CHAPTER ONE INTRODUCTION Chapter objectives: After

Transcript:CHAPTER ONE INTRODUCTION Chapter objectives: After:
CHAPTER ONE INTRODUCTION Chapter objectives: After reading this chapter you must be able to know The meaning and scope of industrial economics The definitions and elementary description of some basic concepts used in industrial economics The paradigm of SCP The framework for the study of industrial economics 1 Compiled by: Abdi T. Definition and Scope of Industrial Economics What is industrial economics? It is one of the disciplines in economics that deals with the economic problems of firms and industries, and their relationship with society. It is also called: ‘Economics of Industry’ “Industry and Trade” ‘Industrial Organisation and Policy’ “Commerce and Business Economics’ and so on. 2 Compiled by: Abdi T. 1.0. Overview on historical Evolution of Industrial Economics The early theory of the firm which we might regard as the mother of the contemporary industrial economics was born as at this stage as an integral part of the classical economics. Many of the issues in this area of economics date back to Adam Smith in the eighteenth century. More recently, Cournot in the first half, and Marshall in the 2nd half of the nineteenth century laid foundations that which , remain appropriate concerns in industrial economics of today. Compiled by: Abdi T. 3 There have been two major traditional concerns of industrial economics. First, there has been a focus on the functioning of firms, and their performance; the determinants and consequences of different market structures”, and the relationship between behavior and performance of firms) and the market structure within which firms operate. Second, the role of government in influencing the organization of industry. Compiled by: Abdi T. 4 Although difficult to know the true beginning of industrial economics because of non-availability of data, it has come up to the present stage mainly during the last 40 to 50 years. The subject has not yet grown to its maturity. In recent years, industrial economics has changed dramatically. Theories have been extended & developed, partly in response to new ideas such as commitment, to new empirical findings and partly to the arrival of new tools such as computer simulations. Compiled by: Abdi T. 5 How decision-making problems arise in industries? To answer this question, we have to go back to the core of Economics. Economics is the science that studies human behavior as a relationship between ends and scarce means that have alternative uses. As implicit in this definition, an economic