• Economy The word economy comes from a Greek word “for

one manages a household”.

• Society and Scarce Resources The management of society’s resources is important

because resource are scarce. Scarcity means that society has limited resources

and therefore cannot produce all the goods and services people wish to have.

Scarcity implies choice and choice implies cost.

Introduction

scarcity

Unlimited choice Limited resources

What to produce? How to produce? For whom to produce?

Economics : Science of scarcity

• Scarce resources for society :- Land - Labour (L)- Capital (K)- Skill

• Scarce resources of a business unit :- Men- Machine- Material- Money- Mineral

• Unlimited desires : Profitability (∏)

Economics is the study of how society manages its scarce resources.

Economics as a science is concerned with the problem of allocation of scarce resources among competing ends (Desires).

What is Economics

The Circular Flow of Economic Activity

• What is Managerial Economics

Managerial economics is the branch of economics which deals with managing the scarce resources of a firm.

Managerial economics uses the tools and techniques of economic theory for effective and efficient utilization of economic resources, in order to optimize the profitability of a business organization.

Introduction to Managerial Economics

• .

Nature of Managerial Economics

“Managerial Economics is the integration of economic theory with business practice for the purpose of facilitating decision making and forward planning by the management.” Spencer & Siegel man

Managerial Economics

Micro & Macro Economics

• Microeconomics focuses on the behaviour of the individual actors on the economic stage i.e. firms and individuals and their interaction to markets. Managerial economics should be thought of as applied microeconomics.

• Macroeconomics is the study of economic system as a whole. It includes techniques for analyzing changes in total output, total employment, consumer price index, unemployment rate, exports and imports. Macroeconomics addresses questions about the effect of changes in investment, government spending, tax policy on exports, output, employment, prices

• Managerial Economics is basically micro-economic in characteristics.

• Managerial Economics takes the help of macro-economics to understand and adjust to the environment in which firm operates.

• Managerial Economics follows normative school of thought rather than positive school.

• Managerial Economics is prescriptive rather than descriptive, in approach.

• It is both conceptual (qualitative) as well as metrical (quantitative).

• The contents of Managerial Economics are based mainly on the ‘theory of the firm’.

Characteristics of Managerial Economics

• Demand Analysis and Demand Forecasting

• Production Analysis

• Cost Analysis

• Pricing and Output

• Profit Management

Scope of Managerial Economics

Relationship of ME with other disciplines

• Mathematics : Geometry , algebra, calculus ,

determinants , vectors.

• Operations Research: Linear Programming , Queuing

• Statistics : Theory of probability

• Traditional Economics :