[Music] welcome my name is vimal Kumar and I am a professor of Economics at IIT kpur and this is a course on managerial economics and this course is for data science program so let us begin why should a data scientist study economics to understand that we should look at a simple wind diagram this wind diagram has three Circle one circle is basically you can say it's a group of mathematics statistics probability in the other Circle you have computer science and in the third circle there is a vague term that is domain expertise what do we mean by domain expertise domain expertise means knowledge of a particular field it can be of Economics it can be of accounting it can be of mechanical engineering it can be of medicine it can be of any area basically to become a very good data scientist you need three things computer science knowledge of computer science so that you can code knowledge of of maths probability and statistics and the third is domain expertise so that you can apply your knowledge of Computer Science and Mathematics to that particular domain if any one of the circle is absent then you are not in the realm of data science for example that domain and computer science if they come together you do a software development for a particular domain when you have computer science and maths if they you they come together you have machine learning and then in to do any research in any area you need mathematics so domain expertise plus mathematics gives you traditional result but when you have all three then you get to reach to data science it's a misconception that data science is all about coding or just about machine learning they are important integral to data science but you need slightly more okay so one can say data science is the fusion of many discipline what I want to say that economics is perhaps one of the most important domain for data scientist it is not just any domain but in fact it is the most important domain and I'm going to ARG so first of all let us say that once you learn economics you are going to get a domain expertise in a particular field but you can get domain expertise let's say in Engineering in medicine in any other areas why economics so I should emphasize that economics is a quantitative discipline so it gels very well with mathematics and computer science it's very very complimentary to these two sub subjects and particularly economics is a kind of social science so if you are interested in societal problem if you want to bring your data science skill to study Society then economics perhaps is the best discipline for you I would argue much more than any other social sciences because economics is done in a very quantitative manner now not only it provides a foundation for social science it also provides foundation for business subjects like Finance like accounting any of these subjects that you do you will need knowledge of Economics certainly so economics plays very very important role in social science in business world so a perhaps one of the few domain expertises that would give you entry to such a vast world of social sciences as well as business Sciences but I will go even beyond that economics in itself has the elements of a statistics what we call is econometric and let me tell you how the econometric in economics is different from traditional statistics in traditional statistics you have X and Y X can be your independent variable and Y can be your dependent variable and that's the way you study you are studying let's say you are doing an experiment in physics and you want to understand the impact of length of pendulum and on oscillation time you can vary the length of pendulum and therefore the length of pendulum is your X your independent variable and oscillation time is your Y which is dependent variable and you can do the experiment plot the data use the statistical technique economics brings a nicer element to statistics because in economics it is a social science and let us say you want to understand that how studying data science is going to help you earn more so let us say that impact of education on wage the thing here is that in statistics you can vary or in physical sciences you can vary the length of pendulum but here we cannot vary education we cannot conduct the experiment so we do not have in economics that strong notion of dependent and independent variable both an X and Y are stochastic in nature and that adds an extra element extra layer of complexity in the problem and economics help you understand true econometrics what we talk about is causal inference has become very very popular that how with you know experimental data the caal inference is not that difficult because when you are conducting the experiment you have changed X and therefore you are seeing a change in y so you already have causal inference but in real life in social sciences in business world you do not have observational data sorry you do not have experim mental data you have what we call it observational data and in observational data you are not allowed you cannot vary one variable and see its impact on other variable so economics is adding to your knowledge of Statistics although in this managerial EC economics course we will just scratch the surface we will use a statistical tool we will not get into the econometrics but this course you can also consider as a foundation to your journey in economics so economics gives you domain expertise it helps you understand the statistics better further economics is also now becoming very very important uh toolkit for computer scientist there is an area of computational social science where economists and computer scientists are coming together and making seminal contribution the area of network theory that is a combination of graph Theory and Game Theory and that has become very very useful in modern world so we will not talk about graph Theory but next course we are going to do in this uh uh program is on Game Theory so there you can bring game Theory kind of tool to computer science also so that is also very very important so we saw how economics helps you in all three Circles of course it's foremost a domain very useful domain but it also complements your knowledge in mathematics as well as in computer science and in this sense economics is a very very good domain for data science enthusiasts as I was talking that economics is complementary to statistics and computer science because you have lot of data points you may have information but you do not gain knowledge unless you have perspective to understand that data and information economics provides you framework to understand that perspective to gain that perspective and in that sense again it is very very useful so now let us look at it what is economics economics is basically a science of decision making let me repeat it economics is a science of decision making what do we mean by decision making in our day-to-day life every moment we decide like I decided to offer this course like you decided to take this course you decided to enroll and these decisions are not random decisions you must have had some reasons to enroll in this particular course so and you had other options too so why did you select this particular course so we are going to come into that how human beings make these decisions so economics is a science that studies this these decision making this Marshall refers to Alfred marshel he was an economist in late 19th century he wrote a book uh principles of economics that was the first textbook in economics in 188 85 and he gave this particular definition that a study of human behavior in ordinary business of life so he said economics is a study of human behavior in ordinary business of Life the key term is ordinary business of Life he's not talking about some eccentric decision but normal day-to-day decisions one definition that I really like is that a economics is is a study of allocating scarse resources to satisfy individual wants or desire so here I want to focus on few terms one is allocating second is scars and third is individual and fourth is wants or desire these are the four term first let us begin with individual this individual is not just about human any decision maker any person who is taking a decision or any firm like you know businesses they also decide on your on their own countries decide on their own so what we mean by individual is a decision making unit once is expectation you want to receive something you want to obtain something so we are talking about desire and want share the most important term is scars we would not study economics unless our resources are scars again I'm using the term resources and scars scars means in a word limited because whatever resources are available to us are in limited amount sometime we may have a lot of money but we do not have enough time let us say um mukes Amani wants to watch a movie so he may have you know in if you look at the ticket price and the amount of wealth he has he doesn't have to worry about the price of the ticket but then he has to worry about the time because he has a very limited time to watch the movie so when we talk about scarcity we don't mean just in terms of money but in terms of any resources that you need to use at your disposal and allocating simply you can think of it as how the good should be distributed how it should be given again I am talking about it in very short I don't want to spend a lot of time on these definition but it's also important to understand what do we mean by it so in a way I can say that economics is nothing but a framework to study societal and business problems that we talked about earlier you know you want to understand what's happening in the society economics provides you the framework in business World why a manager has decided in a particular manner why someone buys inputs from one particular location and not from other location so economics gives you framework to study such issues not necessarily problems but such issues and mathematically one can say that economics is nothing but an applied course in constraint optimization so what do we mean by constraint optimization will become very very clear the idea is that you want to achieve your desire is unlimited you know one should add resources to satisfy un you know unlimited individual because there is no end to one can say here unlimited there is no end to desire you want more and more and more all the time but the problem is that resources at your disposal are in limited quantity so economics is basically an interplay between limited resources and unlimited desires if one is absent there is no need of equ Economics we study so mathematically we can say that you want to get as much desire fulfilled as possible but you do not have unlimited resources so that's why you have to select and selection in a particular manner is called optimization and why it is constrainted because you have to consider that your resources are limited so economics is nothing but an applied course in constrainted optimization now let us move to managerial economics after all we are not going to study economics as a whole in this particular course we are going to focus on managerial economics we should also understand that how managerial economics is related to economics so managerial economics is made of two words manager and economics a economics that is available for manager one can understand and what do we mean by a manager manager is basically an individual who direct resources to achieve a stated goal whatever goal there is and typically um whatever goal there is manager is tries to achieve that goal and when we talk about manager in general sense we are talking about a manager that manages a business so one can also say that managerial economics is nothing but application of Economics to business problem and that's where it is very very useful one can give more formal definition and the formal definition would be the study the managerial economics is the study of how to direct scar resources in the way that most efficiently achieves a managerial goal so here also you see it is a problem problem of constrained optimization who is doing the optimization the manager is doing the optimization what is the constraint the constraint is that resources are a scarce that is at his disposal and what is the goal of the optimization the goal is that whatever goal manager has he should achieve in the most efficient manner so that's what man Geral economics we should also further understand that how it relates to economics so economics is typically divided into three parts microeconomics macroeconomics and econometrics micro is study of individual decision makers and as I already said that these individual could be anyone it could be a household like husband and wife wife coming together and making a decision for a house and if a household is making a decision we can say that household is individual so we are talking about unitary agents making decision and when we study their behavior we study them in microeconomics macroeconomics is a study of aggregate economic phenomena of course aggregate economic phenomena happens because at individual level economic agents have decided in a particular manner but no one is responsible for example for unemployment one person you know even or whatever is the inflation in the economy it's a result of everyone participating or not participating in the economy everyone deciding things in the economy so like examples like interest rate inflation unemployment GDP growth the that you study mostly in newspaper they are topics of macroeconomics unfortunately we are not going to study them and econometrics I already gave you a overview that econometrics is made of economics and metrics metrics means measurement so it's about measuring microeconomic and macroeconomic phenomena of course while doing that you are using statistics but you are also bringing economic principles and that's why it comes out as a unique discipline of econometric so when we study managerial economics we mostly focus on microeconomics okay so when we talk about microeconomics one one can say basic for elementary for principle of microeconomics we can focus on three entities you know whenever a business is selling something we can call a business producer or we can also call these businesses firms and they are managed by manager so one side is of producers or firm or manager whatever you want to understand and second that these firms or firms are producing output for some consumer so that's on the other side that you have consumers and where do these consumers and producers where do they meet the the meeting place it can be real or it can be virtual the meeting place is called market so microeconomics we focus I'm not saying that one study but the the Prime Focus is on producers consumers as well as on Market you see the manager play very very important role so you can say that are we going to study only producers Behavior no manager has to take decision to perhaps maximize Revenue to maximize profit or minimize cost so all these things will depend on consumer behaviors so manager should also understand the way consumers behave in the market so we are going to focus on all three producer consumer and there when they interact what happens in the market and so the important term is firm that we are talking about here what is a firm firm is something that takes input some resources as input and produces high value item by the way what do businesses do they take low value assets and convert them into high value Asset that's what firms are doing those low value things are input they bring inputs together they bring entrepreneurship also together with those inputs and turns out outputs and that's what firm do mathematically we can say that it is a black box which takes input as X and gives output as y that is the blackbox way of representing firm but we should understand that firm is not simply you know a machine there are people involved at different level there are bosses there are junior there are bosses of bosses there are CEOs CTO board so what happens sometime these managers may have different IM their personal incentive may be different than what firm should be doing so it's also important How firm is organized so that we study in a subsection of microeconomics called industrial organization here the focus is on how a firm is organized so we can say that managerial economics is basically is a subset of microeconomics and industrial organization by the way Industrial organization itself is a part of microeconomics but it's important enough that we mention that how a firm is organized how a business is organized that play very very important role so that's what managerial economics is so we are going to focus on problem solving that happens in a firm and of course the basis of all these things is decision making so how decisions are made that's that would be our focus in this particular so let me talk about what are we going to study in this course we are going to study markets different Market structure there could be a monopoly and we are going to talk about them again where there is only one seller or there can be Duo poly where there are two sellers for example or cold drink largely the market is captured by Coca-Cola and Pepsi so it's a Duo poly while Coke is pricing its product it has to think about how Pepsi is pricing its product and how pep when Pepsi is thinking about how much should be the price of its product it has to think about how coke is pricing its product so Market structure plays very very important role we will talk about Monopoly Duo poly or Duo poly is a category of oligo poly where we have two sellers we can also talk about if required monopsony which is opposite of Monopoly Monopoly you have only one seller in monopsony you have only one buyer and you know in India government is a very big consumer government buys lot of stuff from the market so typically they are you know if they are the largest buyer in in many of the setting they are like monopsonist or one can think of a city like sedur which is uh still you know Tata steel companies located there or you know the company town that we can think of where there is only one purchaser of human labor we can say there is a monopsony there we can also we should also study what we call perfectly competitive market but in reality perfectly competitive market doesn't exist but it GES gives us a nice Benchmark to study all other Market Market structure perfectly competitive so they will do Market structure we will talk about seller we will talk about consumer but these businesses or by implication these managers don't operate in vacuum they have to think about the government rules and regulations so in this course we will also Focus little bit on government another important role is of information you will not work if you think your boss is not able to monitor you I'm not teaching you bad things but that's the Practical information when students don't see instructors inv visting during the exam they tend to cheat so this information plays very very important role if you have the information that you are being watched your behavior would change so information is also important for business we are going to focus some time on information and then we will if we have time we will also talk about a new form of business which has become very very popular these days that is the platform business like Amazon is a platform there are many sellers they come to sell on Amazon's platform many buyers like us go on Amazon to by Uber doesn't own any taxi but Uber provides a platform to taxi drivers as well as customer in this age you will see wherever you will see you will find a platform business so I thought it's important that we spend some time on platform business so now that leaves us with last point that is the learning style in this course learning style is going to be primarily we will have a problem solving approach and I will immediately come to what is a problem solving approach I will give you an example before we close for this first video but basically the idea is that for each chapter I will begin up with a problem and our attempt would be to learn tools about how to solve that problem that's the macro picture that's what we are going to use we will also have sometime sort case studies but we will use case studies less and less how problems and case studies are different case studies are more descriptive in nature problem solving would be much more mathematical and statistical in nature and as you all have done basic course in mathematics and statistics I am going to use these tools uh regularly in our program it I will assume that you are familiar with basic of calculus you understand uh linear algebra you understand um the basic mathematics at 11 12th level that you have already done either on your own or under this data science program so that would be the basic assumption if some of you face problem either I or we have tutor we will uh give you a special session on calculus this course is going to be a mix of theory and application we will learn when I say Theory I don't mean descriptive things although sometime we will have some descriptive things we need to learn them but more Focus would be on mathematical model that's what theory is and then how to apply them in practice you will be given regular problem set you are expected to solve those problem set and as readings I will also give you some short case studies and we will again try to solve those case study discuss those case studies during uh video through video recording or sometime during live session let us come to problem solving approach and in one of the textbook we have Pro it all that's a managerial economics a problem solving approach so when you hear a story you will realize that something went wrong in that story so we are going to talk about what are the problems and this is the standard set of problem we will look at the first problem we will say who made the wrong or bad decision second we will say did the decision maker have enough information to make a good decision see information is playing a role that information I was mentioning here so did the decision maker had enough information good information to make the decision and the third point is that did see or he have the incentive to do so was it beneficial for him to take a particular decision and that's why he took it and it turned out to be bad decision for the FM so the idea here is very simple that if you figure out who made the bad decision the company The Firm should ask someone else to make that decision if the manager doesn't have enough information doesn't have good information to make make a good decision he should be given enough information then only he can make the good decision third we have to see whether it was in his incentive to make a good decision or not if he didn't have the incentive then perhaps we need to change his incentive structure perhaps he or she should be given a bonus to take the right decision so we will look at those problems figure out the solution of these question and by figuring out the solution of these question we will we should be able to improve the situation in our hypothetical storage so uh that's what you have for the first video in the next video we are going to talk about the mathematical modeling of economic problems we will talk about economic model thank you