MANAGERIAL

ECONOMICS
ECONOMICS
• Root of the word ‘economics
comes from the Greek word
‘Oikonomia’ (management of
household or household
rules)
• The study of the use of
scarce resources to satisfy
unlimited human needs and
wants.
ECONOMICS
• It is a social science that
studies the optimum
allocation of scarce human
and non human resources
among their alternative
uses in order to satisfy
unlimited human wants
and desires.
 MANAGERIAL
ECONOMICS
• “Managerial Economics is concerned
with the application of economic
concepts and economics to the
problems of formulation rational
decision making.” – Mansfield.
• “Managerial Economics … is the
integration of economic theory with
business practice for the purpose of
facilitating decision making and forward
planning by management.”
SCOPE OF MANAGERIAL
ECONOMICS
• Demand Analysis and
Forecasting
• Cost and Production Analysis
• Pricing Decisions
• Profit Management
• Capital Management
NATURE OF MANAGERIAL
ECONOMICS
• Allocation of Resources
• Micro Economic Nature
• Market Knowledge
• Macro – Setting
• Positive and Normative
Approach
 ROLE OF MANAGERIAL
ECONOMIST IN BUSINESS
• Specific Decisions – product scheduling,
demand forecasting, market research, security
management analysis, economic analysis of the
industry, advice on trade, pricing decisions.
• General Tasks – understanding external factors
and suggesting the firm which policy is to be
used. External factors includes – economic
condition of the economy, demand of the
product market conditions of raw materials,
input cost of the firm affected by outside forces.
ECONOMIC
ACTIVITY
MAN’S BASIC ECONOMIC
ACTIVITY
• It consists of efforts to satisfy
human wants with the use of
goods and services.
• Three elements are involved in
this objective of satisfaction :
• Human wants
• Use of resources
• Technique of production
HUMAN WANTS
• They are unlimited and vary from the
needs of survival, otherwise known as
basic needs to higher needs for a
comfortable and more meaningful life.
• In addition, man is subject to create
wants, develop them due to the effects
of advertising and demonstrative
effects of consumption as dictated by
our culture.
USE OF
RESOURCES
• The basic economic resources of nation consists of
land, labor, capital, and entrepreneurship.
• Since these items are available in limited amounts,
man has to learn to allocate them properly in order
to maximize the number of wants that can be
satisfied.
• The economy should pay the owners of these basic
factors of production for the use of their resources
such as rent for land, wage or salary for labor,
interest for capital, and profit for entrepreneurship.
TECHNIQUE OF
PRODUCTION
• It shows how resources are
used and combined in
production.
• Thus production is described as
capital – intensive or labor –
intensive depending on what
factor is predominantly used.
GOOD
• Anything which yields
satisfaction to someone.
• Anything used to satisfy
a person’s wants and
desires.
GOOD
• It may be tangible when they
are in the form of material
goods or commodities.
• They may also be intangible
in the form of services.
GOOD
• Goods may also be
classified according to use.
• Goods which yield
satisfaction directly, just like
soft drinks and food are
called consumer goods.
GOOD
• Goods used in the
production of other goods
and services are called
capital goods.
• Examples of these are
buildings, machinery, and
equipment.
GOOD
• Goods may also be
essentials, if they are used
to satisfy the basic needs of
man such as food, shelter,
and medicine.
GOOD
• Luxury goods are those
goods man may do
without, but are used to
contribute to his comfort
and well being.
GOODS
• Goods may also be classified as
economic or free.
• An economic good is a good
which is both useful and scarce.
• It has a value attached to it and
a price has to be paid for its
use.
GOODS
• If the good is so abundant that
there is enough of it to satisfy
everyone’s needs without
anybody paying for it, that good
is free.
• Air is free, but air from the
electric fan is an economic good
GOODS
• Goods are created by means of
production. It may involve the
physical transformation of a
commodity such as the conversion
of leather into shoes.
• This type of production takes place
in the factory and is referred to as
manufacturing or industry.
ECONOMIC
RESOURCES
• The things which are needed to carry on the
production of goods and services are called
Economic Resources or factors of
production.
• These resources are land, labor, capital, and
entrepreneur.
• They are the basic resources because they
constitute the basic needs in production
• They are the most basic tools in the
production of goods and services.
LAND
• It refers to all natural resources which
are given by and found in nature, and
are, therefore, not man-made.
• This term includes soil, river, forests,
and mineral deposits.
• It is an economic good because it is
scarce and a price has to be paid for it.
LAND
• Thus, people who own land and offer it
to others for their use, earn income
called rent.
• The less the supply of land available for
man’s use, the higher is the rent that
has to be paid for it.
LABOR
• It is any form of human effort exerted in the
production of goods and services.
• Labor covers a wide range of skills, abilities
and characteristics. It includes factory
workers who are engaged in manual work.
• It also includes accountant, economist,
nurse, typist and other numerous people
who leave their homes in the morning to be
in time for their 8 hour work.
LABOR
• Since labor supply is not available in
any amount at a zero price, anybody
who expends his efforts in the
production of goods and services
earns an income.
• Wages, which are the return on the use
of labor, include salaries,
commissions, tips, and other forms of
remuneration.
CAPITAL
• It refers to man-made goods used in the
production of goods and services.
• It does not only include money.
• It also includes buildings, machinery, raw
materials, and other physical necessities for
use in the production.
• A nation’s capital is dependent on its level of
savings.
• Savings refer to the part of a person’s income
which is not spent on consumption.
CAPITAL
• Savings involve a sacrifice because
consumption has to be given up for one to
save.
• Capital is an economic good and the owner
of the capital earns income for its use. It is
called interest.
• Thus, if you bring your money to the bank
for deposit, it earns interest because you
are actually lending capital to the bank.
ENTREPRENEUR
• Oftentimes, it is not presented as a separate
factor of production, but is classified as part
of labor.
• However, the entrepreneur does a special
type of work and is, therefore, not ordinary
labor.
• He is the person who combines the other
economic resources for use in the
production of goods and services.
• He decides on the combination of land,
labor, and capital to be used in production.
ENTREPRENEUR
• Since not everybody had the managerial
and organizational abilities to be an
entrepreneur, entrepreneurship is an
economic good that commands a price.
• This price is the income earned by the
entrepreneur and is called a profit.
• It is the amount that is left behind after all
allocations to the other economic resources
have been made.
THE NEED
TO CHOOSE
SCARCITY
• It is the reason why people economize.
• It refers to the limitations that exist in obtaining
all the goods and services that people want.
• It gives rise to the economic problems and it is
the reason why man has to make a choice.
• If all goods were as free as air, there would be no
need to economize.
• Because of scarcity, any society must confront
three fundamental and interdependent economic
problems.
1. WHAT TO PRODUCE
AND HOW MUCH?
• It is a decision on what goods
and services to produce and
their quantities.
• This would depend on what is
needed, what is wanted, and
what has to be produced.
2. HOW SHALL GOODS
BE PRODUCED?
• This is a decision of what resources are
to be used in production, by whom the
goods will be produced, the
technological manner in which
production will take place.
• A country with an abundant labor supply
would be expected to use a larger
amount of that resources in its
production of goods and services.
3. FOR WHOM SHALL
GOODS BE PRODUCED?
• This question is now on the problem of
distribution.
• Who will benefit from the production of
goods and services?
• How much of total production will each
consumer get?
• Will the goods be bought by the rich or
by the poor?
TYPES OF
ECONOMIC
SYSTEM
THE TRADITIONAL
ECONOMY
• This is basically a subsistence economy.
• A family produces everything that it consumes.
• Decisions on what, how, and for whom to produce
are made by referring to the traditional manner of
doing things.
• Production is carried on in the methods used by the
forefathers, and is therefore very primitive.
• This type of economic system is very backward since
it does not allow for change.
THE COMMAND
ECONOMY
• In this type of economy, the means
of production are owned by the
government.
• Its decisions are arrived at by
planners or government men who
dictate what, how, and for whom to
produce.
THE MARKET ECONOMY
• The basic characteristic of this economy
is that resources are privately owned
and decisions are made by the people
themselves.
• Since every consumer arrives at his own
decision, the system is coordinated
through an interlocking network of
markets and prices.
• The system depends on prices set by the
conditions of demand and supply.
THE MIXED ECONOMY
• It is seldom that an economic system exists in
pure form.
• The United States economy is predominantly
market, but it cannot be denied that there exists
some form of government control.
• The Philippine economy is a mixed economy
since it applies a mixture of the three forms of
decision making.
• However, it is more market – oriented rather than
command or international.
MACROECONOMICS
VS.
MICROECONOMICS
MICROECONOMICS AND
MACROECONOMICS

• Microeconomics
• Study of the economic behavior
in particular markets
• Individual economic choices
• Markets coordinate the choices
of economic decision makers
MICROECONOMICS AND
MACROECONOMICS
• Macroeconomics
• Study of the economic behavior of entire
economies
• Performance of the economy as a whole
• Economic Fluctuations
• Rise and fall of economic activity
• Relative to the long – term growth trend of
the economy
• Business cycle
THE
SCIENTIFIC
METHOD
THE SCIENTIFIC
METHOD
• Step 1
• Identify the question
• Define relevant variables
• Variable
• A measure that can take on
different values at different times
THE SCIENTIFIC
METHOD
• Step 2: Specify Assumptions
• Other-things-constant-assumption
• Other variables remain unchanged
• Ceteris Paribus
• Behavioral assumption
• Describes the expected behavior of
economic decision makers, what
motivates them.
THE SCIENTIFIC
METHOD
• Step 3 : Formulate the Hypothesis
• How key variables relate to each
other
• To help make predictions about
cause and effect in the real world.
• Hypothesis
• Theory about how key variables
relate
THE SCIENTIFIC
METHOD
• Step 4 : Test the Hypothesis
• Compare its predictions with evidence
• Test the validity of a hypothesis
• Reject the hypothesis
• If it predicts worse than the best alternative
theory
• Use the hypothesis
• Until a better one comes along
THE SCIENTIFIC METHOD
STEP BY STEP
THE SCIENTIFIC METHOD
STEP BY STEP
• The steps of the scientific method are designed
to develop and test hypotheses about how the
world works.
• The objective is a theory that predicts outcomes
more accurately than the best alternative theory.
• A hypothesis is rejected if it does not predict as
accurately as the best alternative.
• A rejected hypothesis can be modified or
reworked in light of the test results.
UNDERSTANDING
GRAPHS
• Origin
• Point of departure
• Horizontal Axis
• Straight horizontal line starting at the
origin
• Vertical Axis
• Straight vertical line starting at origin
BASICS OF A GRAPH
UNDERSTANDING
GRAPHS
• Graph
• A picture showing how variables relate
• Conveys information in a compact and
efficient way
• Time – Series Graph
• Shows the value of a variable over time
• Functional Relation
• The value of the dependent variable depends
on the value of the independent variable
 DRAWING GRAPHS
• Types of relations between variables
• Positive or direct relation
• As one variable increases, the other
increases
• Negative or inverse relation
• As one variable increases, the other
decreases
• Independent or unrelated variable
• As one variable increases, the other
remains unchanged