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Lecture Notes For Business Economics (BUS-704) - 1: - Dr. Mirza Azizul Islam

This document provides an overview of lecture notes for a business economics course. It defines economics and its two main branches of microeconomics and macroeconomics. It also discusses the three key economic problems of what to produce, how to produce, and for whom to produce. Additionally, it covers markets and the role of government in a modern economy, including government intervention to address market failures. Selected data on governance indicators and ease of doing business rankings are also presented for various Asian countries including Bangladesh.

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tarek amin
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41 views

Lecture Notes For Business Economics (BUS-704) - 1: - Dr. Mirza Azizul Islam

This document provides an overview of lecture notes for a business economics course. It defines economics and its two main branches of microeconomics and macroeconomics. It also discusses the three key economic problems of what to produce, how to produce, and for whom to produce. Additionally, it covers markets and the role of government in a modern economy, including government intervention to address market failures. Selected data on governance indicators and ease of doing business rankings are also presented for various Asian countries including Bangladesh.

Uploaded by

tarek amin
Copyright
© © All Rights Reserved
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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Lecture notes for Business Economics

(BUS-704) - 1

- Dr. Mirza Azizul Islam


Introduction:

 Definition and scope of economics:


 Not easy to define – can be too narrow or too broad – deals
with determination of product and factor prices and how
these prices determine allocation of resources – financial
markets – distribution of income – impact of government
spending, taxes, budget deficit on growth, income
distribution – swings in business cycles – trade among
nations, growth among developing countries etc.
Introduction:
 Underlying all these are two key ideas in Economics –
scarcity and efficiency (most effective use of resources to
satisfy people’s needs)
 Divided into two major branches – Microeconomics deals
with individual entities such as markets, firms and
households and macroeconomics deals with overall
performance such as growth, employment, balance of
payment, inflation and related policies (monetary, fiscal,
exchange rate, trade etc)
Three key problems of Economic
Organization
Ref: Chapter 1 Section B
 What – investment goods or consumption goods – guns vs
butter – Recent purchase contract for Russian Weapons –
Hatirjheel beautification scheme vs transportation
improvement – and of course how much.
 How – production techniques – capital intensive vs Labour
intensive – (agriculture) – electricity (which fuel)
 For whom – who gets the fruits of growth – market
determined income distribution – minimal consumption for
the poor
CH.2 Markets and Government in a
modern economy
The mixed economy
 19th century dominated by “Laissez faire” or market
mechanism.
 Emergence of expanded role of the Govt. in the 20th century –
welfare state – Russian revolution of 1917.
 Late 20th century (1980s) – reduction of the role of the Govt.
– privatization, deregulation, tax reduction – breakdown of
communist system in Russia and Eastern Europe.
 Some rethinking – Wall street movement – 99% vs 1%
Section A: What is market?
 “Amarket is a mechanism through which buyers
and sellers interact to determine prices and
quantities of goods and services”

 May or may not have a physical location

 “Market equilibrium” determination of prices for


which buyers desire to buy exactly the quantity that
sellers desire to sell” – yield an equilibrium of
demand and supply – Auction
How markets solve the three economic
problems (Fig: 2.1)
 What – consumers/and producers of goods and
services through a system of expenditure, prices and
profits.

 How – cost minimization – technology and factor


prices.
 For whom – Income from factor prices (wages, rent,
interests, profits etc)- other accidental factors
 Government as provider, regulator and facilitator
Section C. The Economic Role of the
Government
 Government as provider, regulator and facilitator.
 Imperfect competition – higher prices and lower output
 Externalities – involuntary imposition of costs and benefit on
others outside the market place – noise, water pollution,
deforestation (negative externalities) – Positive (e.g. Rural
roads, discovery of life – saving drugs, primary education)
 A polar case of positive externality is public goods – Non-
rivalries in consumption, non-excludability, zero marginal cost.
Section C. The Economic Role of the
Government (continued)

 Equity – poverty alleviation

 Macroeconomic growth and stability

 Inabilityof the private sector – imperfections in the


capital market
Types of economic system:
 Market, command and mixed economies
 Market economy – individuals and private firms through a
system of markets, prices, profits and losses determine what,
how and for whom – Firms produce commodities that yield
profits (what) using techniques that give minimum cost (how)
and consumption decided by individuals decisions about how
to spend their income (for whom) derived for their ownership
of land, labour, capital
Types of economic system:

 Command or centrally planned economy


 Mixed economy
 Tendency towards a declining role of the government.
 Recent changes
The economic role of the Government:
Failure of the market Government Current examples of
economy intervention govt. policy from
Bangladesh

Inefficiency:
Monopoly/ Imperfect Encourage competition Competition law(?)/
competition direct provision
Externalities, Specially Intervene in markets, Anti-pollution, anti drug
negative regulate laws
Public goods Encourage/provide Undertake/Subsidize
Non-rivalries in beneficial activities research
consumption Defence/Highways
Non excludability;
MC =0
Merit goods As above Subsidy for higher
education
The economic role of the Government:
(continued)
Failure of the Government Current examples of govt.
market economy intervention policy from Bangladesh

Inequality
Unacceptable Redistribute income Progressive income taxes,
inequalities of Exemption of food items from
income wealth VAT; VGD, VGF, Employment
generation schemes

Macroeconomic problems
Business cycle Stabilize through macro Monetary/ Fiscal policies
policies
Slow economic Stimulate growth Invest in health, education,
growth infrastructure, Tax holiday etc.
Government failures
 Roleof private sector executives: what and how
directly; for whom indirectly

 Roleof government executives: policy decisions


with regard to the above and implementation
SELECTED ASIAN COUNTRIES: PERCENTILE RANK IN GOVERNANCE INDICATORS, 2017

Political Stability
Control of Government Regulatory Voice and
Country Rule of Law and absence of
Corruption Effectiveness Quality Accountability
violence

Bangladesh 28.37 19.23 22.12 20.67 30.05 10.48

China 44.71 46.63 68.27 48.56 7.88 36.67

Cambodia 13.46 -- 25.48 32.21 -- 52.86

India 52.88 48.56 56.73 42.31 60.10 17.14

Indonesia 40.87 48.08 54.81 51.92 50.74 29.05

Korea 85.58 67.79 82.21 82.21 71.43 58.87

Laos 18.27 15.87 38.46 25.48 4.43 63.33

Malaysia 64.90 58.17 76.44 74.52 34.48 52.38

Nepal 27.40 23.56 18.75 25.96 38.92 22.38

Pakistan 24.04 22.60 31.25 29.33 28.08 1.90

37.02 39.90 51.92 55.77 48.77 10.95


Philippines
Sri Lanka -- 41.35 48.08 50.48 43.35 42.38

Thailand 54.81 42.79 66.83 59.62 21.18 19.05

Vietnam 55.77 31.73 52.88 36.54 10.84 59.52


EASE OF DOING BUSINESS INDICATOR
 This is a composite indicator based on 11 sub indicators
which are:
1) Starting a business

2) Dealing with construction permits

3) Getting electricity

4) Registering property

5) Getting credit

6) Protecting minority interest

7) Paying taxes

8) Trading across borders

9) Enforcing contracts

10) Resolving insolvency

11) Labor market regulation


SELECTED ASIAN COUNTRIES: EASE OF
DOING BUSINESS RANK, 2017
Country Rank
Bangladesh 177

China 78

Cambodia 135

India 100

Indonesia 72

Korea 4

Laos 141

Malaysia 24

Nepal 105

Pakistan 147

Philippines 113

Sri Lanka 111

Thailand 26

Vietnam 68

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