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By Prof.

Vaishali Padake

Economics is the art of making the most of life.


GB Shaw

Types of Economic
Analysis
Micro and Macro Economics
Positive and Normative
Short-run and Long Run
Partial and General Equilibrium

Kinds of Economic
Decision
Economic Problems
What

to produce?
Where to produce?
How to produce?
How much to produce?
For whom to produce?
Are resources used economically?
Are resources fully employed?
Is the economy growing?

Ten Principles of
Economics
How people make decision
Principle 1: People face Trade-offs
Principle 2: The Cost and benefit analysis
Principle 3: Rational People Think at the

margin
Principle 4: People respond to incentives

Ten Principles of
Economics
How people interact
Principle 5: Trade can make everyone better

off
Principle 6: Markets are usually a good way to
organize economic activity
Principle 7: Govt can sometimes improve
market outcomes

Ten Principles of
Economics
How the economy as a whole works
Principle 8: A countrys standard of living

depends on its ability to produce goods and


services
Principle 9: Prices rises when Govt prints too
much money
Principle 10: Society faces a short-run trade
off between inflation and unemployment

Managerial Economics
Managerial economics is a means to an end to

managers in any business, in terms of finding


the most efficient way of allocating scarce
organization resources and reaching stated
objectives.
Managerial economics is micro as well as
macro
Normative bias of Managerial Economics
Decision resulting in partial equilibrium.

Concept of scarcity
Human wants are unlimited, but human

capacity to satisfy such wants is limited


Economic problem consists of making
decision

Concept of Opportunity
Cost
Opportunity cost is the benefit forgone from
the next best alternative that is not selected.

Existence of Firms and their


functions
Objective of the firm
Constraints

Accounting Profit
Amount
Sales
Less: Cost of Goods

9,00,000
4,00,000

Gross Profit

5,00,000

Less: Advertising

1,00,000

Depreciation

1,00,000

Utilities

30,000

Misc Expenses

50,000

Net Profit

2,20,000

Economic Profit
Amount
Sales
Less: Cost of Goods

9,00,000
4,00,000

Gross Profit

5,00,000

Less: Advertising

1,00,000

Depreciation

1,00,000

Utilities

30,000

Misc Expenses

50,000

Net Profit

2,20,000

Less Implicit Costs


ROI on Rs. 20 Lacs

1,00,000

Foregone Wages

6,00,000

Net Economic Profit

(-)4,80,000

Concept of Margin
Marginal analysis is one of the cornerstone of

economic theory
It deals with unit increase in cost or revenue
due to change in output.

Number of Firms?
Many
firms
Type of Products?

One
firm

Monopoly
Tap water
Cable TV

Few
firms

Oligopoly
Tennis balls
Crude oil

Differentiated
products

Monopolistic
Competition
Novels
Movies

Identical
products

Perfect
Competition
Wheat
Milk

Copyright 2004 South-Western

Managerial Economics
The principles of managerial economics helps

in understanding various managerial function


in a more coordinated manner.
Managerial Economics uses Decision Sciences
tools and techniques in analysis

Economic
Theory

Quantitativ
e Analysis

Managerial
Economic
Solution to Managerial
Decision
Quantity and Quality of
Product
Price of the Product
Marketing Management
Financial Management
Human Resource
Management
Research and Development