1. HOW DO YOU DEFINE MANAGEMENT?
• WORKING TOGETHER FOR A COMMON
GOAL
• COORDINATION
• AN ACTIVITY/ ONGOING PROCESS
• AN ART OF GETTING THINGS DONE BY
OTHER PEOPLE
1

2. • THE FOCUS OF MANAGERIAL
ECONOMICS IS ON HOW THE FIRM
REACTS TO CHANGES IN ECONOMIC
ENVIRONMENT IN WHICH IT
OPERATES AND HOW IT PREDICTS THESE
CHANGES AND DEVISES BEST POSSIBLE
STRATEGIES TO ACHIEVE THAT UNDERLIE
ITS OBJECTIVES
2

3. • THE FOCUS OF MANAGERIAL ECONOMICS IS ON
HOW THE FIRM REACTS TO CHANGES IN
ECONOMIC ENVIRONMENT IN WHICH IT OPERATES
• AND HOW IT PREDICTS THESE CHANGES AND
DEVISES BEST POSSIBLE STRATEGIES TO
ACHIEVE THAT UNDERLIE ITS OBJECTIVES
3

4. Economics is a study of market structures
and consumer behaviour
• THE MARKET IS THE SINGLE MOST
IMPORTANT AND COMPLEX INSTITUTION IN
OUR ECONOMY
• Think of Money Market, Capital Market, Market
for FMCG products, Insurance products,
Matrimonial Market, Automobile Market, Housing
Market,
4

5. Basic economic concepts
1.Invisible hand
5

6. .Opportunity cost principle
The Next Best Thing That a Person Can
engage in is referred to as the opportunity
cost of doing the best thing.
It expresses the basic relationship between
scarcity and choice.
It implies the choice between desirables.
6

7. 3.Time perspective
principle:take in to
account both short run
and long run
perspectives
7

8. Opportunity Cost
• To get one thing that we like, we usually
have to give up another thing that we like.
Making decisions require trading off one
goal against another.
8

9. 4. Discounting principle:
if a decision affects cost and revenues at
future dates,it is necessary to discount
those costs and revenues to present
values before a valid comparision of
alternatives is possible
A RUPEE TOMORROW IS WORTH LESS
THAN A RUPEE TODAY
9

10. 5.equi-marginal
principle:
An input should be so allocated that the
value added by the last unit is the same
in all cases

11. 11
• Be all and end all of all
human efforts is
consumption.
• The whole and sole
purpose of economy is
production of goods/
services for consumption
now or in future.

12. 12
• Macro economics is the
study of the behaviour of
the economy as a whole.
• It contrasts with micro eco
which studies:
A individual price
A individual quantities,
markets.

13. 13
Basic Economic Problem
• “Economics is a science which
studies human behaviour as a
relationship between ends and
human resources which have
alternative uses.”
Prof Robbins

14. 14
Wants are unlimited
Means to satisfy
wants are limited but
means or resources
can be put to
alternative uses.

15. 15
Basic Problems of an
Economy
• What to produce?
• How to produce?
• For whom to produce?
• What provision be made
for economic growth ?

16. 16
“He who can not see beyond
the dawn will have much
good wine to drink at
noon, much green wine to
cure his headache at dusk
and only rain water to drink
for the rest of the days.”

17. • Heaven lies at the feet of mothers.
God’s pleasure is in a father’s pleasure;
and God’s displeasure is in a father’s
displeasure. He who wishes to enter
Paradise at the best door must please
his father and mother.
- Al-Quran
Quoted by : A.P.J. ABDUL KALAM
In his book : The Family and the Nation
17

18. 18
“Economics is the study of how men
& society choose, with or without the
use of money, to empoy scarce
productive resources which could
have alternative uses, to produce
various commodities over time, and
distribute them for consumption now
and in the future among various
people and groups.”
Prof. Samuelson

19. 19
Micro Economies
1. Studies the behaviour of
individual units and small groups
– individual
consumes, producer, firm.
• How much to consume
• What to produce
• How to produce
• Where to produce

20. 20
• Where to sell
• At what price
• Production Structure
• Technology Location
• How the market functions
• Working of a free Market Economy
• Role of price mechanism in
allocating productive resources –
invisible hand.

21. 21
• How a completely planned
economy works.
• Scarcity and efficiency:
economic benefits comes
from self-interested
actions of individuals.

22. 22
Basic issues of micro
economies
Studies the economic actions and
behaviour of individual units such as
1. Individual Consumer
2. Individual Producer (FIRM)
3. Theory of product prices.
4. Study of different type of markets
5. Distributional theories
6. Economic efficiency

23. 23
Important and uses of
micro Economies
• Explains how a free market
economy functions.
• How the goods and services
produced are distributed
among various people for
consumption.

24. 24
• How factors of production
are paid.
• What are the gains from
international trade.

25. 25
Free Market Economy or
Capitalist Economy
Chief Features
• Right of private property
• Freedom of Enterprise
• Freedom of choice by
consumers (consumer
sovereignty)and factors of
production

26. 26
• Profit Motive
• Competition
• Role of Price Mechanism
(Impersonal Forces of Market to
Solve central problem of
Economics).
Markets stand for the forces of
demand and supply.
Each individual knows where his
self interest- lies.

27. 27
• Deciding what to produce
• Deciding how to produce
• Deciding what and for whom to
produce
• Deciding what about rate of
growth
• Solving all problems at the
same time.

28. 28
Consumer Sovereignty
• In a free market economy
consumer is perceived to be
sovereign
• Consumer places the
order, decides what should be
produced
• Consumers authority arises
from his income. His ability to

29. 29
• High pressure salesmanship
puts a check on consumer
sovereignty-
radio, television, newspapers, h
oardings at railway
stations, airports, colonies, mar
ket place – all these bombard
consumers.
• Consumer sovereignty is
indeed a MYTH.

30. 30
Problems of free market
economy
• Does not ensure maximum
social satisfaction.
• Principle of consumer
sovereignty not valid.
• Economic instability and
unemployment- swings
between boom and bust

31. 31
• Does not ensure high rate of
eco growth.
• Decline of competition and
its adverse effects
• Concentration of wealth and
income.

32. 32
Role of counter vailing
power in correcting the
weaknesses of a free
market economy

33. 33
To day powerful corporate
sellers often face equally
powerful corporate buyers; the
giant steel mill to the giant auto
firm, the giant producers to the
giant super market chain. The
large firms no longer bargain
with the individual
employees, but with large and
powerful unions.

34. 34
Issues in Macro Economics
• Why a country is poor or rich. How
a country can become rich?
• Road to economic progress and
high rate of growth
• What is inflations; why its takes
place
• How can we achieve full
employment
• Social Responsibility of Business

35. 35
How are Basic Problems
Solved
Price Mechanism
Vs
Planning

36. 36
Macro Economic
Aggregates
Aggregation involves
adding apples &
Oranges

37. 37
Solution
• Gross Domestic Product
(GDP)- A measure of Economic
Activity.
• Aggregate consumption-
volume of goods and services
devoted to current
consumption during a period.

38. 38
• Aggregate investment-
Volume of goods and services
devoted to capital formation
during a period.
• Whole sale price index
• Consumer price index
• Total money supply, bank
credit, foreign exchange
reserve etc.

39. 39
Government in Macro
Economy
Classical View
• Leave the economy to
markets
• Economy is always in full
employment
• Supply creates its own
demand

40. 40
• Over production &
unemployment are short run
phenomenon
• Price & wage flexibility bring
about full employment
• No govt interference or least
interference

41. 41
Key Nesian View
• Investment is highly volatile
• Govt to actively participate in
economic life to correct the
fluctuations in
investment, consumption
, savings, output, employment, inc
omes, through pro-active monetary
and fiscal policy.

42. 42
Part - II

43. 43
Business Economics –
Nature, Scope and
Importance
Business economics in general
sense refers to the integration
of economic theory with
business practices.

44. 44
• Business economics applies
economic tools and
concepts to the
management of business. In
this sense business
economics is called
managerial economics or
applied economics.

45. 45
Managerial Economics is concerned with
exploring real world business application
of the logical structure of micro-
economics. The development of the
discipline of Econometrics over last two
decades has important implications for
the pursuit of such real world applications
of micro-economic concepts and
precepts. We are now capable of
estimating demand equations, cost
functions, production functions and other
relations of micro-economic theory into
quantifiable form such that we can
provide useful information to
management for scientific decision-
making.

46. 46
An Overview
Business Economics is both
conceptual and metrical. As such the
knowledge of a few fundamental
concepts and a few measurement
techniques, relevant in the process of
applying economic analysis in
examining business decisions, is basic
to the subject of Business Economics.

47. 47
• Business economics involves
allocation of the resources
available to a firm among its
activities in a manner that the
firm maximizes the profits
sales and market share. It’s
concerned with the application
of economics in decision
making.

48. 48
Business Economics
What is Business Economics
• You should know compl exitiesof
decision making problems of a
business entity.
• You should know principles of
economics and how they can be
usefully employed is solving
business problems and decision
making

49. 49
MICRO ECONOMICS
MACRO ECONOMICS

50. 50
Central Problems of
Economics
• Resources are scarce
• Wants/ Desires are unlimited
• Resources can be put to
alternative uses
• Economics is the science of
choice making and resource
allocation.

51. 51
Types of Business Decision
• What to produce
• How to produce
• For whom to produce
• Where to produce
• AT what price to sell
• How much investment is to be made
• From where to raise resources to
organise production.

52. 52
Board classification of
Business Decisions
• Price – output decisions
• Demand decision
• Choice of technique of
production
• Long run production decision
• Advertising decision
• Investment decision

53. 53
Managerial Decision
Making Process
• Establishing the objective of
a firm
• Profit Maximisation
• Sales Maximisation

54. 54
Alternative Solutions
• Expanding the capacity vs
setting up a new plant vs any
other alternative.
• Requires data and information
• Analyse policy environment
and regulatory framework.
• Anticipate problem-areas

55. 55
• In nutshell it can be concluded
that business economics refers
to the application of economic
theory and the tools of analysis
of decision science to find the
optimal solution to business
decision problems.

56. 56
Features of Business
economics
• Business economics is
concerned with decision –
making of economic nature.
• Business economics is goal
oriented and prescriptive

57. 57
• Business economics is pragmatic.
It is concerned with those
analytical tools which are useful in
improving decision- making
• Business economics brings forth
solutions of problems, provides
necessary conceptual tools and
helps the decision maker by
providing measurement of various
economic entities and their
relationships.

58. 58
Definitions
• “Managerial economics is
concerned with the ways in which
managers should make decisions in
order to maximize effectiveness or
performance of the organisations
they manage.”
• “Business economics is a
fundamental academic subject
which helps to understand and to
analyse problems of business
decision making.”

59. 59
• “Business economics is the
integration of economic theory
with business practices for the
purpose of facilitating decision
making and forward planning by
the management.”
• Management decisions problems
can be solved by the application of
economic theory and tools of
decision sciences.

60. 60
Integration of Economic
Theory
• With the help of economic theory we
can understand the actual behavior of
business.
• Business economics attempts to
estimate and predict the economic
quantities and relationships.
• Decision making and forward planning
is done with the help of estimated
economic quantities and relationships.
• The managers cannot ignore the
environment with which they operate.

61. 61
How does Business economics
differ from economics?
• Business economics
involves application of
economic principles
to the problems of the
firm.
• It is micro- economics
in character.
• Economics deals with
the body of the
principles itself.
• Is both macro-
economic and micro
economic.

62. 62
• In business
economics mainly
profit theory is used.
Other distribution
theories are not
much used
• Business economics
adopts, modifies and
reformulate
economic models to
suit the specific
conditions and
serves the specific
problem solving
process.
• All Macro Economic
theories like
wages, interest and
profit are also dealt
with in economics.
• It builds hypothesis
and economic
models.

63. 63
• Though micro
in character
deals only with
the firm and
has nothing do
with an
individual’s
economic
problems.
• Micro
economics as a
branch of
economics
deals with both
economics of
the individual
as well as
economics of
the firm.

64. 64
Scope of Business Economics
• Theory of demand analysis and forecasting
• Theory of production and production
decisions
• Analysis of market structure and pricing
theory
• Cost analysis
• Profit analysis and profit management
• Theory of capital and investment decisions
• Investment management.

65. THE MARGINAL PRINCIPLE :
LET BYGONES BE BYGONES
• One of the most important lessons of
economics is that you should look at the
marginal costs and marginal benefits of
decisions and ignore past or sunk costs.
• This is the marginal principle, which
means that people will maximize their
incomes or profits or satisfaction by
counting only the marginal cost and
marginal benefits of a decision
65

66. RISK AND REWARD
• People are generally risk-averse,
preferring a sure thing to uncertain levels
of consumption or profit: people prefer
outcomes with less uncertainly and the
same average values. For this reason,
activities that reduce the uncertainties of
consumption lead to improvements in
economic welfare.
66

67. RISK AND RETURN ON
DIFFERENT ASSETS
• The rate of return is the total rupee gain
from a security (measured as percent of
the price at the beginning of the period).
For saving accounts and short-term
bonds, the return would be the interest
rate.
• Investment vary in their average returns
and riskiness. Bonds tend to be safe, while
stocks have much higher returns but face
higher risks. 67