Session IV

Role of Economics and Managerial Economist

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Role of Economics
What is the role of Economics in Business?
Costs, prices, output, compensation, strategic
behaviour and ethics making.

The Big Picture- Whose job is this?

Economic theory forms the basis for different
management areas such as accounts, finance,
marketing, systems and operations.
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…Role of Economics
A manager has to deal with problems pertaining to
the individual firm as well as domestic and global
environment.

Microeconomics: Deals with individual unit

Macroeconomics: Deals with aggregates

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…Role of Economics
Microeconomics:
Theory of demand and supply- consumer behaviour, demand
theory, demand forecasting and factors affecting individual and
market supply- Helps in choice of commodities for production.
Theory of Production: Production function and laws of returns to
scale etc- gives an idea about I/O relations, input requirement size
of firm, technology choice of output- Helps producer to plan
production, cost and budget.

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…Role of Economics
Market Analysis: helps understand degrees of
competition, pricing-output decisions, price
discrimination, monopoly power, advertising

Profit Analysis: Provides logical analysis of break-

even point, emergence of profits, profit-maximising
output, dealing with risk and uncertainty

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…Role of Economics
Macro economic: variables and policies impact business

@ Behaviour of macro economic indicators: GDP, GNP, GDCF(Gross

Domestic Capital Formation), HDI (Human Development Index)
etc.
@ Business Cycles – Inflation- Employment

@ Fiscal Policy: Taxes and Govt.

Expenditure @ Monetary Policy: Savings and

Investment 6
Role of Economics in Business
□Economics is a tool, means to an end:
□To help efficient allocation and achieve
business objectives
□To optimising resources - Maximise goals,
minimize costs under constraint
Logic, tools and techniques of economics to analyse
business problems, evaluate business options and
opportunities with a view to arriving at an appropriate
business decision.

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Role of Managerial Economist
Role Of Managerial Economist: To decide
What to produce?
Where?
How ?
How much?
Allocation of resources
For whom to
produce? Which price
to sell? 8
 …Role of Managerial Economist
Plan and control business operations-
Cost minimisation
Profit maximization ??
Managing competition
Economic intelligence
Market research

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 …Role of Managerial Economist
Uncertainty & Risk management

 Forecast change in environment and policies- domestic and

international
 To manage change in global scenario
 Everything comes at a price- quality is not free

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Growing Challenges to the
Managerial Economist
A) Globalization
What is Globalization ?

People-goods-services- communication- Finance- Ideas

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…Growing Challenges to the
Managerial Economist
Global corporations
- Research & production facilities across countries
- Global markets
- Global Finance
- Employment Diversity
- Global work culture

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…Growing Challenges to the
Managerial Economist
 Increased competition
 Increased
 Opportunity
 Tastes converging internationally?
Customising to local tastes

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Growing Challenges to the
Managerial Economist
B) Computerization and Technology
➢ Easier model-building and simulation
➢ Quick and easier data analysis
➢ Rapid spread of information
➢ Internet changing both buyers and sellers
➢ Videoconferencing- saving cost and time
➢ Paperless administration
➢ Speed of dispatch, lower inventories, less waste

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