics provides such rules which aid in satisfying unlimited wants with the help of limited means. As the socicly is becoming more civilized, more technical and more industrialized, scope of Economics is also being expended. Although Economics covers all kinds of Lopics but specifically it devotes itself to create an understanding how socicly allocates ils scarce resources $0 that maximum ‘Social advantage’ may be cultivated. Study of scarcity solve: not only the problem of abundance of wants and scarcity of means but il tries to figure out 1001 puzzles of everyday life. Key aspects of Economics can be sumerised as under : 1. It approaches to sort out individual cconomic problems called as “Micro-Economics’ and also collective Economic issues, known as “Macro-Economics’.It deals with the production and focuses on th through the production scarce and this issuc on The resources and goods needed lo produce goods ar this creates the problem of choice. Economics take: dividual and national basis. 4, Itisaspecial way of thinking which uscs simplificd models to explore realily called ‘Positive Economics’. 5. Itisalsoa policy scicnce with important applications 10 Government. Positive Economics can clarify policy alicrnatives: but choice be tween these alternatives involves what is calicd ‘normative econon: METHODOLOGY OF ECONOMICS There are two methods which can be adopicd to analyse any economic problem called ‘Mizro Economics’ and "Macro Economics’, Micre Economics deals with ‘individual’ problems while Macro Economics focuses on collective or tational cconomy’s problems. Usa microscope over Lry or “Micro! means amillionth part. Micro-Leonomics hi some portion of economy thal nay be a particular individualor an ind. afinm ora ycographi¢ arca, When we talk if micro approach what we mean is’ that we intend lo analyse some small part of the society. IF it is the cane of consumption, it refers to the behavior of a consumer. In case of production, the individual firm or a particular industry may be analysed. Siuilarly, price of a particular commodily, demand of an individual industry, Income of au individual and willt regard fo employment microeconomics deals with corp loy iment in a firm or an industry. Professor Ackley delincs Microeconomics by saying that it is “Concerncd with distribution and alternative allocation of resources belween different industries, productions and firms. Micro ecouon: ics deals with the problems of income distfibution and is also concerned with the relative prices of particular goads aiid services” if