Assignment Nos.

2
Introduction to Economic Decision-Making

Please answer the following questions and submit on the deadline date.

1. Write all the basic features of managerial economics that you learned from this video
Managerial Economics.

The basic features of managerial economics are--first, scarcity it is refers to the limitations, limited
goods, limited resources and etc. but limitless wants. For example water scare, as a human we
need water in our daily life but then because of the natural disasters water scarcity came. Aside
from that the other reason is increasing of population, it is one of the main factor why scarcity
worsen. Because the population is increasing the resources is much more limited. The best
example of most affected in water scare is the farmers, they need water for their crops but usually
in the province water resource is limited. Aside from that when natural disasters came like El Niño
their crops got dried up and died, it really affect their livelihood. Second, demand and supply,
demand is referring to a customer’s desire to purchase a good or service. Quantity demanded is
the number of units purchased at the price. Price is the pay for a good or service.

This graphical presentation shows the relationship

between the price of good or service and the quantity
demanded for a given period of time it is called
demand curve. When the demand curve move
downward from left to right, it expresses law of
demand. But what is law of demand? Law of demand
states the quantity purchased varies with the price. In
other words the higher the price, the lower the
quantity demand, the lower the price, the higher the
quantity demand.
 This graph explains elasticity of demand. Elasticity of
demand refers to how sensitive demand for a good is
compared to changes in other economic factors, such
as price or income and inflation. Change in consumer
preferences is other factor can shift the demand
curve as well. If the consumer’s income drop, it
deceases their ability to buy goods.

Supply describes the total amount of a specific goods or service that available to customers. Price
is what the producer receive from the selling of good
or service, when the price rise this almost lead to an
increase of quantity supply of good or service, when
the price falls it will decrease of quantity supply.

This graphical presentation shows the correlation

between the cost of good or service and the quantity
supplied for a given period called supply curved.
When the supply curve move upward from left to right,
it expresses law of supply. But what is Law of supply?
Law of supply states that’s, all other factors being
equal, as the price of a good or service increases, the
quantity of goods or services that suppliers offer will
increase, as the price of a good or service deceases,
the quantity of goods or services that suppliers offer
will decrease.
This graph explains price elasticity of supply. Price elasticity supply measures the responsiveness
to the supply of a good or service after a change in its market price. According to basic economic
theory, the supply of a good will decrease when its price decreases and the supply of a good will
increase when its price rises.

Next, cost of production, it refers to the costs incurred by a business from manufacturing a
product or providing a service. Production costs can include a variety of expenses, such as labour
and raw materials. The question is, how to calculate cost? First, determine the fixed cost that
involved in making a product. Second, determine the variable cost incurred in the production
process. Lastly, add the fixed costs and variable costs, and divide the total cost by the number of
items produced to get the average cost per unit. Next, resource compensation, based on my
research it is the human resource management function that deals with every type of reward
individuals receive in exchange for performing an organizational task. Compensation is what
employees receives in exchange of their work for the organization. Next is government: spending
and taxes, the government has two levers when setting fiscal policy, it can change the levels of
taxation and/or it can change its level of spending. What is fiscal policy? It refers to the use of
government spending and tax policies to influence economic conditions, especially
macroeconomic conditions, including aggregate demand for goods and services, employment,
inflation, economic growth and etc.

Next, energy economics, it is a broad scientific subject area which includes topics related to
supply and use of energy in the society. Next, health care, it is an economic concern with issues
related to effectiveness, value and behaviour in the production of health. Health economics is
important in determining how to improve lifestyle patterns and to improve health care.

Lastly, immigration: legal and illegal, the act of foreigners passing coming into a country for the
purpose of permanent residence is called immigration. There are two types of immigration, first is
legal immigration, it refers to instances where a non-citizen is in the country legally permanent
resident status. Second is illegal immigration, it refers to the continued residence of people
without legal right to live in that country, or the violation of the immigration laws in that country.
That’s the 8 managerial economics that I learned in that video.
-How do you think managerial economics can solve the basic problem of society of human
behaviour and scarcity of resources?

Economics is the study of how human make choices under conditions of limited source or
scarcity. These decisions can made by individuals, families, organizations, or societies. Every
society must make choices about how to use its resources, they should decide what they need to
buy or where they should put their resources. Families must decide whether to spend their money
on a new house, new car or in a vacation. Towns must choose whether to put more of the budget
into health care, police, and fire protection or into the school system. In most cases in society,
there just isn’t enough money in the budget to do everything. It help us to understand the
decisions of individuals, families, businesses or society make because we all know that there are
never enough resources to address all our needs and wants.

How do various economist view the nature and scope of managerial economics? How do
they applied this concept in the real business world? Explain.

First of all, I want to mention the scopes of managerial economics. First, Demand Analysis and
Forecasting, demand analysis help to identify the various factors influencing the product demand
and thus provides guidelines for manipulating demand. Second, Cost and Production Analysis, it
is a study of economic costs, combined with the data drawn from the firm’s accounting records,
can yield significant cost estimates which are useful for management decisions. Third, Pricing
Decisions, pricing is a very important area of business economic. In fact, price is the beginning
of a firm’s revenue and as such its success depends on how correctly the pricing decisions are
taken. Forth, Profit Management, every business firms are tended for earning profit; it is profit
which provides the measure of success of a firm in the long period of time. Economists tell that
profits are the reward for risk taking. Appropriate planning and measuring profit is the most
important area of managerial economics. Lastly, Capital Management, one of the most
challenging problem for a business manager is of planning capital investment. Investments are
made in the machinery and buildings which are very expensive. Therefore, capital management
requires top-level decisions of planning and control of capital expenditure.

In real life business they use this scopes of managerial economics. For example, in pricing
decisions, manager think carefully about how can they price their product in an affordable price
 but they will still have a profit. Managers always think about the economy, demand and etc.
before they decide for the company because when they just decide without thinking about the
possibilities that might happen there is a possibility that the company will deprived.

2. Click the link on this video on the Models of Economics.

- Identify the various economic models and how do you think this economic model can
solve the economic problem of choice behaviour and scarcity. Explain.

Within the video, the speculations and diagrams of microeconomics was examined briefly. In budgetary
and economic matters, a demonstrate could be a speculative and hypothetically created and developed,
speaking to money related shapes and financial forms by a set of variables, factors and a set of
coherent and/or quantitative connections between them. The monetary appear may be an improved,
frequently logical, framework sketched out to illustrate complex shapes. As often as possible, financial
models set essential parameters. A show may have diverse exogenous components, and those
components may change to create diverse responses by money related variables. Methodological
businesses of models consolidate examination, theorizing, and fitting hypotheses to the world.
Reasonably, what is the elucidation approximately of financial matters? Social orders can decrease
shortage not fair by (getting more assets, way better assets, or way better innovation (i.e. Financial
Development), or by Diminishing of its needs, but also by utilizing its existing assets wisely There are
four ways that social orders can utilize their existing assets to diminish shortage. I call these the 4 E’s of
financial matters - four ways to utilize our existing assets to diminish shortage and get the greatest
fulfilment conceivable. The fifth E (financial development) too diminishes shortage and gives us more
fulfilment but it does it by utilizing Extra assets. Social orders will attempt to realize all 5 E’s of
economics. The four ways that social orders can utilize their existing assets to decrease shortage are:
Productive Efficiency, Allocative Efficiency Full Work, and Equity. This definition has four parts that we
ought to look at: the "consider of" budgetary matters, choices, deficiency, and maximizing fulfilment. Our
objective is to create choices that diminish shortage as much as prepared to. Since of boundless needs
we are not able to halt shortage or scarcity, but it can be reduced in the event that correct choices is
made. Ideally, this is frequently what governments endeavour to do: make the proper choices to
decrease shortage and increment the standard of living for their citizens. Another way to say typically
that we ought to actuate the most noteworthy Fulfilment conceivable out of our obliged resources. We
don't get to frame reasonable any choice, we got to shape the Driving choice. There are three, and
because it was three, options (choices) for society to deal with deficiency, and all social orders must deal
with deficiency since there are limited resources and boundless needs. Those three choices are:
financial development diminish our needs, and utilize our existing resources sagaciously.

References:

https://www.economicshelp.org/blog/586/markets/scarcity-in-economics/#:~:text=Examples%20of
%20scarcity&text=Water%20scarcity%20%E2%80%93%20Global%20warming%20and,for%20both
%20humans%20and%20animals.&text=Health%20care%20shortages.

https://opentextbc.ca/principlesofeconomics/chapter/3-1-demand-supply-and-equilibrium-in-markets-for-
goods-and-services/

https://www.investopedia.com/terms/d/demand-curve.asp#:~:text=The%20demand%20curve%20is
%20a,demanded%20on%20the%20horizontal%20axis.

https://www.investopedia.com/terms/s/supply-curve.asp#:~:text=The%20supply%20curve%20is
%20a,appear%20on%20the%20horizontal%20axis.

https://www.investopedia.com/terms/l/lawofsupply.asp

https://www.investopedia.com/ask/answers/040615/how-does-price-elasticity-affect-
supply.asp#:~:text=Price%20elasticity%20of%20supply%20measures,decrease%20when%20its
%20price%20decreases.

https://www.investopedia.com/terms/p/production-cost.asp

https://www.investopedia.com/terms/f/fiscalpolicy.asp

https://en.wikipedia.org/wiki/Health_economics

https://courses.lumenlearning.com/cochise-sociology-os/chapter/immigration-and-illegal-immigration/
https://courses.lumenlearning.com/wmopen-microeconomics/chapter/understanding-economics-and-
scarcity/

https://www.economicsdiscussion.net/business-economics/scope-of-managerial-economics/7122