Managerial Economics

Let us see what is Economics ?

Economics is the social science that analyzes

the

Ø Production

Ø Distribution

Ø Consumption

of goods and services

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 Concept
Like parent discipline of economics M.E.
has to serve as a science of making a choice.

It has to guide Business Executives in:-

1. Making decisions

2. Making certain predictions

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 Definition
M.E. concerns efficient direction of business
orgonisation so as to make, a productive
enterprise out of human & material
resources. Savage & Small

It is the integration of economic theory with

business practice for the purpose of
facilitating decision making1/8/13
& forward
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 Nature Of Managerial
Economics
With the help of Characteristics of M.E.
we can understand the nature of managerial
economics.

1) Fundamental Academic Subject.

2) Economic rationale of Business

Administration

3) Allocation of Resource
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6) Market Conditions

7) Macro Setting

8) Profit & Pricing

9) Basis for Decision-making

10) Pragmatic Approach

11) Normative Science

12) Elements of Macro Economics.

13) Help of Quantitative Techniques

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14) Socio-cultural Aspects. 5
 Scope Of Managerial
Economics
1) Basic problem.

2) Theory of firm.

3) Orgonisation of Business.

4) Demand Analysis.

5) Production & Cost Analysis.

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6) Pricing & Output Determination.

7) Cost-Benefit Analysis.

8) Profit Analysis.

9) Capital Management.

10) Government & Business.

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 Micro-economic Analysis
Micro Economics studies the behaviour of small
individual factors in an economy.

It mainly focuses on:-

1. Individual Consumer Satisfaction

2. Market Demand for the product of an

individual producer.

3. It study the equilibrium of firm & Industry

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 Micro Economics

Micro
Economic
Analysis

Theory of Theory of Economics

Commodity Factor of Welfare
Prices Pricing

Theory of Demand Theory

of Supply

Rent Wages Interest

Profit
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 Scope Of Micro-economics
1. Are the resources in the country fully utilized

or not?

2. What should be produced & in what

quantity? (Theory of Value)

3. The problem of selecting technique of

production. (Theory of Production)

4. How the goods & services produced are

distributed? (Theory of Distribution)

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 5. How effectively the resources are allocated ?

(Economics of Welfare)

6. Whether the capacity of the economy to

produce goods & services is growing or is

static ?

( Theories of Economic Growth)

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Importance of Micro-Economic
Analysis
1. Allocation of Resources

2. The distribution of national income

3. Consideration of welfare

4. Importance of applied field of

economics
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Limitation of Micro-Economic
Analysis
1. It always thinks of individual factors of
production or individual consumer so it may
not be always true on aggregate levels.

2. It’s result or conclusions are always on certain

assumption.

3. The aggregate analysis or the overall

approach to any economic problem is beyond
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 Macro-Economic
Analysis
Theory of
Theory of Economic
Income & employ Growth
Theory of
Theory of General Distribution
price level

Theory of consumption Theory of Investment

Theory of Business
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14
Cycle
 Importance Of Macro-
economic Analysis
1. It never neglect the relationship between

demand & supply as in case of micro-

economic analysis.

2. It always gives the complete picture about

the economy as whole.

3. Macro-economic s has increased the utility

of economics.

15 4. It can be used for the development

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Difference Between Micro & Macro
Economics
NO Micro Economics Macro Economics
1 Price is taken asIncome is taken as
equilibrium force Equilibrium Force
2 Physical units ofPhysical Units of
commodity can be used Commodity can not be
used
3 As consumer & producerIt can not be the case in
are treated as 2Macro-Economics, one can
independent classes onenot neglect the effect of
can neglect influence ofsupply of good.
supply side
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16 It is sufficient to takeWith the market supply &