Page 10 - DECO101_MICRO_ECONOMICS_ENGLISH

Unit 1: Basic Concepts of Economics

Notes

Caselet Birla Yamaha – Shriram Honda and Ensuing Competition

ith Honda acquiring a majority in Shriram Honda, arch rival Birla Yamaha now
has a strong opponent to tackle. As the two companies enjoy a virtual duopoly
Win the potable generator set market, Honda’s move to acquire management
control in its Indian venture was enough to rush Birla’s executives back into a huddle.
RS Sharma, MD, Birla Yamaha points out, “Our competitors are now witnessing a change
of management. As fresh funds are infused in the company, we will be up against stronger
competition.”

It is obvious that it will be difficult to understand and tackle this problem without

the knowledge of concepts like duopoly, competition, etc., which are a part of micro
economics.

Task Name other fields that economics is linked to. Give examples to show their

linkage.

1.3 Types of Economics and its use in Managerial Decisions

There are two major branches of economics – microeconomics and macroeconomics.
Microeconomics is the study of decisions that people and businesses make regarding the allocation
of resources and prices of goods and services. This means also taking into account taxes and
regulations created by governments. Microeconomics focuses on supply and demand and other
forces that determine the price levels seen in the economy. For example, microeconomics would

look at how a specific company could maximize it’s production and capacity so it could lower
prices and better compete in its industry.

Macroeconomics, on the other hand, is the field of economics that studies the behavior of, not just

on specific companies, but entire industry and economy. It looks at economy-wide phenomena,
such as Gross National Product (GNP) and how it is affected by changes in unemployment,
national income, rate of growth, and price levels. For example, macroeconomics would look at
how an increase/decrease in net exports would affect a nation’s capital account or how GDP
would be affected by unemployment rate.
While these two studies of economics appear to be different, they are actually interdependent
and complement one another since there are many overlapping issues between the two fi elds.

Example: Increased inflation would cause the price of raw materials to increase for

companies and in turn affect the end product’s price charged to the public. So in times of infl ation,
if you go to buy a t-shirt, it might cost you more than usual (micro effect) due to an increase in the
price of cotton and other raw materials.
The bottom line is that Microeconomics takes a bottoms-up approach to analyzing the economy
while Macroeconomics takes a top-down approach.
!
Caution Regardless, both Micro and Macro economics provide fundamental tools for any
finance professional and should be studied together in order to fully understand how

companies operate and earn revenues and thus, how an entire economy is managed and
sustained.

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