Principles of Economic Management PDF

10/22/2023 Foreign Trade University Ho Chi Minh City Campus Principles of economic management Lecturer: Phạm Thanh Dung [email protected] Room A107, Department of Business Administration & Finance - Accounting Code to join class on MS Teams: 6enb6j1 (open until Oct 29th) READING MATERI...

10/22/2023 Foreign Trade University Ho Chi Minh City Campus Principles of economic management Lecturer: Phạm Thanh Dung [email protected] Room A107, Department of Business Administration & Finance - Accounting Code to join class on MS Teams: 6enb6j1 (open until Oct 29th) READING MATERIALS: 1 2 3 4 5 6 Michael R. Baye (2010), Managerial economics & business strategy, McGraw-Hill Campell McConnell (2012), Economics: Principles, Problems and Policies, McGraw-Hill Education N. Gregory Mankiw (2008), Principles of economies, 7th edition, Cengage Learning William B. Walstad (2009), Study guide use with McConnell, Bruce & Flynn Macroeconomics, McGraw-Hill Education Robbins, S. P., & Coulter, M., MANAGEMENT 14E. Datar, S.M., & Rajan, M.V. (2021). Horngren’s Cost Accounting: A Managerial Emphasis, 17th Ed. Engl and: Pearson Education. ASSESSMENT Attendance Evaluation criteria Grading Proportion scale The number of 10 10% attendances and participation in lectures’s activities and quizzes Mid-term (group work) Clear ideas and structure, logical analysis, rich references used and cited, - In-class assignments - Report &presentation for clear language, creative given topic (due date Oct presentation 10 30% 10% 20% 29th, submit on Dec 4th) Final test show the understanding of problems learned in class and self-study 10 60% 1 10/22/2023 MODULE CONTENT 1 Overview of economics and economic management 2 Economic management theories 3 Economic management functions 4 Principles of economic management CHAPTER 1: Overview of economics and economic management Overview of economics Overview of economics management Definitions and role Definitions, characteristics, role The relationship between economics, culture and politics Content of economic management science 2 10/22/2023 What is Economics? q Economics was appeared more than two centuries ago and has gone through many stages of development => many definitions of economics have appeared • “Economics is the study of how society manages its scarce resources. In most societies, resources are allocated not by an all-powerful dictator but through the combined actions of millions of households and firms. Economists therefore study how people make decisions: how much they work, what they buy, how much they save, and how they invest their savings. Economists also study how people interact with one another.” (Principles of Economics (5th edition), N. Gregory Mankiw, Cengage Learning, 2012, page 4) What is Economics? • Nature of society’s resources is limited. • Scarcity => cannot produce all the goods and services. • Economics studies how society uses scarce resources to produce necessary goods and distribute them to members of society. Role of economics The study of economics helps people understand the world around them. It enables people to understand people, businesses, markets and governments, and therefore better respond to the threats and opportunities that emerge when things change. Economists provide the tools by which analysts can study the costs, benefits and effects of government policies in a range of areas that affect society. v Forming and maintaining society v Meeting human needs v Creating jobs v Promoting industry diversification v Improving quality of life 3 10/22/2023 Why does economic development play an important role in the economy of any region? Economic development • Economic development is understood as the process of progress in all aspects of an economy, changing both quantitatively and qualitatively; closely combining the process of perfecting both economic and social issues in each country. -> Economic development will support business maintenance and expansion • An increase in total income level; • Trend-based changes in economic structure; • The better and better transformation in social issues. Sustainable conomic development Evaluation criteria: • Stable economic growth; • Implement social improvement and justice; • Reasonably exploit and economically use natural resources, protect and improve quality of life. “Sustainable development is a development process that has a close, reasonable and harmonious combination of three aspects of development, including economic growth, improvement of social issues and environmental protection.” -World Summit on Sustainable Development (Johannesbug, Republic of South Africa, 2002) 4 10/22/2023 Economic growth - Economic growth is an increase in the economy's income over a certain period of time (usually a year). - The increase is shown in scale and speed: • Growth scale: Reflects the increase more or less. • Growth rate: Used in a relative comparison sense and reflects rapid or slow growth between periods. - Economic income can be expressed in kind or value. Evaluating economic growth • • • • Gross Output (GO) Gross domestic product (GDP) Gross National Income (GNI) Per capita income Gross Output (GO) In economics, gross output (GO) is the measure of total economic activity in the production of new goods and services in a country in an accounting period. It is a much broader measure of the economy than gross domestic product (GDP), which is limited mainly to final output (finished goods and services). It is equal to the value of net output or GDP (also known as gross value added) plus intermediate consumption. or: the total value of sales by producing enterprises (their turnover) in an accounting period (e.g. a quarter or a year), before subtracting the value of intermediate goods used up in production. 5 10/22/2023 Gross domestic product (GDP) The value added created through the production of goods and services in a country during a certain period Gross National Income (GNI) The Gross National Income, GNI, formerly referred to as gross national product (GNP) measures the total domestic and foreign value added claimed by residents at a given period in time, usually a year, expressed in international dollars using purchasing power parity rates. Per capita income (GDP per capita/GNI per capita) Per capita income is a measure of the amount of money earned per person in a nation or geographic region -> Economic growth takes into account population changes. The scale and growth rate of per capita income are important reflecting indicators and are the premise for improving the living standards of the population in general. 6 10/22/2023 Orientation of economic development q Emphasize rapid growth q Appreciate issues of equality and social justice q Comprehensive development model Vietnam has chosen the direction of comprehensive development. The relationship between economics, culture and politics “The mode of production in material life determines the general character of the social, political, and spiritual processes of life.” (Karl Marx, 1859) • Economics is the content and measure of the rationality of politics, while politics is the expression form of economics. • Economic changes lead to changes in political ideology and political regime • Politics is relatively independent and has an impact on the economy The relationship between economics, culture and politics • Culture is defined by shared beliefs and preferences of respective groups. Culture of a country is developed based on its history and supported by its economy. • An economic system refers to the manner in which a culture produces and distributes its goods and services. It refers to the conditions under which a cultural group makes use of the capabilities of its individuals and the environment to derive some benefits. • Research suggest that economic decisions and economic reasoning may be heavily influenced by cultural differences. • Countries that exploit traditional or natural assets can generate wealth through tourism, gastronomy, art and other things. The advantages of cultural heritage include job creation, investment and sustainable alternatives to business models that do little to help the environment. 7 10/22/2023 The relationship between economics, culture and politics • Economy is the key factor that determining the nature and appearance of culture and politics. Economic development will create material conditions and sources of living for political stability and cultural development. • Economy is the basis and condition for the formation and development of culture and politics. • Economic growth must go along with cultural development, political stability, and solving social problems. • The relationship between economics, culture and politics has mutual influence on each other. Concept of economics management Definition Objective Characteristics Management and economic management Systematic approach: “Management is a goaloriented activity that can manage a system with the goal of transforming it from one state to another, according to the principle of breaking down the old system to create a new system and control it." Process approach: “Economic management is the process of directional influence of the management to organize, command, coordinate, and inspect activities in the reproduction process on a social scale or within each individual enterprise to achieve its goals.” 8 10/22/2023 Economic management nature Many different definitions have been given but most of them involve the application of management theories, economic principles and mathematical methods to business decision-making. As such it can be seen as a means to an end by the subjects on the objects, in terms of finding the most efficient way of allocating their scarce resources and reaching their objectives. • the subjects: organizations and individuals at upper-level management • the objects: organizations and individuals at lower level As an approach to decision-making, managerial economics is related to management theories, economic principles, decision sciences and business functions. Economic management nature - The orientation are the resources and activities of the social systems and organizations - Be performed continuously over time - About to achieve the system's goals and create added value - Be carried out in constantly changing environmental conditions. - Primarily include the process of planning, organizing, leading, and controlling. Social systems • Gathering people or groups of people having social activities with close relationships which influence, impact, and compatibilise with each other. • Levels of social systems: individual, family, organization, community, industry, etc • The activities of social systems are the mobilization of resources. • To achieve the goal, the basic functions are to attract, maintain and develop resources; achieve external and internal goals set for the system. 9 10/22/2023 Social systems Oneness Social systems purpose Complexity Organizations • A deliberate arrangement of people to accomplish some specific purpose (that individuals independently could not accomplish alone) in a consistently stable structure. • Human society is a society of organizations: businesses, associations, units, state agencies, etc. Organizations clear objective many people work for shared purpose provide value to users through its goods/s ervice Tổ chức are always manage d open system 10 10/22/2023 Characteristics of Economic Management equivalent to both science and art operates based on the authority of the managers subjective activity of the managers two-sided nature Economic Management is equivalent to both Science and Art Science nature Art nature Practical nature Economic Management is operated based on the authority of the managers Power of administrative organization Economic power Intellectual power Moral power 11 10/22/2023 Economic Management is subjective activity of the managers • Economic management decisions are formulated and issued by collectives and individual managers • Depends on the capacity of the management entity =>Requirements for managers? Economic Management has two-sided nature Organizational - technical aspect: technique, tool, method, art of management Socio-economic aspect: the purpose of economic management activities is to serve human interests and needs Role of economic management Mobilize and allocate resources effectively Fix market failures (governments) 12 10/22/2023 Economic management Concerns ØEfficiency v “Doing things right” – Getting the most output for the least inputs ØEffectiveness v “Doing the right things” – Attaining organizational goals Effectiveness and Efficiency in Economic Management Methods and Tools of Economic Management Definition Role Feature Classification 13 10/22/2023 Overview of Economic Management Methods & Tools - Definition: mixture of chosen ways to intentionally influence the objects of management to achieve goals - Role: Stimulate and motivate members to be dynamic and creative, exploit the potential of the system, and discover external opportunities. Methods of Economic Management 1. Administrative method 2. Economic method 3. Educational method Tools of Economic Management 1 Planning tools 2 Legislation tools 3 Economic policies 4 Material tools 14 10/22/2023 Planning tools Project Scheme Plan Budget Strategy Economic policies Tax Price Interest Economic policies short term Impact period long term Criteria Trade Monetary policy Impact field central, crucial Finance Investment Employment 15 10/22/2023 Material tools State Information Infra- National Natural resources structure budget enterprises system Conditions for effective use of the economic management methods and tool system Completion & Synchronization Capacity to use Operating environment General requirements for applying economic management methods and tools - Conduct analysis of the current state of the economy, evaluate the impact of selected methods and tools on affected subjects, and reactions of affected subjects to them - Determine the level of compatibility between management goals and used tools -> select suitable tools for specific goals - Evaluate the characteristics of each tool in terms of advantages and disadvantages and then make the appropriate choice 16