Managerial Economics

Prof Sujata Bolake

Managerial Economics

• ME is Pragmatic (Practical)

• Analyzing tools & techniques of economic

• Useful for Decision making

• DM is crucial aspect of dealing with business problem

Micro Economics

• Small in Nature

• Study of decisions that people and businesses make regarding the allocation of resources and prices of goods and servicesstudy of decisions that people and businesses make regarding the allocation of resources and prices of goods and services

Macroeconomics vs. Microeconomics

MICROECONOMIC MACROECONOMIC

NATURE

Analysis behavior of the Individual Analysis behavior of the Economy

METHEDOLGY

Study a particular economics

organization (Consumer / Producers)

Study a total shape ,size & function of

economics.

ECONOMIC VARIABLES

Micro refer to Market DD,SS,Industry

National Income, Total Saving, total

Consumption, total Investment,

Money SS, Growth Rate of economy

FIELD OF INTEREST

Problem of Pricing & Income

(Rent,wages,interest,profit.)

Pretend to the prob of the size of

National Income, economic growth,

Price Level.

Microeconomics focuses on how decisions are made by individuals and firms and the consequences of those decisions.

Ex.: How much it would cost for a university or college to offer a new course ─ the cost of

the instructor’s salary, the classroom facilities, the class materials, and so on.

Having determined the cost, the school can then decide whether or not to offer the course by weighing the costs and benefits.

Macroeconomics vs. Microeconomics

Macroeconomics examines the aggregate behavior of the economy (i.e. how the actions of all the individuals and firms in the economy interact to produce a particular level of economic performance as a whole).

Ex.: Overall level of prices in the economy(how high or how low they are relative to prices last year) rather than the price of a particular good or service.

Macroeconomics vs. Microeconomics

Macroeconomic Policy

• In Microeconomics Government intervention in the market usually leaves society worse off.

• In Macroeconomics there is a much wider role for Government

– Fiscal Policy -fiscal policy is the use of government expenditure

and revenue - collection (taxation) to influence the economy

Governments use fiscal policy to influence the level of aggregate demand in the economy, in an effort to achieve economic objectives of price stability, full employment, and economic growth.

DEMAND

What Does Demand Mean?

An economic principle that describes a consumer’s desire and willingness to pay a price for a specific good or service. Holding all other factors constant, the price of a good or service increases as its demand increases and vice versa.

• Demand refers to how much (quantity) of a product or service is desired by buyers. The quantity demanded is the amount of a product people are willing to buy at a certain price; the relationship between price and quantity demanded is known as the demand relationship.

• Supply represents how much the market can offer. The quantity supplied refers to the amount of a certain good producers are willing to supply when receiving a certain price. The correlation between price and how much of a good or service is supplied to the market is known as the supply relationship. Price, therefore, is a reflection of supply and demand.

Demand & Supply

Statement of the Law

• "The law of demand states that people will buy more at lower prices and buy less at higher prices, other things remaining the same". Prof. Samuelson

• "Other things remaining the same, the quantity demanded of a commodity will be smaller at higher market prices and larger at lower market prices". E. Miller

Law of Demand

• A microeconomic law that states that, all other factors being equal, as the price of a good or service increases, consumer demand for the good or service will decrease and vice versa.

Demand CurvePrice per shirt 100 80 60 40 20 10

Quantity demanded per year

5 7 10 15 20 30

Assumption of law of demand

• No change in the income of the consumer prices of related goods do not change

• Tastes & preferences of the consumer remains the same

• Price of the goods remain the same

• No New entry substitute product

• Product is not of prestige value

• Change in population

• No climatic changes (weather)

Limitations/ExceptionsLaw of Demand

• Prestige goods – Diamond, Sports cars

• Price expectations – Gold, Onion

• Ignorance of the consumer – No awarness

• Giffen goods - (good that experiences increased demand for

when the price rises and decreased demand for when the price falls.) Vegetable ghee, Pure ghee

Monetary policy

• Monetary policy is the process by which the monetary authority of a country controls the supply of money, often targeting a rate of interest for the purpose of promoting economic growth and stability.

Long-Run Growth

• Macro considers the Long-run growth rate

• Micro focuses on the amount of output the economy is capable of producing as given.

• Long-run growth depends on Economic Aggregates

Core Concept

• Positive & Normative Approach

Positive economics can be described as “what is, what was, and what probably will be” economics. Statements are based on economic theory rather than raw emotion

Normative statements are subjective - based on opinion only - often without a basis in fact or theory. They are value-laden, emotional statements that focus on "what ought to be".