Economics for
Managers
Introduction
Academic evaluation
C1 C2 C3 C4 C5 C6
10M 10M 5M 5M 20M 50M
Presentations Case Study Attendance Classroom Midterm End Trimester
Participation Exam Exam
Field study GD,
Assignment,
Quiz etc
Syllabus
UNITS TOPICS Evaluation
UNIT- I Introduction
UNIT- Il Demand & Supply Analysis Assignment
UNIT- Ill Cost Analysis & Production Quiz
Analysis
UNIT- IV Market structures & Pricing GD
UNIT- V Macroeconomics & Indian Presentation
Economy
Text Book & Reference Books
Sl. No. Name of the book Author(s) / Publisher/ Year
1 “Economics” (T) Samuelson &Nordhaus, Tata
McGraw Hill
2 Managerial Economics and Michael Baye, Richard Irwin Inc., 2014
Business Strategy (R1)
3 “Managerial Economics-Theory, Allen, Wegelt, Doherty & Mansfield –
Application & Cases” (R2) Viva-Norton Student Edition, 2009
4 “Managerial Economics – An Mark Hirschey, Cengage Learning,
Integrative approach” (R3) 2016
5 “Managerial Economics” (R4) Dominique Salvatore, Oxford University
Press, 2016
6 Indian Economy (R5) Mishra & Puri, Himalaya Publishing,
2018
Agenda
Definition
Nature and scope
Opportunity cost
Discounting principle
Time perspective
Incremental reasoning
Equi-marginal concept
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Introduction
Economics is that branch of social science which is concerned with
the study of how individuals, households, firms, industries and
government take decision relating to the allocation of limited
resources to productive uses, so as to derive maximum gain or
satisfaction.
Simply put, it is all about the choices we make concerning the use of
scarce resources that have alternative uses, with the aim of
satisfying our most pressing infinite wants and distribute it among
ourselves.
Definitions
ADAM SMITH ALFRED MARSHALL’S MODERN DEFINITION
Adam Smith was a Marshall argued that According to Samuelson,
Scottish philosopher, the subject was both “Economics is the study of how
widely considered as the study of wealth
people and society choose, with or
the first modern and the study of
without the use of money, to
economist. mankind.
employ scarce productive resources
Smith defined He believed it was not which could have alternative uses,
economics as “an a natural science such to produce various commodities
inquiry into the nature as physics or over time and distribute them for
and causes of the chemistry, but rather consumption now and in the future
wealth of nations.” a social science. among various persons and groups
of society
Nature
Economics is a science:
Science is an organized branch of knowledge, that analyses cause and effect relationship
between economic agents. Economics helps in integrating various sciences such as
mathematics, statistics, etc. to identify the relationship between price, demand, supply and
other economic factors.
Positive Economics:
A positive science is one that studies the relationship between two variables but does not give
any value judgment, i.e. it states ‘what is’. It deals with facts about the entire economy.
Nature
Normative Economics:
As a normative science, economics passes value judgement, i.e. ‘what ought to be’. It
is concerned with economic goals and policies to attain these goals.
Economics is an art:
Art is a discipline that expresses the way things are to be done, so as to achieve the
desired end. Economics has various branches like production, distribution,
consumption and economics, that provide general rules and laws that are capable of
solving different problems of society.
Scope
Microeconomics:
The study is about individual units, i.e. a consumer, a household, a firm, an industry, etc.
It analyses the decisions taken by the economic agents, concerning the allocation of the resources
that are limited in nature.
It studies consumer behavior, product pricing, firm’s behavior.
Macro Economics:
It studies the entire economy, i.e. level of output, total investment, total savings, total
consumption, etc.
It is the study of aggregates and averages.
It covers areas like national income, general price level, the balance of trade and balance of
payment, level of employment, level of savings and investment.
Fundamental
Economic Concepts
to Business Analysis
Opportunity cost
Opportunity costs represent the potential benefits that an individual, investor, or
business misses out on when choosing one alternative over another.
Understanding the potential missed opportunities when a business or individual
chooses one investment over another allows for better decision making.
Opportunity cost is the forgone benefit that would have been derived from an
option not chosen.
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Opportunity
Cost
Opportunity Cost=FO−CO
where:
FO=Return on best forgone option
CO=Return on chosen option
According to this principle, if a
decision affects costs and revenues in
long-run, all those costs and revenues
must be discounted to present values
before valid comparison of alternatives
is possible.
This is essential because a rupee worth
of money at a future date is not worth a
rupee today.
Discounting
principle
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Time
perspective
The time perspective concept states that the decision
maker must give due consideration both to the short run
and long run effects of his decisions.
He must give due emphasis to the various time periods.
It was Marshall who introduced time element in economic
theory.
Incremental reasoning
Incremental concept involves estimating the impact of decision alternatives on costs and revenues,
emphasizing the changes in total cost and total revenue resulting from changes in prices, products,
procedures, investments or whatever else may be at stake in the decisions.
The two basic components of incremental reasoning are as follows:
• Incremental cost: Incremental cost may be defined as the change in total cost resulting from a
particular decision.
• Incremental revenue: Incremental revenue means the change in total revenue resulting from a
particular decision.
Practicality in the business:
How much extra we should produce to get the best profits and how much extra cost would be incurred for the
extra production.
Equi-marginal concept
Equi-marginal principle in managerial economics deals with the allocation of
the available resource among the alternative activities.
This principle is also known the principle of maximum satisfaction - by
allocating available resource to get optimum benefit .
This principle provides a basis for maximum utilization of all the inputs
of a firm so as to maximize the profitability.
