Managerial

Economics

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“The purpose of studying economics is not to acquire a set of ready-
made answers to economic questions, but to avoid being deceived
by economists”
- Joan Robinson
76% of senior executives say that it is important they have the
knowledge and skills to respond to trends like resource scarcity,
the low carbon economy and doing business in emerging markets

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Session I
Conception of Economics 3
What is Economics?

Unlimited wants and scarce resources

Science [methodology] or Art [Application]…?

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What is Economics? … Contd

Father of Economics

Economics is
the study of
nature and
uses of
national wealth.

Adam Smith (1723-1790)

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Basic Assumptions
I. Ceteris Paribus- Other things remaining equal

 It is a Latin word means ‘with other things (being) the same’

 “ The existence of other tendencies is nor denied, but their

disturbing effect is neglected for a time” - Marshall

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Basic Assumptions
II. Rationality
□ Implies that consumers and producers measure and
compare costs and benefits before taking decisions

 Consumers: Maximizing utility and minimizing sacrifice

 Producers : Maximizing profits and minimizing costs

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Types of Economic Analysis
A. Micro(individual consumers and firms)
Macro (Aggregates- Industry, not firm)

B. Positive (factual statements- “What is”) – The distribution of

income in India is unequal.
Normative (Value judgments- “What ought to be”) –
The distribution of income in India should be equal.

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Types of Economic Analysis
C. Time period
 Short run -A time period not long enough for
consumers and producers to adjust to a new
situation- K/L
 Long run- Planning horizon- A time period long
enough for consumers and producers to adjust to a
new situation- All inputs can be varied- K and L-
Whether to change product lines, build new plant
etc.

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Kinds of Economic Questions
1. What to Produce? (Micro)
2. How to Produce? (Micro)
3. How much to produce? (Micro)
4. For Whom to Produce? (Micro)
5. Are Resources Used optimally? (Micro)

6. Are Resources fully employed? (Macro)

7. Is the economy Growing? (Macro)
8. In what phase of business cycle is the economy? (Macro)

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