Introduction to Manageri

al Economics
CHAPTER 1
“ Man’s basic economic activity consists of efforts
to satisfy human wants with the use of goods
and services. “
 What is Economics?
One
• It is the study of the production,
Columns
distribution, and consumption of goods
Designed
and services.
• It is the study of choice related to the
allocation of scarce resources.
• It is the study of how individuals and
societies make choices subject to
constraints.
 What is Economics?
One
• The need to make choices arises from
Columns
scarcity. From the perspective of society
Designed
as a whole, scarcity refers to the
limitations placed on the production of
goods and services because factors of
production are finite.
 What is Economics?
One
• From the perspective of the individual,
Columns
scarcity refers to the limitations on the
Designed
consumption of goods and services
because of limited of personal income and
wealth.
 What is Economics?
One
• Therefore, scarcity describes the condition
Columns
in which the availability of resources is
Designed
insufficient to satisfy the wants and needs
of individuals and society.
 Reasons for Studying
Economics? One
• It is a study of society and as suchColumns
is
extremely important. Designed
• It trains the mind and enables one to think
systematically about the problems of
business and wealth.
 Reasons for Studying
Economics? One
Columns
• From a study of the subject it is possible to
predict economic trends with some Designed
precision.
• It helps one to choose from various
economic alternatives.
 Human Wants
One
• Wants are unlimited Columns
• Basic Needs that are essential for Designed
survival
• In addition, man is subject to created
wants, developed due to the effects of
advertising and demonstrative effects of
consumption.
 Use of Resources
One
• Basic Economic Resources: Land,Columns
Labor,
Capital and Entrepreneurship Designed
• 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
 Consumption
One
• Household is the basic consuming unit the
Columns
economy. Designed
• Since human wants are unlimited, it
maximizes its satisfaction through the proper
allocation or mix of expenditures within the
context of budget limitations.
• Business firms serves as the economy’s
producing unit to satisfy human wants with
goods and services.
 Human Wants
One
• Wants are unlimited Columns
• Basic Needs that are essential for Designed
survival
• In addition, man is subject to created
wants, developed due to the effects of
advertising and demonstrative effects of
consumption.
 The Functions of Economic
One
Theory Columns
• The principal functions of economic theory
Designed
fall into two (2) categories:
• To explain the nature of economic activity
• To predict what will happen to the
economy as facts change
 The Functions of Economic
One
Theory Columns
• The principal functions of economic theory
Designed
fall into two (2) categories:
• To explain the nature of economic activity
• To predict what will happen to the
economy as facts change
 Price Theory and Economic
One
Theory Columns
• Price Theory (Microeconomics) – is concerned
Designed
primarily with the market activities on
individual economic units such as consumers,
resource owners, and business firms.
• It is concerned with the flow of goods and
services from business firm to consumers and
the process for establishing relative prices.
 Price Theory and Economic
One
Theory Columns
• Economic Theory (Macroeconomics)Designed
– it
treats the economic system as a whole rather
than treating the individual economic units of
which it is composed.
• It is concerned with the value of the overall
flow of goods (net national product) and the
value of the overall flow of resources (national
income).
 Price Theory and Economic
One
Theory Columns
• Economic Theory (Macroeconomics)Designed
– it
treats the economic system as a whole rather
than treating the individual economic units of
which it is composed.
• It is concerned with the value of the overall
flow of goods (net national product) and the
value of the overall flow of resources (national
income).
Three basic economic
problems
What good and services should be produced/
in what quantities?

Decision of what to produce/ quantities

Availability of resources for maximum production
> in one quantity < in another quantity
Three basic economic
problems

How goods and services should be produced?

(methodology and procedures)
Capital intensive production process
Labor intensive production process

For whom should these goods and services be

produced
 Economic system
Traditional economy - whose economic decision were
based from the past experience carried on forward
to the present

Common ownership
Purely agricultural

Traditional practices
Production, distribution of economic resources

New technologies are not welcome

Culture and religion are the priorities
 Economic system
Command (military) economy – all economic decisions
are planned and dictated by the government including
factors of production and its distribution

Resource allocation is done by the government

Central planning of all economic activities
No free competition; government is the only seller
Government plays the role in setting legal framework
on the production and distribution of goods
Products are distributed based on the priorities set
by the government
Economic system
Market economy – the buyers and sellers interacts to
determine the price of the goods; the price dictates what
goods to produce, how it is produced and for whom it is
produced.

Private sector owns and manages

the means of production
Price dictates what goods to produce
how and for whom
Free enterprise
Minimum interference of the government
Monopoly and existence of economic power
 Economic system
Mixed economy – has the elements of traditional,
command and free market with both private and public
sector exercised economic control

Production owned both by private and

government sector
People decide on economic activities
Combination of capitalist and command economies
Combination of market system and government laws
and policies to facilitate distribution of goods and
services
 Countries under various
Economic system economic system

China Philippines

Mongolia Cuba Hong kong

USA

Afghanistan North Korea Singapore Sweden Japan

Traditional Command Market Mixed
What is Managerial Economics?
It is the application of
01 economic theory and
quantitative methods
02 (mathematics and
statistics) to the
managerial
03
decision-making process.

04
What is Managerial Economics?

02 Simply stated, managerial

economics is applied
microeconomics with
02 special emphasis on those
topics of greatest interest
03 and importance to
managers.
04
What is Managerial Economics?

03 It is the study of how

scarce resources are
directed most efficiently to
02 achieve managerial goals.
It is a valuable tool
03 for analyzing business
situations to take better
04 decisions.
What is Managerial Economics?
It is concerned with
04 decision making at the
level of firm. It has been
described as an economics
02
applied to decision
making. It is viewed as a
03 special branch of
economics
04 bridging the gap between
pure economic theory and
managerial practices.
What is Managerial Economics?
Therefore, It is the
05 synthesis of
microeconomic
02 theory and quantitative
methods to find optimal
solutions to managerial
03
decision-making problems.

04
 Nature of Managerial Economics
One
• Managerial economics is concerned with
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the analysis of finding optimal solutions to
Designed
decision making problems of businesses/
firms (micro economic in nature).
 Nature of Managerial Economics
One
• Managerial economics is a practicalColumns
subject therefore it is pragmatic. Designed
• Pragmatic means it considers theoretical
representations.
 Nature of Managerial Economics
One
• Managerial economics describes, what is
Columns
the observed economic phenomenon Designed
(positive economics) and prescribes what
ought to be (normative economics)
 Nature of Managerial Economics
One
• Managerial economics is based onColumns
strong
economic concepts. (conceptual inDesigned
nature)
• Managerial economics analyses the
problems of the firms in the perspective of
the economy as a whole ( macro in nature)
• It helps to find optimal solution to the
business problems (problem solving)
 Circular Flow Model

HOUSEHOLD supplies labor, capital, entrepreneurshi

p to the RESOURCE MARKET, who in turn supplies r
esources to the FIRM who produces goods and servic
es for the PRODUCT MARKET that supplies goods a
nd services demanded by the HOUSEHOLD.

HOUSEHOLD spends to acquire goods and services i

n the PRODUCT MARKET who generates revenue for
the FIRM that pays wages for the resources used to th
e RESOURCE MARKET giving income to the HOUSE
HOLD
The Circular-Flow Diag This diagram shows the
equality of Income and
ram
expenditures
Revenue Spending
Market for
Goods
Goods & Goods &
Services sold
and Services
Services
bought

Firms
Households

Inputs for Labor, land,

production Market for and capital
Factors
Wages, rent, of Production Income
and profit
 Savings (leakage -
The Circular-Flow Diag
outflow from
ram Circular flow
Revenue Spending
Market for
Goods
Goods & Goods &
Services sold
and Services
Services
bought

Adding the
Firms
Financial Sector Households

Inputs for Labor, land,

production Market for and capital
Factors
Wages, rent, of Production Income
and profit
 Investments (inflow to
The Circular-Flow Circular flow) - injection
Diagram
Revenue Spending
Market for
Goods
Goods & Goods &
Services sold
and Services
Services
bought

Adding the
Firms
Financial Sector Households

Inputs for Labor, land,

production Market for and capital
Factors
Wages, rent, of Production Income
and profit
The Circular-Flow Taxes (outflow from Circular flow)
Diagram Adding government sector
Revenue Spending
Market for
Goods
Goods & Goods &
Services sold
and Services
Services
bought

TAXES TAXES
Firms
Government Households

Inputs for Labor, land,

production Market for and capital
Factors
Wages, rent, of Production Income
and profit
 Adding government sector
The Circular-Flow
Expenditures (inflow
Diagram
to the Circular flow)
Revenue Spending
Market for
Goods
Goods & Goods &
Services sold
and Services
Services
bought
EXPENDITURES EXPENDITURES
Firms
Government Households
TAXES TAXES

Inputs for Labor, land,

production Market for and capital
Factors
Wages, rent, of Production Income
and profit
 Adding overseas sector
The Circular-Flow
Importation (Outflow from
Diagram the Circular flow)
Revenue Spending
Market for
Goods
Goods & Goods &
Services sold
and Services
Services
bought
EXPENDITURES EXPENDITURES
Firms
Government Households
TAXES TAXES

Inputs for Labor, land,

production Market for and capital
Factors
Wages, rent, of Production Income
and profit
 Adding overseas sector
The Circular-Flow
Exportation (Inflow to the
Diagram Circular flow)
Revenue Spending
Market for
Goods
Goods & Goods &
Services sold
and Services
Services
bought
EXPENDITURES EXPENDITURES
Firms
Government Households
TAXES TAXES

Inputs for Labor, land,

production Market for and capital
Factors
Wages, rent, of Production Income
and profit
Thank You…
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