INTRODUCTION TO
MANAGERIAL ECONOMICS
UNIT -1
Introduction To Economics
Economics is a study of human activity both
at individual and national level. The economists of
early age treated merely as the science of wealth.
The reason for this is clear. Every one of us is
involved in efforts aimed at earning money and
spending this money to satisfy our wants such as food
, clothing , shelter , and others. Such activities of
earning and spending money are called ‘economics’.
It was only during the eighteen century
that “Adam smith” the father of economics , defined
economics as ‘the study of nature and uses of national
wealth’.
Wealth cannot be the ultimate goal of a
man. We work hard daily to keep our life daily to keep
our life comfort , and to earn money. Merely procuring
money or wealth is not our ultimate objective . We want
to buy necessary goods and services that make life more
comfortable, and for this purpose we need money .
DEFINITION :
“Dr. Alfred marshall “ One of the great
economists of the nineteenth century , writes
“Economics is a study of man’s actions in the ordinary
business of life ; it enquires how he gets his income and
how he uses it “.Thus , it is on one side , a study of
wealth ; and on the other ,and more important side ,it is
the study of man.
Prof Lionel Robbins defined Economics as “the
science which studies human behavior as a relationship
between ends and scarce means which have alternative
uses”.
The salient features of Economics according to
Prof Robbins are as follows :
1. Unlimited wants
2. Scarce resources
3. Alternative uses
4. Choice
Microeconomics
The study of an individual consumer or a firm is called
microeconomics ( also called the theory of firm ).
Micro means ‘one millionth’. Microeconomics deals with behaviour and
.
problems of single individual and of micro organisation
Macroeconomics
The study of ‘aggregate’ or total level of economic activity in
a country is called macroeconomics. It studies the flow of
economics resources or factors of production ( such as Land ,
Labour , Capital , Organisation , and Technology )from the resource
owner to the business firms and then from the business firms to
the households.
Management
management is the art of getting things done through people
in formally organised groups . It is necessary that every
organisation is well managed to enable it to achieve its desired
goals . management includes a number of functions
1. Planning
2. Organising
3. Staffing
4. Directing
5. Controlling .
The Manager
A Manager gets things done through people in an
organisation. He directs the resources such as men ,
materials , machines , money and technology. A manager is
responsible for achieving the targeted results . The
managers task is to maximize the profits of the firm.
Definition of managerial economics
According to Spencer and Siegelman managerial economics as
“The integration of economic theory with business practice for the
purpose of facilitating decision-making and forward planning by
management”.
Nature of Managerial Economics
Managerial economics is perhaps , the youngest of all the social
sciences. Since it originates from economics it has the basic
features of economics, such as assuming that other things
remaining the same .
Further , it is assumed that the firm or the buyer acts in a
rational manner (which normally does not happen). The buyer is
carried away by the advertisements , brand loyalties , incentives
and so on and therefore , the innate behavior of the consumer will
be rational is not a realistic assumption.
This is because the behavior of a firm or a consumer is a
complex phenomenon.
The other features of M.E. are explained
as below :
a) Close to microeconomics
b) Operates against the backdrop of macroeconomics
c) Normative statements
d) Prescriptive actions
e) Applied in nature
f) Offers scope to evaluate each alternative
g) Interdisciplinary
h) Assumption and limitations.
Scope of Managerial Economics
The main focus in managerial economics is to
find the optimal solution to a given managerial
problem . The problem may relate to
Managerial decision areas
•Production
applied
Concepts and •Reduction or control of costs
techniques of •Determination of price of a
managerial to given product or service for
Optimum
economics •Make or buy decisions
solutions
•Inventory decisions
•Capital management
•Profit planning and
management
•Investment decisions
The main areas of managerial economics
1. Demand decision
2. Input-output decision
3. Price out-put decision
4. Profit-related decision
5. Investment decision
6. Economic forecasting and forward
planning
Linkages with other disciplines
• Economics
• Operations research
• Mathematics
• Statistics
• Accountancy
• Psychology
• Organisational behaviour