Scope of managerial Economics

Economics has two major branches

Micro economics and Macro
economics. Both micro and macro
economics are applied to business
analysis which can be used to
analyse the business environment
and to find solutions to practical
business problems.

Micro and Macro Economics

Micro-economics deals with the analysis of
small individual units of economy such as
individual firm, an individual consumer, an
individual industry etc.

Macro-economics is the study of entire

economy. It also gives an understanding of the
various factors like business cycles, national
income economic policies of Govt. like those
relating to taxation, foreign policy, labour
relations etc.

Business issues are

1. Operational or internal issues
2. Environment or external issues

Micro economics applied to

operational issue
Include all the problems which arises
within the organization.eg.Some of basic
internal issues are, Choice of business and
nature of product, choice of size of the
firm, choice of technology, choice of
price(how to price commodity),how to
promote sales, how to face price
competition, how to decide on new
investments, how to manage profit and
capital, how to manage inventory etc.

Microeconomics theories which deals with most

of these issues are following:
Theory of demand and supply-it explains the
consumer behaviour. How do the consumers
decide whether or not to buy a commodity to
be purchased? How do the consumers behave
when price of the commodity, their income,
tastes and fasions etc.. change?

Cont
Theory of Production: Relationship b/w I/O.
Explains under what conditions costs increase or
decrease; how total o/p constant when units of one
factor(i/p) are increased keeping other factors
constant; how can o/p be max from a given quantity
of resourses;how can optimum size of o/p be
determined?
Market Analysis: Explains how prices are
determined under diff. market conditions; when
price discrimination is desirable, feasible and
profitable; how advertising can be expanding sales
in a competitive market.

 Profit Analysis: Determined by Demand for

the product, input prices in the factor market,
nature and degree of competition in the
product market, price behaviour under
changing conditions in the product market
Theory of capital:Success of the firm
determined by the efficient allocation and
management of capital.Major issues related to
capital are Choise of investment project,
assessing the efficiency of capital, most
efficient allocation of capital.

Macro economic applied to Business

environment
Include overall economic , social and political
atmosphere of the country. Economic
environment of a country include the following
factors:
Type of economic system of the country.
General trends in production, employment,
income, prices, savings and investments.
Structure and trends of working of the financial
institutions .eg. Banks, insurance companies.

Cont
Magnitude of and trends in foreign trade. Eg.
Fluctuations in the price of crude oil in
international market affects on price of desel
and petrol in India.

 Govts economic policies- Govt policies

designed to control and regulate economic
activities of private firms. eg. Industrial policy,
price policy.
Social factor. eg. society , property rights ,
customs.
Political environment Govt attitude towards
business. eg. Democratic, socialist.
Degree of openness of the economy and
influence of MNCs on the domestic market.

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