Introduction to Managerial Economics-Nature & Scope.pptx

Economics
Types of Economics
Compare Economics and Managerial Economics
Managerial Economics Nature and Scope
Decision Making Process

1. INTRODUCTION TO MANAGERIAL ECONOMICS Introduction to Economics- Nature and Scope of Managerial Economics- Difference between Economics and Managerial Economics- Fundamental concepts associated with Managerial economics-Role of Managerial Economics in decision making. By: Dr .P. Venkat-GSB

2. Introduction to Economics The term Economics comes from the two Greek words eco (House) and nomos (Custom or law) or Management. Economics is the social science that studies the production, distribution, and consumption of goods and services. A body of knowledge that discusses how a society together tries to solve the human problems of unlimited wants and scarce resources.

3. Conti… The world’s resources are limited and scarce. The resources which are not scarce are called free goods. Scarce resources are called economic goods. Economics: allocation of resources, the choices that are made by economic agents. Economy: a system that attempts to solve this basic economic problem. There are different types of economies; household economy, local economy, national economy, and international economy but all economies face the same problem

4. Economic Questions WHAT to produce (make) HOW MUCH to produce (quantity) HOW to Produce it (manufacture) FOR WHOM to Produce (who gets what) WHO gets to make these decisions?

5. Economic Sector Primary sector  It is that sector that relies on the environment for any production or manufacturing. A few examples of the primary sector are mining, farming, agriculture, fishing, etc. Secondary sector In this sector, the raw material is transferred to a valuable product. A few examples are construction industries and manufacturing of steel, etc. Tertiary sector It is also known as the service sector, which includes production and service exchange. A few examples are banking, insurance, transportation, communication, etc .

6. Economic System-Types The two major economic systems in modern societies are capitalism and socialism .

7. Capitalist Economy Capitalism is an economic system with five key features. The first key feature in capitalism is that the means of production are privately owned. The second key feature   of capitalist societies, a split between the owners, or those who own the means of production and distribution, and the workers, the people who sell their labor to the owners.  T hird key feature   is the pursuit of personal profit F ourth key feature   – helps ensure the best products at the lowest prices, again benefiting society as a whole. Fifth Key Feature- According to Smith, the competition that characterizes capitalism should be left to operate on its own, free of government intervention or control

8. S ocialism/Socialist Economy The key features of socialism as an economic system were spelled out most famously by Karl Marx. The first key feature of socialism is that the means of production are collectively owned, usually by the government. The second key feature is there is no division between owners and workers; all citizens are both the owners as well as the workers in socialism. The most important goal of socialism, and The third key feature , is not the pursuit of personal profit but rather work for the collective good: the needs of society are considered more important than the needs of the individual. Because of this view, individuals do not compete with each other for profit, The fourth key feature ; instead, they work together for the good of everyone. The fifth key feature revolves around how much government intervention is permitted. If under capitalism the government is supposed to let the economy alone, under socialism the government literally controls the economy.

9. MICRO ECONOMICS Deals with individual behaviour Consumer behaviour (utility maximisation ) Producer behaviour (profit maximisation ) Single commodity price determination Equilibrium prices of factors of production Quantity of factors of production MACRO ECONOMICS Deals with macro picture or aggregate picture However summation of micro is not macro Aggregate output (GDP/GNP/GVA) Aggregate employment General price level (inflation/deflation) Monetary policy Fiscal Policy Balance of payment

10. Managerial Economics Managerial Economics , often referred to as business economics, is a branch of economics that applies economic theories and principles to solve managerial problems. It is a field that lies at the intersection of economics and management and focuses on the practical application of economic concepts to aid decision-making within organizations.

11. Types of Managerial Economics Descriptive Managerial Economics It involves the systematic analysis of historical data and trends. This type of analysis serves as a valuable foundation for decision-makers, allowing them to establish benchmarks, evaluate past performance, and identify market trends. For example, retail managers may examine past sales data to set sales targets and assess the effectiveness of previous marketing strategies. Normative Managerial Economics It shifts the focus toward policy formulation and strategic planning and provides a framework for recommending courses of action based on economic analysis, long-term goals, and ethical considerations. This type of analysis is instrumental in crafting organizational policies, defining strategic objectives, and ensuring that decisions align with ethical standards. For instance, it aids in developing sustainability initiatives and corporate social responsibility guidelines.

12. Conti.. Prescriptive Managerial Economics It is all about executing plans efficiently and effectively. Once strategies are in place, this type of analysis guides managers in creating detailed implementation plans, allocating resources judiciously, and establishing mechanisms for monitoring progress. It ensures that strategic decisions translate into actionable steps, leading to successful execution and goal achievement . Positive Managerial Economics It shifts the focus to understanding and explaining the impact of economic variables on managerial decisions and outcomes. This type of analysis delves into causal relationships between economic factors and managerial choices, often relying on predictive modeling and statistical analysis. It helps managers comprehend how changes in economic variables, such as consumer income or market conditions, influence decision outcomes and risks and thereby facilitates more informed and data-driven choices.

13. NATURE OF MANAGERIAL ECONOMICS Close to microeconomics Macroeconomics: Normative statements: Prescriptive actions: Offers scope to evaluate each alternative: Interdisciplinary: Managerial economics is descriptive: Managerial economics is application oriented:

14.   SCOPE OF MANAGERIAL ECONOMICS Production Analysis Demand Analysis and Forecasting Cost Analysis Pricing Decisions, Policies and Practices Profit related decision Capital Management Input-Output relationship

15. Economics and Managerial Economics

16. Role of Managerial Economics in Strategic Decision Making Forecasting and Planning:  Managerial economics lays the foundation for strategic planning by providing techniques such as incremental principles to analyze economic factors and market conditions. Pricing Decisions:  Managerial economics assists business managers in setting optimal prices by considering costs, demand elasticity, and market conditions. Risk Analysis:  Using managerial economics in decision-making helps evaluate and manage risks through techniques such as risk analysis. Analyze market conditions and Trends:  Using managerial economics in business decision-making gives managers the knowledge of tools such as the equi -marginal principle, which helps allocate resources to equalize marginal benefits across activities, maximizing overall utility.

17. Steps in Decision Making