Subject: Managerial Economics & Environmental Analysis

1. Subject: Managerial Economics & Environmental Analysis

2. Introduction • Economics was derived from the Greek word “OIKOS” ( means house) “nemein” ( means to manage) Which mean house-hold management. • Economics is defined as a body of knowledge or study that discusses how a society tries to solve the human problems of unlimited wants and scare resource

3. Definitions of Economics • Wealth definition of Adam Smith • Welfare definition of Alfred Marshall • Scarcity definition of Lionel Robbins • General or Growth definition of Paul A. Samuelson

4. Adam Smith: • Economics is the study of wealth • It deals with the acquistion, accmulation and expenditure of wealth

5. Alfred Marshall: Economics is a study if mankind in the ordinary business of life; it examines that part of individual and social action which is most closely connected with the attainment and with the sue of material requisties of well being.

6. Lionel Robbins: “Economics is a science which studied human behaviour as a relationship between ends and scarce means which have alternative uses”

7. Paul Samuelson: “Economics is the study of how men and society choose, with or without the use of money, to employ 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 of society”

8. Micro and Macro Positive and normative Short run and long run Types of Economic Analysis

9. Micro and Macro Economics Micro Economics • Micro – derived for Greek word micros meaning small • Branch of economics which is concerned with analysis of behaviour of the individual economic units or variables such as an individual consumer or a producer or the price of a particular product. • Examines in particular as to how individual consumers and producers behave and how their behaviors interact

10. Macro Economics • Macro – derived form Greek word macros means aggregative – whole – large • Macroeconomics is essentially aggregate economics • Study of economic system in general • Study of very large, economy – wide aggregate variables like national income, total savings, total consumption, total investment, money supply, unemployment, price levels, economic growth rate etc.

11. Positive and Normative Economics Positive: • Positive statement are factual by nature • It establishes relationship between cause and effect. It is “what is” in the economic matters. Normative: • It involves some degree of value judgement • It is “what should be” in economic matters

12. Short Run and Long Run Short Run: It is a time period not enough for consumers and producers to adjust completely to any new situation. Period less than a year Long Run: A long run is a planning horizon in which consumers and producers can adjust to any new situation. Period of five or six years or above

13. Kinds of economic decision • What to produce? • How to produce? • For whom to produce? • Are resources used economically?

14. Economics and Managerial Decision Making • Relationship to other business disciplines • Marketing: Demand, Price Elasticity • Finance: Capital Budgeting, Break-Even Analysis, Opportunity Cost, Economic Value Added • Management Science: Linear Programming, Regression Analysis, Forecasting • Strategy: Types of Competition, Structure-Conduct-Performance Analysis • Managerial Accounting: Relevant Cost, Break-Even Analysis, Incremental Cost Analysis, Opportunity Cost

15. Economics and Managerial Decision Making • Questions that managers must answer: How can we maintain a competitive advantage over our competitors? • Cost-leader? • Product Differentiation? • Market Niche? • Outsourcing, alliances, mergers, acquisitions?

16. Managerial Economics Managerial economics is a means to an end to managers in any business, in terms of finding the most efficient way of allocating scarce organizational resources and reaching stated objectives

17. Scope of ME • The scope of ME is so wide that it touches almost all areas of the manager’s decision making. • It deals with demand analysis, forecasting, production function, cost analysis, inventory management, resource allocation, capital budgeting. • A brief introduction to these areas will give an idea of the scope of ME.