This document introduces several key concepts in managerial economics. It discusses (1) microeconomics versus macroeconomics, where micro focuses on individual units and macro looks at the overall economy, (2) the three major problems facing any economy: allocation of resources, utilization of resources, and growth of resources, and (3) production possibility curves which show the maximum output combinations an economy can produce with fixed resources.

1. Welcome you on the journey
of “Managerial Economics”.
- Dr. Vibhor Paliwal

2. “Economics is the science of scarcity”.
“It is the science that describes how individuals
and society deal with the fact that wants are
greater than limited resources available to
satisfy those wants.”

3.  - Need to make choices
 - Need for a rationing device
 - Competition

4. 1.Micro Economics Vs. Macro
Economics
Tools of Micro economics are micro scope while the tools of macro
economics are like telescope.
Macro economics stands back from the trees to observe the forest.
While the micro economics gets up close and examines the tree itself

5.  Micro Economics - is that branch of
economics that deal with human behavior
and choices as they relate to relatively small
units- an individual , a firm, an industry , a
market.
 Macro Economics - is that branch of
economics that deal with human behavior
and choices as they relate to economy as a
whole.

6. 2.Positive vs Normative Statements
Positive statements addresses “what is” or “Verifiable
things". Positive Economics deals with statements
which can be verified i.e. whether true or false.
Normative statements on the other hand deals with “what
ought to be”. It involves value judgment i.e. what is
good and what is bad for the society.

7. 3. Short Run and Long Run Period
Short Run Period – It is a time period which is not
enough for consumers and producers to adjust
completely to any new situation.
It is a period where at least one factor of
production is fixed while others are variable.

8. Long Run Period- It is a time period which is not
enough for consumers and producers to adjust
completely to any new situation.
It is a period where by all the factors can be
varied. It is considered as a planning horizon

9. 4.Partial and General Equilibrium
A partial equilibrium is one when a single consumer or
firm may be in equilibrium where as other
consumers or other firms may not be in
equilibrium.
Partial equilibrium theory considers the effects of
a change on one or a few markets only.

10. General Equilibrium seeks to explain economic
phenomenon like production ,consumption and
prices in an economy as a whole.
General equilibrium economics considers all
markets in an economy to account for all possible
effects of a change.
A general equilibrium model of the economy shows
the economy as an interconnected system of
numerous markets, in accordance with the vision
of one of the great economists, Leon Walras (1834-
1910). The economy hangs together as a whole,
said Walras.

11. We may enlist three major problems facing any
economy. These are
1. Problem of Allocation of Resources
2. Problem of Utilization of Resources
3. Problem of Growth of Resources

12. 1.Problem of Allocation of Resources
a) What To Produce and in what quantity.
b) How To Produce.
c) For Whom goods and services are to be
produced.

13. a) What To Produce and in what quantity
Since resources in an economy are limited
hence the economy has to decide about what
commodities to produce and that also in what
quantity. The economy has to make the
decision i.e. more of consumer goods or more
of capital goods.
Similarly a choice has to made between
wartime goods and peace time goods

14. b) How To Produce.
How shall goods and services be produced? It is
related to the method by which these are to
be produced?
Once the goods to be produced are decided,
there is a problem of how to produce them.
What tools are needed, how much land and
how many workers are needed. There are
many different ways of making things.

15. For example, clothes can be produced by
employing more labor and less machines or
more machines and less labor.
If goods and services are produced by
employing more of labor and less of capital, it
is known as labor intensive method of
production. If goods and services are produced
by employing more of capital (machinery etc.),
it is called capital intensive method of
production.

16. c) For Whom to Produce
Who is to enjoy and get the benefit of the goods
and services produced? It is not possible to
satisfy everyone’s want due to scarcity, so it
must be decided to whose wants are to be
satisfied. Should the economy produce more of
food crops or more of computers? Whose needs
are to be addressed, the poorer people or the
richer people? Should everybody get equal share
of the total goods and services produced, even if
some people may need more than others? All
these decisions refer to the distribution of
income and wealth in the society.

17. 2. Problem of Utilization of Resources
The other central problem of an economy
relates to full utilization of resources- land,
labor, capital. If all the resources in the
economy are fully employed, then the quantity
of one commodity can be increased only by
forgoing some quantity of the other. This
happens when production takes place
efficiently. But in reality, most of the time
production does not take place efficiently. The
factors are not fully employed.

18. and the production is below the optimum
capacity of economy. You must have seen some
of our family members or friends who are
unemployed despite being educated.
Similarly in our agricultural land we still grow
only one crop in a year. This is not a good sign,
as the resources are already scarce. If these
scarce resources are also not utilized fully, it is
wastage of resources.

19. 3. Problem of Growth of Resources
Resources like labor, capital and technology
grow over a period of time, the problem of
scarcity can be addressed. Thus, for the
growth of any economy, the resources
available to the economy should grow. It is
only through the effective growth of resources
that a society can enjoy a higher standard of
living. This is how the countries have
developed. If the resources have failed to
grow, the countries continue to be
underdeveloped. Thus, the economies should
make efforts so that their resources grow
gradually to meet the growing needs.

20. Production Possibility Curve-
A curve that shows maximum combination of two
outputs an economy can produce in a given period of
time with its available resources and technology.
A PPC operates with following assumptions-
a) Fixed Resources
b) Fully Employed Resources
c) Technology remains unchanged

21. Production Possibility Schedule
Guns Butter
0 100
1 90
2 70
3 40
4 0