Introduction to managerial economicsPresentation Transcript
Introduction to Managerial Economics “Managerial Economics is concerned with business efficiency”
Economics Early Definitions
“An enquiry into the Nature and Causes of Wealth of Nations” – Adam Smith
“Economics is that body of knowledge which relates to wealth” – F.A.Walker
Economics: Science of Scarcity or Science of Choice
Economics is the science which studies economic behavior as a relationship between ends and scarce means which have alternative uses” – Robbins
Economics behavior is essentially the process of evaluating economic opportunities open to an individual or a society and given resources, making choice of the best of the opportunities.
Major Economic Problems
What to produce?
For whom to produce?
Are the resources economically used?
Maximum utilization of resources and men.
Problem of growth.
Definition of Managerial Economics
“ ME …is the use of economic modes of thought to analyze business situation.” – McNair and Meriam
“ ME .. Is the integration of economic theory with business practice for the purpose of facilitating decision-making and forward planning by management.” – Spencer and Siegelmam
Managerial Economics Defined
The application of economic theory and the tools of decision science to examine how an organization can achieve its aims or objectives most efficiently.
Managerial Decision Problems Economic theory Microeconomics Macroeconomics Decision Sciences (tools and techniques of Analysis) MANAGERIAL ECONOMICS Application of economic theory and decision science tools to solve managerial decision problems OPTIMAL SOLUTIONS TO MANAGERIAL DECISION PROBLEMS
Nature of Managerial Economics
The word Micro means a millionth part
When speaking of micro-economics or the micro approach, it means some small part or component of the whole economy that we are analyzing.
Example: Individual consumer behavior, Price analysis of a particular firm, study of demand of individual product or firm.
Macro-Economics or the Theory of Income and Employment
Macro Economics is the analysis of economic system as a whole.
Example Aggregate output and aggregate expenditure
Circular Flow of Income or A Simple Model of an Economy
In an economy there are two main decision makers
Households (Individual or consumers, society)
These supply all the factors of production, viz., land, labour and capital, to the firms which constitute the production sector and
They consume all the goods and services produced by the business
These include all firms, farms, factories and shops engaged in production and distribution and goods and services performing two functions:
They hire factors of production from the households and transform them into final goods and services
They supply all the goods and services to the households, the consumers
Interaction between the Households and Firms
The sale and purchase of inputs creates factor market where the factor prices are determined
The sale and purchase of final goods and services creates product market where product prices are determined
Positive vs Normative approach
Risk and uncertainty
Decision making and forward planning
Positive vs Normative approach
Positive approach concerns with what is, was or will be. This studies the phenomena as they actually are or as they actually happen.
Example: as per the ministry of textiles figures, of the $13billion western style Indian apparel market – urban as well rural – ready to wear segment was just $2.5 billion, while tailors enjoyed a whopping 80% share worth $10.5billion.
A normative or regulatory science is a body of systematized knowledge relating to criteria of what ought to be and is concerned therefore with ideal as distinguished from actual. This involves value judgements on whether what happens is good or bad, desirable or undesirable.
The retail sector has a huge scope to increase with special reference to ready to wear apparel industry to grow.