Introduction Session2

MANAGERIA
L
ECONOMICS
Swati Pathak
[email protected]
IBS
INTRODUCTION
Economics: Scarcity
Three Fundamental Questions
What are the Principles of Microeconomics?
Micro Economics vs. Macro Economics
 Microeconomics for Managers (Nature and

Scope)
Economic Systems
What is a market economy?
Normative and Positive Analysis

REVIEW
 Provide examples of trade-offs.
Depict Trade off using a production possibility curve.
 Why do trade-offs exist?
 What is the opportunity cost?
 Provide an example of an opportunity cost?
 What is thinking at the margin?
 Provide an example of thinking at the margin.
How does Covid-19 has impact on three basic issues of economy?

a. What to produce?
b. How to produce?
c. Whom to produce?
SESSION 2
NATURE AND SCOPE OF MANAGERIAL
ECONOMICS
Nature : Separate discipline emerged in making business decisions
•Deal with changing market conditions
•Complexity of business decision making
•Allocating firm scarce resources to attain final objectives
•Economic theories, concepts, logics and application tools are used to

make business decisions.
•Clear understanding of market conditions, market fundamentals, nature and
degree of competition require analytical understanding of the market
which is provided by economic theories and concepts.
•Integrations of Economic Theory and business Management
•Link between traditional economics and decision making sciences for making
business decision.
•Micro economic concepts such as elasticity of demand, marginal cost, the
short and long run, and different market structure are important.
Applications: both profit and non profit sectors. THINK

NATURE AND SCOPE OF MANAGERIAL
ECONOMICS
Scope: Provides strategic planning tool that helps in analyzing the problem
and formulating rational managerial decision.
Resource Allocation- Marginal analysis

Demand Estimation and Forecasting- Estimation at right time with right
quantity. Demand and Supply Analysis
Managing Inventory – demand and supply analysis
Cost Analysis- Concepts of cost analysis and pricing policy
Pricing and Competitive Strategy- Market structure analysis and pricing

policy, advertising and marketing.
Profit Analysis- Estimating uncertainty and risk in calculating profits
Capital Management – Adequate capital investment and its proper
management
Theory of Game- Under conflicts and uncertainty own outcome depends on
own choice of action and others confront the same problems
Strategic Management
ECONOMICS?
Basic Decision Making Process
Source: Paul,J., Kaushal, L.,Sebastian, J.V.

ECONOMIC SYSTEM
 Laissez faire economy (free market)

An economy in which individual people and firms
pursue their own self interests without any central
direction or regulations.
 Command Economy
A central government either directly or indirectly set

output targets income and prices. (China, Iran, Cuba).
 Mixed Economy
That incorporates a mixture of private and government

ownership of control or a mixture of capitalism and
socialism. (most of the economies)
PRINCIPLES OF MICRO-ECONOMICS
o Market Economy
 An economy allocates resources through the decentralized decisions of many
firms and households as they interact in markets for goods and services.
 Invisible hand by Adam Smith : Households and firms interacting in markets
acts as if they are guided by an “invisible hand "that lead them to desirable
outcome.
 Transactions between buyers and sellers are exchanges of goods for a certain
price. Prices are the instrument to direct economic activities.
 Mixed Economy
 Free market and Government or centralized authority both have vital role in
allocating resources.
 The proportion of interventions of both the systems varies over countries.
 Many economies of the present-day world are examples of mixed economy
 The government also helps the private sector through monetary and fiscal
incentives.
PRINCIPLES OF MICRO-ECONOMICS
Positive Analysis: Analysis describing relationships of cause and effect.

(claims and Explanations and based on that prediction)
Normative Analysis: Analysis examining questions of what to (perspective)
Ex: Polly: Minimum wage laws cause unemployment

Norm: The government should raise the minimum wage
Price on gasoline
 Reference
1. Paul,J., Kaushal, L.,Sebastian, J.V (2012)
2. Mankiew,G (2013).

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MANAGERIA

What are the Principles of Microeconomics?

Micro Economics vs. Macro Economics

 Microeconomics for Managers (Nature and

What is a market economy?

Normative and Positive Analysis

 What is the opportunity cost?

 Provide an example of an opportunity cost?

 What is thinking at the margin?

 Provide an example of thinking at the margin.

How does Covid-19 has impact on three basic issues of economy?

•Allocating firm scarce resources to attain final objectives

•Economic theories, concepts, logics and application tools are used to

Applications: both profit and non profit sectors. THINK

Resource Allocation- Marginal analysis

Pricing and Competitive Strategy- Market structure analysis and pricing

Source: Paul,J., Kaushal, L.,Sebastian, J.V.

 Laissez faire economy (free market)

A central government either directly or indirectly set

That incorporates a mixture of private and government

Positive Analysis: Analysis describing relationships of cause and effect.

Ex: Polly: Minimum wage laws cause unemployment

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