Process of Behaviour

We assume that behaviour is caused and this assumption is true. Behaviour takes place in the form of a process. It is based on the analysis of behaviour process over the period of time. Three models of behaviour process have been developed. These are S-R model, S-O-R model, S-O-B-A model and S-O-B-C model.

S-R Model

S-R model of human behavior suggests that the behaviour is caused by certain reasons. The reasons may be internal feeling (motivation) and external environment (stimulus). A stimulus is an agent, such as, heat, light, piece of information, etc., that directly influences the activity of an organism (person). Without the stimulus there is no information to be handled by the internal processes prior to action taken by the person. It implies that his behaviour is determined by the situation. Inherent in the situation are the environmental forces that shape and determine his behaviour at any given moment. The entire situation has been traditionally described as stimulus response (S-R) process.

Models of Organisational Behaviour

Autocratic model

Autocratic model is the model that depends upon strength, power and formal authority.

In an autocratic organisation, the people (management/owners) who manage the tasks in an organisation have formal authority for controlling the employees who work under them. These lower-level employees have little control over the work function. Their ideas and innovations are not generally welcomed, as the key decisions are made at the top management level.

The guiding principle behind this model is that management/owners have enormous business expertise, and the average employee has relatively low levels of skill and needs to be fully directed and guided. This type of autocratic management system was common in factories in the industrial revolution era.

One of the more significant problems associated with the autocratic model is that the management team is required to micromanage the staff – where they have to watch all the details and make every single decision. Clearly, in a more modern-day organisation, where highly paid specialists are employed an autocratic system becomes impractical and highly inefficient.

Importance of Organizational Behaviour

Organizational behavior is defined as actions and attitudes of individuals and groups toward one another and toward the organization as a whole, and its effect on the organization's functioning and performance.

Organizational behavior is defined as the study which deals with all aspects of human behavior that occur within the context of an organization. It entails the study of how individuals behave as individuals and in groups within an organization. Organizational behavior is the study of human behavior, attitudes and performance in organizations.

Organizations are social inventions for accomplishing common goals through group effort. Organizational behavior is concerned with the attitudes and behaviours of individuals and groups in organizations and can be understood in terms of three levels of analysis: the individual, the group, and the organization.

A field of study that investigates the impact that individuals, groups and structure have on behavior within organizations, for the purpose of applying such knowledge toward improving an organization's effectiveness.

Elements of Organizational Behaviour

The key elements in the organizational behaviour are people, structure, technology and the environment in which the organization operates.

Consumption and Investment

A. Consumption and Saving

1. Disposable income is an important determinant of consumption and saving. The consumption function is the schedule relating total consumption to total disposable income. Because each dollar of disposable income is either saved or consumed, the saving function is the other side or mirror image of the consumption function.


2. Recall the major features of consumption and saving functions:


1. The consumption (or saving) function relates the level of consumption (or saving) to the level of disposable income.
2. The marginal propensity to consume (MPC) is the amount of extra consumption generated by an extra dollar of disposable income.
3. The marginal propensity to save (MPS) is the extra saving generated by an extra dollar of disposable income.
4. Graphically, the MPC and the MPS are the slopes of the consumption and saving schedules, respectively.
5. 

Measuring Economic Activity

1. The national income and product accounts contain the major measures of income and product for a country. The gross domestic product (GDP) is the most comprehensive measure of a nation's production of goods and services. It comprises the dollar value of consumption (C), gross private domestic investment (I), government purchases (G), and net exports (X)produced within a nation during a given year. Recall the formula:
   
   GDP = C + I + G + X 
   
   This will sometimes be simplified by combining private domestic investment and net exports into total gross national investment (I^T = I + X):
   
   GDP = C + I^T + G


2. We can match the upper-loop, flow-of-product measurement of GDP with the lower-loop, flow-of-cost measurement, as shown in Figure 20-1. The flow-of-cost approach uses factor earnings and carefully computes value added to eliminate double counting of intermediate products. And after summing up all (before-tax) wage, interest, rent, depreciation, and profit income, it adds to this total all indirect tax costs of business. GDP does not include transfer items such as social security benefits.

Overview of Macroeconomics

A. Key Concepts of Macroeconomics

1. Macroeconomics is the study of the behavior of the entire economy: It analyzes long-run growth as well as the cyclical movements in total output, unemployment and inflation, and international trade and finance. This contrasts with microeconomics, which studies the behavior of individual markets, prices, and outputs.


2. The United States proclaimed its macroeconomic goals in the Employment Act of 1946, which declared that federal policy was "to promote maximum employment, production, and purchasing power." Since then, the nation's priorities among these three goals have shifted. But all market economies still face three central macroeconomic questions: (a) Why do output and employment sometimes fall, and how can unemployment be reduced? (b) What are the sources of price inflation, and how can it be kept under control? (c) How can a nation increase its rate of economic growth?


3. In addition to these perplexing questions is the hard fact that there are inevitable conflicts or tradeoffs among these goals: Rapid growth in future living standards may mean reducing consumption today, and curbing inflation may involve a temporary period of high unemployment.

Capital, Interest and Profits

A. Basic Concepts of Interest and Capital

1. Recall the major concepts:


• Capital: durable produced items used for further production
• Rentals: net annual dollar returns on capital goods
• Rate of return on investment: net annual receipts on capital divided by dollar value of capital (measured as percent per year)
• Interest rate: yield on financial assets, measured as percent per year
• Real interest rate: yield on funds corrected for inflation, also measured as percent per year
• Present value: value today of an asset's stream of future returns
2. Interest rates are the rate of return on financial assets, measured in percent per year. People willingly pay interest because borrowed funds allow them to buy goods and services to satisfy current consumption needs or make profitable investments.

The Labor Market

A. Fundamentals of Wage Determination

1. The demand for labor, as for any factor of production, is determined by labor's marginal product. Therefore, a country's general wage level tends to be higher when its workers are better trained and educated, when it has more and better capital to work with, and when it uses more advanced production techniques.


2. For a given population, the supply of labor depends on three key factors: population size, average number of hours worked, and labor-force participation. For the United States, immigration has been a major source of new workers in recent years, increasing the proportion of relatively unskilled workers.


3. As wages rise, there are two opposite effects on the supply of labor. The substitution effect tempts each worker to work longer because of the higher pay for each hour of work. The income effect operates in the opposite direction because higher wages mean that workers can now afford more leisure time along with other good things of life. At some critical wage, the supply curve may bend backward. The labor supply of very gifted, unique people is quite inelastic: their wages are largely pure economic rent.

Competition among the Few

A. Behavior of Imperfect Competitors

1. Recall the four major market structures: (a) Perfect competition is found when no firm is large enough to affect the market price. (b) Monopolistic competition occurs when a large number of firms produce slightly differentiated products. (c) Oligopoly is an intermediate form of imperfect competition in which an industry is dominated by a few firms. (d) Monopolycomes when a single firm produces the entire output of an industry.


2. Measures of concentration are designed to indicate the degree of market power in an imperfectly competitive industry. Industries which are more concentrated tend to have higher levels of R&D expenditures, but on average their profitability is not higher.


3. High barriers to entry and complete collusion can lead to collusive oligopoly. This market structure produces a price and quantity relation similar to that under monopoly.

Imperfect Competition and Mononply

A. Patterns of Imperfect Competition

1. Most market structures today fall somewhere on a spectrum between perfect competition and pure monopoly. Under imperfect competition, a firm has some control over its price, a fact seen as a downward-sloping demand curve for the firm's output.


2. Important kinds of market structures are (a) monopoly, where a single firm produces all the output in a given industry; (b) oligopoly, where a few sellers of a similar or differentiated product supply the industry; (c) monopolistic competition, where a large number of small firms supply related but somewhat differentiated products; and (d) perfect competition, where a large number of small firms supply an identical product. In the first three cases, firms in the industry face downward-sloping demand curves.


3. Economies of scale, or decreasing average costs, are the major source of imperfect competition. When firms can lower costs by expanding their output, perfect competition is destroyed because a few companies can produce the industry's output most efficiently. When the minimum efficient size of plants is large relative to the national or regional market, cost conditions produce imperfect competition.

Analysis of Perfectly Competitive Markets

A. Supply Behavior of the Competitive Firm

1. A perfectly competitive firm sells a homogeneous product and is too small to affect the market price. Competitive firms are assumed to maximize their profits. To maximize profits, the competitive firm will choose that output level at which price equals the marginal cost of production, that is, P = MC. Diagrammatically, the competitive firm's equilibrium will come where the rising MC supply curve intersects its horizontal demand curve.


2. Variable costs must be taken into consideration in determining a firm's short-run shutdown point. Below the shutdown point, the firm loses more than its fixed costs. It will therefore produce nothing when price falls below the shutdown price.


3. A competitive industry's long-run supply curve, S_L S_L, must take into account the entry of new firms and the exodus of old ones. In the long run, all of a firm's commitments expire. It will stay in business only if price is at least as high as long-run average costs. These costs include out-of-pocket payments to labor, lenders, material suppliers, or landlords and opportunity costs, such as returns on the property assets owned by the firm.

Analysis of Costs

A. Economic Analysis of Costs

1. Total cost (TC) can be broken down into fixed cost (FC) and variable cost (VC). Fixed costs are unaffected by any production decisions, while variable costs are incurred on items like labor or materials which increase as production levels rise.


2. Marginal cost (MC) is the extra total cost resulting from 1 extra unit of output. Average total cost (AC) is the sum of ever-declining average fixed cost (AFC) and average variable cost (AVC). Short-run average cost is generally represented by a U-shaped curve that is always intersected at its minimum point by the rising MC curve.


3. Useful rules to remember are
   
   

Production and Business Organization

A. Theory of Production and Marginal Products

1. The relationship between the quantity of output (such as wheat, steel, or automobiles) and the quantities of inputs (of labor, land, and capital) is called the production function. Total product is the total output produced. Average product equals total output divided by the total quantity of inputs. We can calculate the marginal product of a factor as the extra output added for each additional unit of input while holding all other inputs constant.


2. According to the law of diminishing returns, the marginal product of each input will generally decline as the amount of that input increases, when all other inputs are held constant.


3. The returns to scale reflect the impact on output of a balanced increase in all inputs. A technology in which doubling all inputs leads to an exact doubling of outputs displays constant returns to scale. When doubling inputs leads to less than double (more than double) the quantity of output, the situation is one of decreasing (increasing) returns to scale.

Demand and Consumer Behaviour

1. Market demands or demand curves are explained as stemming from the process of individuals' choosing their most preferred bundle of consumption goods and services.


2. Economists explain consumer demand by the concept of utility, which denotes the relative satisfaction that a consumer obtains from using different commodities. The additional satisfaction obtained from consuming an additional unit of a good is given the name marginal utility, where "marginal" means the extra or incremental utility. The law of diminishing marginal utility states that as the amount of a commodity consumed increases, the marginal utility of the last unit consumed tends to decrease.


3. Economists assume that consumers allocate their limited incomes so as to obtain the greatest satisfaction or utility. To maximize utility, a consumer must satisfy the equimarginal principle that the marginal utilities of the last dollar spent on each and every good must be equal.
   

Basic Elements of Supply and Demand

1. The analysis of supply and demand shows how a market mechanism solves the three problems of what, how, and for whom. A market blends together demands and supplies. Demand comes from consumers who are spreading their dollar votes among available goods and services, while businesses supply the goods and services with the goal of maximizing their profits.

A. The Demand Schedule

2. A demand schedule shows the relationship between the quantity demanded and the price of a commodity, other things held constant. Such a demand schedule, depicted graphically by a demand curve, holds constant other things like family incomes, tastes, and the prices of other goods. Almost all commodities obey the law of downward-sloping demand, which holds that quantity demanded falls as a good's price rises. This law is represented by a downward-sloping demand curve.


3. Many influences lie behind the demand schedule for the market as a whole: average family incomes, population, the prices of related goods, tastes, and special influences. When these influences change, the demand curve will shift.