This document provides an introduction to managerial economics. It defines managerial economics as the application of economic principles to business decision making. It discusses key microeconomic and macroeconomic concepts as well as positive and normative economics. Examples of supply and demand and the five economic activities are provided. The principles of managerial economics like marginal analysis, equi-marginal principle, opportunity cost principle, time perspective principle, and discounting principle are also summarized.

1. Managerial Economic
Unit- 1
Introduction
DR. KANCHAN KUMARI
PROFESSOR: INTERNATIONAL BUSINESS & MANAGEMENT

2.  Managerial Economics (also called Business Economics) a subject first
introduced by Joel Dean in 1951, is essentially concerned with the
economic decisions of business managers.
 Those activities of Mankind which is concerned with earning and spending
of Money
 For Successful handling of these activities certain laws and rules are
formulated which is known as various theories of Economics
 Use of these rules and tools provided for analysing business conditions
and applying them for arriving various economic decisions is known as
Managerial Economics.

3. Example:
 Example #1 – Supply and demand This example of Economics is the most
basic concept of free-market economics that helps determine the right
price for a good or service. E.g. a start-up company desires to introduce a
fresh product into the market and wants to find the right price for its
creation. The product costs.
 ne can broadly classify five distinct examples of economic activities. These
activities are producing, supplying, buying, selling, and the
consumption of goods and services

4. Macro And Micro Economics
 macroeconomics, study of the behavior of a national or regional economy
as a whole. It is concerned with understanding economy-wide events such
as the total amount of goods and services produced, the level of
unemployment, and the general behavior of prices.
 microeconomics—which studies how individual economic actors, such as
consumers and firms, make decisions—macroeconomics concerns itself
with the aggregate outcomes of those decisions. For that reason, in
addition to using the tools of microeconomics, such as supply-and-
demand analysis, macroeconomists also utilize aggregate measures such
as gross domestic product (GDP), unemployment rates, and the consumer
price index (CPI) to study the large-scale repercussionsof micro-level
decisions.

5. Micro and Macro Economics

6. Positive Economics and Normative
Economics

7. Definition of Managerial Economics
 Economics- Economics is a Social Science. It basic function to study how
people- individual house hold, firms and nations maximizing their gains
from their limited resource and opportunities.
 In Economic terminology it is called as “Maximizing behavior” or more
approximately “Optimizing Behavior”
 Optimization means selecting best out of available resource with the
objective of maximizing gains from given resource.

8. Definition of Managerial Economics
 According to Mc Nair & Meriam: “Business Economics consists of the use
of economic mode of though to analyze business Situations”.
 According to Joel Dean: “The purpose of Managerial Economics is to show
how economic analysis can be used in formulating business policies”.
 Joseph L. Messy: “Business Economies is the use of Economic theories by
the management in making Business Decisions

9. Conclusion of Managerial Economics

10. Evolution of managerial economics
 Origin- Managerial economics is a subject that was first introduced by
Joel Dean in 1951. This branch of economics is essentially concerned with
the application of various economic concepts in decision-making. We can
also look at managerial economics as economics that is applied to
problem-solving at the level of the firm.
 Joel Dean was the father of managerial economy in 1951

11. Nature of Managerial Economics

12. Example:
 Some of the examples of macroeconomics can be inflation, GDP,
aggregate demand, monetary policy, national income, unemployment
rates, etc
 Microeconomics is the study of individual and business economic
activity. Two examples are: an individual creating a budget to put
themselves in a better financial position; and a business cutting costs in
order to maximize profit.

15.  What is Circular Flow of Income?-The circular flow means the unending flow
of production of goods and services, income, and expenditure in an economy.
It shows the redistribution of income in a circular manner between the
production unit and households.
 Example- These are land, labour, capital, and entrepreneurship.
The payment for the contribution made by fixed natural resources (called
land) is known as rent.
The payment for the contribution made by a human worker is known as wage.
The payment for the contribution made by capital is known as interest.
The payment for the contribution made by entrepreneurship is known as
profit.

16.  Circular Flow of Income in a Two-Sector Economy
It is defined as the flow of payments and receipts for goods, services, and
factor services between the households and the firm sectors of the economy

17. CircularFlowofIncomein aTwo-SectorEconomy

18. Principles of Managerial Economics
Marginal and Incremental Principle. ...
Equi-marginal Principle. ...
Opportunity Cost Principle. ...
Time Perspective Principle. ...
Discounting Principle.

19. Marginal and Incremental
Principle(marginal)
 The principal states that the decision is said to be rational and sound if
given the firms objective of profit maximization, it leads to increase in
profit which is in either of two scenarios..
 If total revenue increases total more than cost.
 If total revenue declines less than total cost.
 Stated: It increases revenue more than cost/ it decreases some cost to a
greater extent/ it increases revenue more than it decreases
 It reduces cost more than revenue.

20. Equi- Marginal Principal
 The Law of Equi Marginal utility states that a consumer will reach THE
STAGE OF EQUIBRIUM when the marginal utilities of various commodities
he consumed are equal.
 The equi-marginal principle is based on the law of diminishing marginal
utility. The equi-marginal principle states that a consumer will be
maximizing his total utility when he allocates his fixed money income in
such a way that the utility derived from the last unit of money spent on
each good is equal.
 Mux=Muy(if price of x and y is same.
 Mux/Py = Muy/Py( if price of the product xand y is not equal.(ratio)

21. Opportunity of cost principal
 We can define opportunity cost as the potential benefits that are lost when
an individual, business or investor chooses a substitute over another. As
the opportunity cost definition defines it to be hidden, the costs could go
unnoticed very easily.
 The opportunity cost is time spent studying and that money to spend on
something else. A farmer chooses to plant wheat; the opportunity cost is
planting a different crop, or an alternate use of the resources (land and farm
equipment). A commuter takes the train to work instead of drivin

22. Time Perspective Principle
 The period during which it is possible to vary some factors and not others
is called the short run. But the period during which all factors can be varied
is called the long-run. For example, more output can be produced in the
short- run by using more labour and raw materials.

23. Discounting Principle
 In the business, everybody prefers to do cash sale only rather than the
credit sale and even they are ready to give cash discount for cash sale. The
reason is we will get a rupee today and today's rupee is more valuable than the
tomorrow's rupee.

24. Thank You!
 Dr. Kanchan Kumari