The word economy comes from a Greek word “for
one manages a household”.
• Society and Scarce Resources
The management of society’s resources is important
because resource are scarce.
Scarcity means that society has limited resources
and therefore cannot produce all the goods and
services people wish to have.
Scarcity implies choice and choice implies cost.
Unlimited choice Limited resources
What to produce? How to produce? For whom to produce?
Economics : Science of scarcity
• Scarce resources for society :
- Labour (L)
- Capital (K)
• Scarce resources of a business unit :
• Unlimited desires : Profitability (∏)
Economics is the study of how society manages its
Economics as a science is concerned with the problem
of allocation of scarce resources among competing
What is Economics
• What is Managerial Economics
Managerial economics is the branch of economics
which deals with managing the scarce resources of
Managerial economics uses the tools and
techniques of economic theory for effective and
efficient utilization of economic resources, in order
to optimize the profitability of a business
Introduction to Managerial Economics
Nature of Managerial Economics
“Managerial Economics is the integration of
economic theory with business practice for the
purpose of facilitating decision making and
forward planning by the management.”
Spencer & Siegel man
Micro & Macro Economics
• Microeconomics focuses on the behaviour of the
individual actors on the economic stage i.e. firms
and individuals and their interaction to markets.
Managerial economics should be thought of as
• Macroeconomics is the study of economic system
as a whole. It includes techniques for analyzing
changes in total output, total employment,
consumer price index, unemployment rate, exports
and imports. Macroeconomics addresses questions
about the effect of changes in investment,
government spending, tax policy on exports, output,
• Managerial Economics is basically micro-economic in
• Managerial Economics takes the help of macro-
economics to understand and adjust to the
environment in which firm operates.
• Managerial Economics follows normative school of
thought rather than positive school.
• Managerial Economics is prescriptive rather than
descriptive, in approach.
• It is both conceptual (qualitative) as well as metrical
• The contents of Managerial Economics are based mainly
on the ‘theory of the firm’.
Characteristics of Managerial Economics
• Demand Analysis and Demand Forecasting
• Production Analysis
• Cost Analysis
• Pricing and Output
• Profit Management
Scope of Managerial Economics
Relationship of ME with other
• Mathematics : Geometry , algebra, calculus ,
determinants , vectors.
• Operations Research: Linear Programming ,
• Statistics : Theory of probability
• Traditional Economics :