pushkar powerpoint presentation on economics

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1. FUNDAMENTAL
ECONOMIC TOOLS
FOR DECISION
MAKING
Submitted by-
Priya Thapa
Purnima Yadav
Pushkar Kathwas

2. INTRODUCTION
Decision making forms the foundation of all economic and
business activities. Every individual, organization, and government
faces the challenge of allocating limited resources among
competing needs. To make these choices rationally and efficiently,
economists and decision-makers rely on a set of fundamental
economic tools. These include demand and supply analysis,
elasticity, cost and revenue concepts, marginal analysis, and
various statistical and mathematical techniques. Such tools help in
understanding market behavior, predicting outcomes, minimizing
risks, and maximizing benefits. By applying these tools, decisions are
not based on guesswork or intuition, but on systematic reasoning,
logical analysis, and reliable data.

3. IMPORTANCE OF
ECONOMIC TOOLS IN
DECISION MAKING
Helps in Resource Allocation :
Resources (land, labor, capital, time, money) are always
limited.
Tools like cost-benefit analysis, production possibility curve
(PPC), and marginal analysis help managers decide how to
allocate resources efficiently.
Reduces Uncertainty in Future :
Decision makers face uncertainty about prices, demand,
costs, and policies.
Tools like forecasting techniques, regression analysis, and
demand-supply models help predict future trends.
Improves Pricing Decisions :
Setting the right price is critical for survival and profit.
Elasticity of demand, break-even analysis, and market
equilibrium models guide pricing decisions.

4. Supports Policy Formulation :
Governments use tools like input-output analysis, macroeconomic indicators,
econometric models to frame policies on taxation, subsidies, trade, or employment.
Enhances Business Strategy :
Firms use game theory, SWOT with economic variables, opportunity cost analysis to
make competitive strategies.
Economic tools are vital because they convert complex real-world problems into
measurable, comparable, and predictable forms. Whether it’s a business deciding on
expansion, a government framing a budget, or an individual planning savings, these
tools ensure rational, efficient, and informed decision-making.

5. OPPORTUNITY COST:
IS THE VALUE OF THE
NEXT BEST
ALTERNATIVE
FOREGONE WHEN
MAKING A DECISION.
SUPPLY AND
DEMAND ANALYSIS:
EXAMINES HOW THE
RELATIONSHIP
BETWEEN
AVAILABILITY AND
DESIRE AFFECTS
MARKET PRICES.
MARGINAL ANALYSIS:
EVALUATES THE
ADDITIONAL BENEFITS
OF AN ACTION
COMPARED TO ITS
ADDITIONAL COSTS.
OVERVIEW OF KEY ECONOMIC CONCEPTS
COST-REVENUE
ANALYSIS:
IT GUIDE BUSINESSES
TOWARD STRATEGIES
THAT MAXIMIZE
RESOURCE
EFFICIENCY.
ELASTICITY:
UNDERSTANDING
RESPONSIVENESS OF
DEMAND OR SUPPLY TO
PRICE CHANGES.
PRODUCTION
POSSIBILITY FRONTIER:
IS CRUCIAL FOR
UNDERSTANDING HOW SMALL
CHANGES IN DECISIONS
AFFECT OVERALL OUTCOMES,
ALLOWING FOR BETTER
ECONOMIC CHOICES IN
VARIOUS SCENARIOS.

6. OPPORTUNITY
COST
•Opportunity cost refers to the
value of the next best
alternative that is sacrificed
when a decision is made.
•Helps firms choose between
projects, production levels, or
investment opportunities

EXAMPLE: Spending $1,000 on a movie instead of
depositing it in the bank.
Using your own house for business
instead of renting it out.

7. TYPES OF
OPPORTUNITY
COST
EXPLICIT
OPPORTUNITY COST
( MEASURED IN
MONEY TERMS ).
IMPLICIT OPPORTUNITY
COST
(NON MONEATRY,
OFTEN HIDDEN ).

8. MARGINAL ANALYSIS
•Marginal analysis studies the additional
cost (MC) and additional benefit (MB/MR)
of one more unit of production or
consumption.
•A rational decision is made where
Marginal Benefit (MB) = Marginal Cost
(MC).
•Used in business (profit maximization),
consumer choice, pricing, and government
policy.
Example: A firm produces extra units
only if revenue from the next unit is
greater than or equal to its cost.

9. sjdbc
ELASTICITY
Elasticity = % change in quantity
. % change in factor (like price)
Example: Demand for salt is inelastic (little
change), while demand for luxury goods is
elastic (changes a lot)
Helps in pricing decisions, tax
policies, and understanding consumer
behavior.
Elasticity shows how much
demand or supply changes when
price, income, or other factors
change.

10. SUPPLY AND
DEMAND ANALYSIS
•Demand shows how much consumers
are willing and able to buy at different
prices.
•When the price of a good falls, demand
rises; when the price rises, demand falls
(other factors remain constant)
•Price, income of consumers, tastes and
preferences, price of substitutes and
complements, and expectations
•Supply shows how much producers
are willing and able to sell.
•When the price of a good rises, supply
increases; when the price falls, supply
decreases.
•Production cost, technology,
government policies, number of
sellers, and expectations
APPLICATION: Helps in business pricing decisions, forecasting market trends,
understanding shortages/surpluses, and framing government policies (like subsidies or
price controls).

11. COST – REVENUE
ANALYSIS
•It studies the relationship between
business expenses (cost)and
earnings (revenues) to guide
decision- making.
•It helps in making crucial decisions
regarding pricing, production levels,
and profitability
RELATIONSHIP BETWEEN COSTS
AND REVENUE
MR>MC => PROFIT RISES
MR<MC => LOSS INCREASES
MR=MC => PROFIT IS MAXIMUM

12. TYPES OF REVENUES
Total revenue(TR): Total money
earned from sales.
TR=PRICE * QUANTITY
Average revenue(AR): Revenue per
unit sold.
AR=TR/Q
Marginal revenue(MR):Additional
revenue from selling one more unit.

TYPES OF COST
Fixed cost: Costs that do not change with the
level of output.
Variable cost: Cost that vary directly with the
level of output.
Total cost: Sum of fixed and variable cost.
TC=FC+VC
Average cost: Cost per unit of output.
AC=TC/Q
Marginal cost: The additional cost of
producing one more unit.

13. PRODUCTION POSSIBILITY FRONTIER
It is also knows as production possibility
curve(PPC), is a graph that shows the maximum
possible combinations of two goods or services
that an economy can produce with available
resources and technology.
It highlights that resources are scarce, so choices
must be made between different goods.
•Points on the curve = efficient use of resources
•Inside the curve = underutilization
•Outside the curve = unattainable

14. APPLICATION :
Explains concepts like efficiency, growth and trade-offs in economics
SHIFTS IN PPF :
Outward shift => Economic growth (better technology, more resources).
Inward shift => Resources loss (natural disasters).
SHAPE OF THE CURVE :
Usually concave (due to the law of increasing opportunity cost.

15. CONCLUSION
Fundamental economic tools from the backbone of
rational decision making. By applying concepts like
demand and supply, elasticity, marginal analysis,
opportunity cost, cost and revenue studies and statistical
techniques, decision-makers can minimize risks, optimize
resources, and achieve desired outcomes. These tools
transform complex choices into systematic solutions,
ensuring that decisions are efficient, logical, and
sustainable in the long run.

16. THANK YOU