Lecture 1 Managerial economy

Economics is the study of how society chooses to use productive resources that have alternative uses, to produce commodities of various kinds, and to distribute them among different groups. Two key ideas in economics: Scarcity of goods Efficient use of resources

Finance Minister of the Country The managers who decide on behalf of the corporate unit or the national economy always face the economic problem of Scarcity of good, quality of materials, or skilled technicians He may be encountering scarcity of sales force at his command Marketing Manager He may be facing the scarcity of funds necessary for expansion or renovate a program Finance Manager His basic problem when he prepares the budget every year is to find out enough revenue resources to finance the necessary expenditure on plans and programs. Finance Minister of the Country

definition of “Scarcity”: In economic terms it can be termed as “ Excess of Demand” because of this scarcity a manager has to decide on optimum allocation of scarce resources of: Man Materials Money Time Energy every business unit or manager must aim at rational but optimum allocation of scarce resources. Optimality lies in finding the best use of scarce resources, given to the constraints.

Efficiency of Resources Efficiency denotes most effective use of a society’s resources in satisfying people’s wants and needs. efficiently when it cannot make anyone economically better off without making someone else worse off. Consider the Monopoly Situation

Micro Economics Macro Economics It has been defined as that branch where the unit of study is an individual, firm or household. is the main source of concepts and analytical tools for managerial decision making. Micro Economics It studies the economics as a whole. It is aggregative in character and takes the entire economy as a unit of study. Macro economics helps in the area of forecasting. Macro Economics

Following are the various economic concepts which are useful for managers for decision making: Price elasticity of demand Income elasticity of demand Cost and output relationship Opportunity cost Multiplier Propensity to consume Marginal revenue product Production function Demand theory Theory of firm: price, output and investment decisions Money and banking Public finance and fiscal and monetary policy National income Theory of international trade

The Three Problems of Economic Organization: Because of scarcity, all economic choices can be summarized in big questions about the goods and services a society should produce. These questions are: What to produce? How to produce? For whom to produce?

Inputs and Outputs: Every economy must make choices about the economy’s inputs and outputs. Inputs: Commodities used to produce goods and services . economy uses its existing technology to combine inputs to produce outputs. Output: The various useful goods and services that result from production process that is directly consumed or employs in further production.