Managerial economics


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Managerial economics

  1. 1. Managerial Economics Prof Sujata Bolake
  2. 2. Managerial Economics• ME is Pragmatic (Practical)• Analyzing tools & techniques of economic• Useful for Decision making• DM is crucial aspect of dealing with business problem
  3. 3. Micro Economics• Small in Nature• Study of decisions that people and businesses make regarding the allocation of resources and prices of goods and services study of decisions that people and businesses make regarding the allocation of resources and prices of goods and services
  4. 4. Macroeconomics vs. MicroeconomicsMICROECONOMIC MACROECONOMICNATUREAnalysis behavior of the Individual Analysis behavior of the EconomyMETHEDOLGYStudy a particular economics Study a total shape ,size & function oforganization (Consumer / Producers) economics.ECONOMIC VARIABLES National Income, Total Saving, totalMicro refer to Market DD,SS,Industry Consumption, total Investment, Money SS, Growth Rate of economyFIELD OF INTERESTProblem of Pricing & Income Pretend to the prob of the size of(Rent,wages,interest,profit.) National Income, economic growth, Price Level.
  5. 5. Macroeconomics vs. Microeconomics Microeconomics focuses on how decisionsare made by individuals and firms and theconsequences of those decisions. Ex.: How much it would cost for a university or college to offer a new course ─ the cost of the instructor’s salary, the classroom facilities, the class materials, and so on. Having determined the cost, the school can then decide whether or not to offer the course by weighing the costs and benefits.
  6. 6. Macroeconomics vs. Microeconomics Macroeconomics examines the aggregatebehavior of the economy (i.e. how the actions ofall the individuals and firms in the economyinteract to produce a particular level of economicperformance as a whole). Ex.: Overall level of prices in the economy (how high or how low they are relative to prices last year) rather than the price of a particular good or service.
  7. 7. Macroeconomic Policy• In Microeconomics Government intervention in the market usually leaves society worse off.• In Macroeconomics there is a much wider role for Government – Fiscal Policy -fiscal policy is the use of government expenditure and revenue - collection (taxation) to influence the economy Governments use fiscal policy to influence the level of aggregate demand in the economy, in an effort to achieve economic objectives of price stability, full employment, and economic growth.
  8. 8. DEMAND
  9. 9. What Does Demand Mean?An economic principle that describes aconsumer’s desire and willingness to pay aprice for a specific good or service. Holding allother factors constant, the price of a good orservice increases as its demand increases andvice versa.
  10. 10. Demand & Supply• Demand refers to how much (quantity) of a product or service is desired by buyers. The quantity demanded is the amount of a product people are willing to buy at a certain price; the relationship between price and quantity demanded is known as the demand relationship.• Supply represents how much the market can offer. The quantity supplied refers to the amount of a certain good producers are willing to supply when receiving a certain price. The correlation between price and how much of a good or service is supplied to the market is known as the supply relationship. Price, therefore, is a reflection of supply and demand.
  11. 11. Statement of the Law• "The law of demand states that people will buy more at lower prices and buy less at higher prices, other things remaining the same". Prof. Samuelson• "Other things remaining the same, the quantity demanded of a commodity will be smaller at higher market prices and larger at lower market prices". E. Miller
  12. 12. Law of Demand• A microeconomic law that states that, all other factors being equal, as the price of a good or service increases, consumer demand for the good or service will decrease and vice versa.
  13. 13. Demand CurvePrice per shirt 100 80 60 40 20 10Quantity demanded per 5 7 10 15 20 30year
  14. 14. Assumption of law of demand• No change in the income of the consumer prices of related goods do not change• Tastes & preferences of the consumer remains the same• Price of the goods remain the same• No New entry substitute product• Product is not of prestige value• Change in population• No climatic changes (weather)
  15. 15. Limitations/Exceptions Law of Demand• Prestige goods – Diamond, Sports cars• Price expectations – Gold, Onion• Ignorance of the consumer – No awarness• Giffen goods - (good that experiences increased demand for when the price rises and decreased demand for when the price falls.) Vegetable ghee, Pure ghee
  16. 16. Monetary policy• Monetary policy is the process by which the monetary authority of a country controls the supply of money, often targeting a rate of interest for the purpose of promoting economic growth and stability.
  17. 17. Long-Run Growth• Macro considers the Long-run growth rate• Micro focuses on the amount of output the economy is capable of producing as given.• Long-run growth depends on Economic Aggregates
  18. 18. Core Concept• Positive & Normative ApproachPositive economics can be described as “what is, what was, and what probably will be” economics. Statements are based on economic theory rather than raw emotionNormative statements are subjective - based on opinion only - often without a basis in fact or theory. They are value-laden, emotional statements that focus on "what ought to be".