1.

Origin of Economics
Our activities to generate income are termed as economic activities, which are responsible for the origin and development of Economics as a subject. Originated as a Science of Statecraft. Emergence of Political Economy. 1776 : Adam Smith (Father of Economics) Science of Wealth Economy is concerned with the production, consumption, distribution and investment of goods and services.

Economic problems

. Economic Problems
The problem of choice making arising out of limited means and unlimited wants is called economic problem. problem. Why do economic problems arise?

Unlimited wants Different priorities Limited means Means having alternative uses.

Multiplicity of want

Economizing problem

Basic or Central Problems

Three Basic or Central Problems of Economy
Allocation of Resources Efficient use or fuller utilization of Resources Economic Development Or Growth of Resources

What to produce?

How to produce?

For whom to produce?

The Twin theme around which Economics Revolve: Scarcity & Efficiency
Scarcity: Scarcity: Goods are limited and wants are limitless. Therefore not able to match limited goods with unlimited wants is what we call scarcity. Efficiency: Efficiency: denotes the most effective use of a societys resources in satisfying peoples wants and need. I t is said that an economy is considered to be producing efficiently when it cannot increase the economic welfare of anyone without making someone else worse off. Economizing Resources: means making the best use of Resources: resources (same as efficiency). This is basically the axis on which the study of business economics is rotating. rotating.

Kinds of economies
Market, Command and Mixed Economies: Economies: Market Economy: Where individuals and private firms make the major decision about production & consumption. It may also be called laissez-faire economy e.g. America laissezand other democratic countries Command Economy: Where the Government makes all Economy: important decisions about production & distribution e.g. Soviet Union. It may be called as communistic economy as well. Mixed Economy: Where the decision pertaining to production, consumption & distribution are taken by the Government as well as the individual such a market is called to have a mixed economy. There can not be a 100% Capitalist Economy but in the 19th century England came most close to it.

Production
To match the limited resources with the unlimited want every society must make choices about the economy inputs and outputs Inputs: There are the commodities/services that are used to produce goods and services. Outputs: These are the various useful goods or services that results from the production process and are either consumed or employed in further production. Inputs can further be understood in terms of factors of production. These can further be classified into three broad categories:

Production process

Production
Factors of Production Labour (Active)

Land (Passive)

Capital (Passive)

Semiskilled Unskilled Skilled

Production Possibility Frontier

This explains the number of possibilities for production keep certain factors as unchanged. Assumptions:

Scarce input and technology Considering an economy which produces only two economic goods Economy is having full employment
The production possibility frontier shows the maximum amounts of production that can be obtained by an economy, given its technological knowledge and quantity of inputs available. The PPF represents the menu of goods and services available to society.

Production Possibility Curve

Shift

Origin An increase in inputs or improved technological knowledge enables a country to produce more of all goods and services, thereby shifting out the PPF. Poor countries should devote more towards food production while rich countries towards luxuries

Utility/Benefits of PPF
# Helps in economys choice between current consumption goods and investment or capital goods # At times also shows the crucial economic notion of tradeoffs Productive Efficiency: occurs when an economy cannot produce more of goods without producing less of another good. This implies that an economy is on its PPF Reasons for inside shift of PPF # Business cycle and depression # Inefficiency and dislocation, strikes, political changes and revolution

. Microeconomics
Microeconomics is the study of individual units like individual household, pricing of a firm, wages of a worker, profit of an entrepreneur and so on. Definition: According to K.E. Boulding: Microeconomics is the study of particular firms, particular households, individual prices, wages, incomes, individual industries, particular commodities Scope of Microeconomics:
-Theory of Demand -Theory of Production and Cost -Factor Pricing (Theory of Distribution) -Theory of Economic Welfare

Complexity of modern business

1.rapid technological change on innovation in products and processes, as well as in marketing and sales techniques. 2. increased globalization of the marketplace, there is more volatility in both input and product prices. 3. The continuous changes in the economic and business environment make it ever more difficult to accurately evaluate the outcome of a business

Nature of managerial economics

Decision making and forward planning. The term "best" in the decision-making context primarily refers to achieving the goals in the most efficient manner, with the minimum use of available resourcesimplying there be no waste of resources. Managerial economics helps the manager to make good decisions by providing information on waste associated with a proposed decision. Forward planning What determines whether an aspiring business firm should enter a particular industry or simply start producing a new product or service? Should a firm continue to be in business in an industry in which it is currently engaged or cut its losses and exit the industry? Why do some professions pay handsome salaries, whereas some others pay barely enough to survive?

Application of managerial economics

Deciding the price of a product and the quantity of the commodity to be produced Deciding whether to manufacture a product or to buy from another manufacturer Choosing the production technique to be employed in the production of a given product Deciding on the level of inventory a firm will maintain of a product or raw material Deciding on the advertising media and the intensity of the advertising campaign Making employment and training decisions Making decisions regarding further business investment and the mode of financing the investment .

Scope of managerial economics

THE THEORY OF THE FIRM. firm can be considered a combination of people, physical and financial resources, and a variety of information. Firms use society's scarce resources, provide employment, and pay taxes. If economic activities of society can be simply put into two categories.

PROFIT MAXIMIZATION AND THE FIRM

. Profit maximization is also associated with constraints such as scarcity of resources, raw materials, energy, specialized machinery and equipment, warehouse space, and other resources. managers often face constraints on plant capacity that are exacerbated by limited investment funds available for expansion or modernization.

THE THEORY OF CONSUMER BEHAVIOR

Consumers play an important role in the economy since they spend most of their incomes on goods and services produced by firms. In other words, they consume what firms produce. Consumers are also subjected to budget constraint.

Analysis of market conditions

Perfect competition. Monopolistic competition. Monopoly. Oligopoly

Business strategy and managerial eonomics:

Business Strategy can be defined as a constant process of strategizing and prioritizing the goals of a business such as to conform to its long term objectives of growth and expansion and a motive to capture a larger market share.

 Business strategy and managerial economics works with great efficacy in the following aspects of economics : It is especially useful in analyzing the risk of a business decision and various uncertainty models, decision rules and risk quantification techniques comes under its ambit.

 Production efficiency, optimum factor allocation, costs and economies of scale can be analyzed using microeconomic techniques that come under its fold. Microeconomic methods coming under the ambit of business strategy and managerial economics can be used to evaluate pricing decisions such as transfer pricing, joint product pricing, price discrimination practices and the accounting for differences of price elasticity. Investment theory which can be formulated by business strategy and managerial economics can be helpful to deal with capital budgeting used to examine the capital purchasing and investment decisions of a business

Nature of Managerial Economics

It is defined as application of economic theory and methodology to decision making process by the management of the business firms. In it economic theories and concepts are used to solve practical business problem. It lies on the borderline of economic and management. It helps in decision making under uncertainty and improves effectiveness of the organization. The basic purpose of managerial economic is to show how economic analysis can be used in formulating business plans