Me defini&importance

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  • 1. HOW IS MANAGERIAL ECONOMICS IMPORTANT FOR THE MANAGERS ? Presented By : Pankaj Kumar
  • 2. Introduction
    • Economics is “the study of the behaviour of human beings in producing, distributing and consuming material goods and services in the world of scarce resources”.
    • “ Management is the discipline of organizing and allocating firms scarce resources to achieve its desired objectives”.
    • We combine the two terms Economics & Management and define Managerial Economics as,
    • “ the use of economic analysis to make business decisions involving the best use of an organizations scarce resources”.
  • 3. Who is a Manager ?
    • A manager is a simple lay man person who manages things around.
    • A manager has to manage :
    • Ideas ( i.e., objectives, plans and policies )
    • Things (i.e., capital, machinery, materials and other physical resources) ;
    • People (i.e., human resources) .
  • 4. Questions that managers must answer :
    • Objectives of a firm?
    • Economic Objectives (profit maximisation,sales maximisation, Techniques of production, market share, etc.)
    • Non Economic Objectives (a good place for the employees to work, provide good products and better services to the customers, act as a good citizen .
    • What to produce? (demand analysis and forecasting)
    • Make or buy?
    • How to produce? (production technology).
    • Cost of producing commodity?
    • Price and quantity of output to be produced?
    • Profit?
    • Investment?
    • Product policy, sales promotion and market strategy?
  • 5.
    • All these, as well as many other managerial decisions require the use of basic economics.
    • Economic theory helps decision makers to know what information is necessary in order to make the decisions and how to process and use that information.
  • 6. The scope of Managerial Economics
    • Economics is grouped under two broad categories:
    • Microeconomics.
    • Macroeconomics.
    • Both micro and macro economics are applied to business analysis and decision making – directly or indirectly.
    • The areas of business issues to which economic theories can be directly applied may be divided into two categories :
    • Operational or internal issues.
    • Environmental or external issues.
  • 7. Microeconomics Applied to Operational Issues
    • Operational problems are of internal nature.
    • Some of basic internal issues are :
    • What to produce ?
    • How to produce ?
    • How much to produce ?
    • How to fix the price?
    • How to promote sales ?
    • How to face competition ?
    • How to decide on new investments ?
    • How to manage profit and capital
    • How to manage inventory ?
  • 8. Micro Economic Theories
    • Theory of demand
    • Theory of production
    • Price theory
    • Theory of profit
    • Theory of capital and investment
  • 9. Theory of demand and supply
    • “ Economic analysis begins and ends with demand and supply”
    • Primary importance of demand and supply is the way they determine prices and quantities sold in the market.
    • Managers are extremely interested in forecasting future prices and output, both of goods and services they sell and for the inputs they use.
  • 10. Demand
    • Just as necessity is the mother of invention, demand is the mother of production.
    • It is essential for the managers to have a clear understanding of the following aspects of demand :
    • What are the determinants of demand?
    • How do the buyers decide the quantities of goods to be purchased?
    • How do the buyers respond to the change in price, their income and change in the price of the related goods?
    • How can the total market demand for the goods be assessed and forecasted?
  • 11. Meaning of Demand
    • Demand is an effective desire backed by :
    • Means to purchase a commodity
    • Willingness to purchase a commodity
    • Willingness to part with the means to purchase a commodity.
  • 12. Kinds of demand
    • Price Demand
    • Income Demand
    • Cross Demand
    • Direct Demand
    • Derived Demand
  • 13. Determinants of demand
    • Price of product
    • Price of the related goods
    • Level of consumers income
    • Consumers taste and preference
    • Advertisement of the product
    • Consumers expectation about the future prices and supply position
    • Population of the country
  • 14. Law of Demand
    • Other things remaining unchanged, demand increases with the fall in price and decreases with the rise in price
  • 15. Demand Schedule
    • It is the tabular presentation of the law of demand
    1 40 2 30 3 20 4 10 Quantity Price
  • 16. Demand Curve
    • A Graphical presentation of the law of demand.
    o x y D D Quantity Demanded P R I C E P P1 Q Q1
  • 17. Why does the demand curve slopes downwards ?
    • Price effect
    • Income effect
    • Substitution effect
  • 18. Changes in demand
    • Increase and Decrease in Demand
    • Extension and Contraction in demand
  • 19. Extension & Contraction
    • Demand Increases
    • With increase in price
    • Or vice versa other
    • Things remaining the same
    D D X O Y Q Q1 Q2 P P1 P2 Quantity Demanded P R I C E A B C
  • 20. Increase in demand
    • Demand increases at the
    • Same price.
    • At higher price demand
    • remains unchanged
    P Q P1 Q1 D D D1 D1 Quantity Demanded P R I C E O X Y
  • 21. Decrease in Demand D D D1 D1 Quantity Demanded P R I C E O X Y Q1 Q P P1
    • At the same price less
    • Is demanded
    • At lower price demand
    • remains unchanged
  • 22. Determination of Price and Output
    • Price and Output are determined by the interaction of the market forces of Demand and Supply.
    • Demand curve: Slopes downward towards the right showing there is an inverse relationship between price and quantity demanded.
    • Supply curve: Slopes upward towards the right showing that there is a positive relationship between price and quantity supplied.
    Quantity Demanded & Supplied Market forces will cause price to change until quantity demanded equals quantity supplied, and no shortages or surpluses will exist . E Q 2 Q Q 1 0 P r i c e (RS.) P 1 P P 2 D D S S F G H I
  • 23. What happens when the market forces change ?
    • What events might cause both demand and supply to increase?
    • Market price has increased with strong sales growth.
    Quantity Demanded & Supplied E Q Q 1 0 P r i c e ( RS ) P 1 P D D S S S 1 S 1 D 1 D 1 D 1 E 1
  • 24. PRODUCTION POSSIBILITY CURVE - a model of the economy showing how choices are made among scarce resources and their economic consequences.
    • PPC -shows alternative combinations of goods/services that can be attained if all resources are fully employed and used efficiently.
    A 0 Food (million tons) Clothing ( million units ) D. Unemployed resources; Unattainable combination C B Production Possibility curve X Y P P
  • 25. Effect of Economic Growth on Production Possibility Curve. Food (million tons) Clothing ( million units ) Production Possibility Curve Before Growth .D Production Possibility Curve after growth 0 .A . B X Y
    • Economic Growth
    • Shifts the PPC outside, allowing
    • more commodities
    • to be produced
    P P P’ P’
  • 26. Macro Economics Applied to Business Environment
    • Business is influenced not only by what decisions are taken within the firm but also by the general business environment.
    • They are related to overall economic, social and political atmosphere of the country.
  • 27. Macro Economic Issues
    • General trends in the production, employment, income, prices, savings and investments.
    • Structure of trends in working of financial institutions, e.g., banks, insurance companies, etc.
    • Magnitude of and trends in foreign trade.
    • Trends in labour and capital market.
    • Industrial policy, monetary policy, fiscal policy and price policy.
    • The role of managerial economist is to understand these external factors and to suggest policies which the firms should follow to make the best use of these external factors.
  • 28. Conclusion
    • Economic theories have wide application to business decision making. It depends on the managers’ own understanding, experience , intelligence and training as to how to use the tools of economic analysis to find correct answers to the practical managerial problems.
  • 29.
    • Thank You…