Business consultants deals more with day today business scenarios as the main responsibility of a business consultant is to help her/his customers to grow the business from AS IS to TO BE state.Economics is the studies how consumers, given his limited income, make his buying decisions and how the firms, given his limited capital, make production decisions.
So for a business consultant to consult a client must to have a good understanding about the business and also about buying patterns of consumers of the client.
There are 4 fundamental concepts of economics.They are,
- Scarcity
- Choice
- Opportunity Cost
Before getting in to more details about the above mentioned factors lets get to know the difference between 2 main terminologies used in economics.
- Needs
- Wants
Needs are basic to human existence such as food, clothing, shelter etc.
Wants are specific satisfiers which are used to satisfy the above mentioned needs.For example to satisfy hunger human kind may need not only rice but also burgers, noodles, pasta etc. Wants multiply.This occurs due to the many reasons such as likeness to imitate, advertising campaigns etc.
Getting back to the point.What is scarcity?
Economics rests on two basic assumptions i.e. human wants are limitless but the
resources available to satisfy them are limited. The basic problem facing every society
is how to satisfy unlimited wants with limited resources. Scarcity of resources is the
foundation of the economic problem.So scarcity Human wants are limitless though the the resources to satisfy those needs are limited.
What is choice?
Resources are not only scarce but have alternative uses.Hence, choices must be made between competing
uses.Resources are not only scarce but can be put to alternative uses. Scarcity of resources compels us to make choices between alternatives. A consumer has to choose what goods to buy with his limited income. A landowner can use his land for cultivation or to put up buildings. Even these
choices can be further sub-divided.
For opportunity cost to arise, two conditions must be satisfied. First, the resource must
be scarce.Second, the resource must
have alternative uses. Thus, when a choice has to be made between alternatives, the
decision would involve a sacrifice or an opportunity cost.
resources available to satisfy them are limited. The basic problem facing every society
is how to satisfy unlimited wants with limited resources. Scarcity of resources is the
foundation of the economic problem.So scarcity Human wants are limitless though the the resources to satisfy those needs are limited.
Resources are not only scarce but have alternative uses.Hence, choices must be made between competing
uses.Resources are not only scarce but can be put to alternative uses. Scarcity of resources compels us to make choices between alternatives. A consumer has to choose what goods to buy with his limited income. A landowner can use his land for cultivation or to put up buildings. Even these
choices can be further sub-divided.
What is Opportunity Cost?
Making a choice between alternatives involves a sacrifice or a cost which in economics
is termed opportunity cost.
“Opportunity cost is defined as
the cost or value of the next best alternative we give up in order to get
something. It is the cost of the next best alternative forgone or sacrificed.”
(Fonseka, 2013, p.06).
be scarce.Second, the resource must
have alternative uses. Thus, when a choice has to be made between alternatives, the
decision would involve a sacrifice or an opportunity cost.
Points on the PPC (‘a’, ‘b’, ‘c’,‘d’, ‘e’) - These show the maximum combinations of output that can be achieved by the economy when resources are fully employed.
Point outside PPC (‘f’) - because it shows a higher output combination an so a higher level of material satisfaction. But point ‘f’ cannot be reached with the given resources.
Point below PPC (‘g’) - Point ‘g’ which is inside the boundary is achievable. But, it is inferior to any point on the PPC as point ‘g’ shows a lower output combination than what is achievable. It implies unused (unemployed) or under-utilized productive resources.
System Economics:
Free enterprise economy - Answers to basic economic questions:
- What, How & for
- whom to produce – are
- provided by the private sector.
Mixed economy - Goods and services are produced both by the private sector & the public sector.
Centrally planned economy - Answers to basic economic questions are provided by the State.
"Efficiency is doing the thing right while Effectiveness is doing the right thing”. Good managers are both efficient and effective. They do right things, right. Nations and organizations need complete, and not half- managers.
Productive Efficiency: It means producing a given output at the lowest cost for that level of output; it is producing the maximum output with a given quantity of input. It occurs when goods and services are produced using the least cost production methods.
X- Inefficiency: the inefficient use of resources. Output is produced at a higher average cost (or cost per unit).
Allocative efficiency: This occurs when available resources are devoted to producing that particular combination of goods most wanted by society. A situation of efficient allocation is achieved when no one can be made better off without someone else being made worse off. It is termed Pareto optimality.
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