2. What is Economics
โข Economics is a social science concerned with the
production, distribution, and consumption of goods and
services.
โข It studies how individuals, businesses, governments, and
nations make choices about how to allocate resources
โข It is also known as the study of the allocation of scarce
resources among competing ends. i.e. how people โ
individuals, households, firms and nations โ maximize their
gains from their limited resources and opportunities.
3. Economic theory seeks to predict and explain the
economic behavior of various economic agents.
Example
๏ Economics studies how households allocate their limited
resources (income) between the various goods and services
they consume so that they are able to maximize their total
satisfaction.
๏ Economics studies how firm seeks to maximize profits, thus it
predicts how much of particular commodity the firm should
produce under different form of market structure.
๏ Economics studies how nations allocate their resources, men
and material, between competing needs of the society so that
economics welfare of the society can be maximized
4. Micro and Macro economics
Micro-economics deals with the theory of the firm, and the behaviour
and problems of individuals and of micro-organizations. Price theory,
demand concepts and theories of market structure etc, takes a few
examples, of micro-economics
Macro-economics is concerned with the behaviour of the economy as a
whole, and the theories about its operation. Thus, the study of the level
and determination of national income, employment and prices and the
analysis of aggregate consumption and balance of payments belongs to
macro-economics.
5. Meaning of business economics
โข Managerial economics is a science that deals with
the application of various economic theories,
principles, concepts and techniques to business
management in order to solve business and
management problems. It deals with the practical
application of economic theory and methodology
to decision making problems faced by private,
public and nonprofit making organizations
According to SPENCER AND SIEGELMAN
โBusiness Economics is the integration of
economic theory with business practice for the
purpose of facilitating decision making and
forward planning by managementโ.
6. Scope of Managerial Economics
โข The scope of Managerial Economics lies in solving managerial issues .
โข The first question relates to what goods and services should be
produced and in what amount/quantities. The managers use
demand theory for deciding this. The demand theory examines
consumer behaviour with respect to the kind of purchases they would
like to make currently and in future; the factors influencing purchase
and consumption of a specific good or service; the impact of change in
these factors on the demand of that specific good or service; and the
goods or services which consumers might not purchase and consume
in future. In order to decide the amount of goods and services to be
produced, the managers use methods of demand forecasting.
7. The second question relates to how to produce
goods and services. The firm has now to choose
among different alternative techniques of production. It
has to make decision regarding purchase of raw
materials, capital equipments, manpower, etc. The
managers can use various managerial economics
tools such as production and cost analysis (for hiring
and acquiring of inputs), project appraisal methods( for
long term investment decisions),etc for making these
crucial decisions.
8. The third question is regarding who should consume
and claim the goods and services produced by the
firm. The firm, for instance, must decide which is itโs
niche market-domestic or foreign? It must segment the
market. It must conduct a thorough analysis of market
structure and thus take price and output decisions
depending upon the type of market.
