Download ME-Introduction

ECONOMICS IS SCIENCE OF CHOICE.
 ECONOMIC AGENTS HAS TO MAKE THE
CHOICE :
(A) FIRM
- PROFIT MAXIMISATION
(B) HOUSEHOLD - SATISFACTION
MAXIMISATION
PROBLEM OF CHOICE OR DECISION MAKING
ARISES DUE TO SCARCITY
SCARCITY
 OUR WANTS ARE UNLIMITED
 RESOURCES ARE LIMITED
CHOICE
 HUMAN WANTS ARE UNLIMITED BUT THESE
WANTS DIFFER IN INTENSITY.
RESOURCES
ARE
LIMITED,
BUT
LIMITED
RESOURCES ARE CAPABLE OF BEING BUT
ALTERNATIVE USES.
ECONOMIC UNITS
HOUSEHOLD
FIRM
GOVT.
HOUSEHOLD :
FACTOR
INPUT
LAND
-
RENT
LABOUR
-
WAGES
CAPITAL
-
INTEREST
ENTERPRENEURSHIP - PROFIT
FIRMS :
OUTPUT
MAX OUTPUT
MINIMUM INPUT
MAX PROFIT = R – C
FACTOR
INCOME
COST
ACCOUNTS’
COST
EXPLICIT
COST
ECONOMISTS’
COST
IMPLICIT + EXPLICiT
COST
COST
OPPORTUNITY COST
ECONOMY
HOUSEHOLD + FIRM + GOVT. - ECONOMY
SYSTEM OF PRODUCTION, DISTRIBUTION &
CONSUMPTION OF GOODS & SERVICES
CLOSED
OPEN
UNLIMITED
CHOICE
LIMITED
RESOURCES
SCARCITY
WHAT
TO
PRODUCE
HOW
TO
PRODUCE
FOR WHOM
TO PRODUCE
THREE CHOICE PROBLEM
OF AN ECONOMY
DEFINATION :
Mc Nair & Merian :
THE USE OF ECONOMIC MODELS OF THOUGHT TO
ANALYSE BUSINESS SITUATION.
Spencer & Sigelmen :
ME IS THE INTEGRATION OF ECONOMIC THEORY
WITH BUSINESS PRACTICE FOR THE PURPOSE OF
FACILITATING DECISION MAKING & FORWARD
PLANNING BY MANAGEMENT.
D.S. Watson :
ME-PRICE THEORY IN THE SERVICE OF BUSINESS
EXECUTIVES.
Brigham & Pappas :
ME-THE APPLICATION OF ECONOMIC THEORY &
METHODOLOGY TO BUSINESS ADMINISTRATION
PRACTICE.
Huges :
ME – A FUNDAMENTAL ACADEMIC SUBJECT WHICH
SEEKS TO UNDERSTAND AND TO ANALYSE THE
PROBLEMS OF BUSINESS DECISION MAKING.
FEATURES :
ME IS CONCERNED WITH DECISION MAKING i.e.
IT DEALS WITH IDENTIFICATION OF ECONOMIC
CHOICE
AND
ALLOCATION
OF
SCARCE
RESOURCES.
IT IS GOAL – ORIENTED & PRESCRIPTIVE. IT
DEALS WITH HOW DECISION SHOULD BE MADE
BY
BUSINESS
FIRMS
TO
ACHIEVE
ORGANISATIONAL GOAL.
IT IS CONCERNED WITH THOSE ANALYTICAL
TOOLS WHICH ARE USEFUL IN IMPROVING
DECISION MAKING.
ME IS BOTH CONCEPTUAL & METRICAL.
ME PROVIDES THE LINK BETWEEN TRADITIONAL
ECONOMICS AND THE DECISION–SCIENCES FOR
MANAGERIAL DECISION MAKING.
DIFFERENCE B/W ME & ECONOMICS

ME INVOLVES APPLICATIONS OF ECONOMIC
PRINCIPLES TO THE PROBLEMS OF THE FIRM.
ECONOMICS DEALS WITH THE BODY OF
PRINCIPLES ITSELF.

ME IS MICRO-ECONOMIC IN CHARACTER.
ECONOMICS IS BOTH MICRO & MACRO IN
NATURE.

ME DEALS WITH THE FIRM AND HAS NOTHING TO
DO WITH AN INDIVIDUA’L ECONOMIC PROBLEMS.
BUT MICRO ECONOMICS AS A BRANCH OF
ECONOMICS DEALS WITH BOTH ECONOMICS OF
THE INDIVIDUAL AND THE FIRM.

SCOPE OF ECONOMICS IS WIDER THAN ME AS
MICRO ECONOMICS DEALS WITH DISTRIBUTION
THEORY i.e. PROFIT, RENT, WAGES BUT ME
DEALS WITH ONLY PROFIT.

ECONOMIC THEORY HYPOTHESISED ECONOMIC
RELATIONSHIP BUT ME ADOPTS, MODIFIES AND
REFORMULATES ECONOMIC MODELS TO SUIT
THE SPECIFIC CONDITIONS.

ECONOMIC
THEORY
MAKES
CERTAIN
ASSUMPTION
WHEREAS
ME
INTRODUCES
CERTAIN FEEDBACKS SUCH AS OBJECTIVES OF
THE FIRM, MULTI PRODUCT NATURE OF
MANUFACTURE, BEHAVIOURAL CONSTRAINS
ETC.
ME IS CONCERNED WITH DECISION
MAKING REGARDING :
 LEAST COST INPUT MIX.
 PRODUCT MIX.
 PRODUCTION TECHNIQUE.
 LEVEL OF OUTPUT.
 PRICE OF THE PRODUCT.
 INVESTMENT DECISION.
 ADVERTISING OUTLAY.
 DISTRIBUTION BETWEEN DIFFERENT MEDIA.
ME INVOLVES THE APPLICATION OF
ECONOMIC CONCEPTS.
TOOLS
TECHNIQUES
PRINCIPLES & THEORIES OF BUSINESS FIRMS.
*
EVALUATE THE BEST FEASIBLE ALTERNATIVES
AND CHOOSE THE BEST ONE.
* CONCERNED WITH ANALYTICAL TOOL FOR
DECISION MAKING.
* FORWARD PLANNING, GOES HAND IN HAND IN
DECISION MAKING.
SCOPE OF MANAGERIAL ECONOMICS
1
2
DEMAND
ANALYSIS &
FORECASTING
(DEMAND
DECISIONS)
COST &
PRODUCTION
ANALYSIS
(INPUT-OUTPUT
DECISIONS)
5
RISKS &
UNCERTAINITY
ANALYSIS
(ECONOMIC
FORECASTING
& PLANNING)
PROFIT
ANALYSIS
(PROFIT
MAXIMISATION
AND ALTERNATIVE
THEORIES)
3
4
INVESTMENT
ANALYSIS
(PROJECT
APPRAISAL &
INVESTMENT
DECISIONS)
MARKET
STRUCTURE &
PRICING POLICIES
(PRICE-OUTPUT
DECISIONS)
MANAGERIAL ECONOMICS & OTHER
DISCIPLINES
 MANAGERIAL ECONOMICS & ECONOMICS :

MICRO ECONOMICS :
 PRICE THEORIES
 DEMAND CONCEPT
 MARKET STRUCTURE

MACRO ECONOMICS :
 NATIONAL INCOME ACCOUNTING
 MANAGERIAL ECONOMICS & STATISTICS &
MATHEMATICS :

STATISTICAL TOOLS





PROBABILITY
CALCULUS
ALGEBRA
LOGARITHMS
MANAGERIAL
RESEARCH :





ECONOMICS
THEORY OF GAMES
ASSIGNMENT MODELS
LINEAR PROGRAMMING
WAITING LINE PROBLEMS
INVENTORY MODELS
&
OPERATION
 MANAGERIAL
PRINCIPLES :
ECONOMICS
&
ACCOUNTING
 PROFIT & LOSS STATEMENTS.
 BALANCE SHEET OR POSITION STATEMENT.
MANAGERIAL DECISION CAN BE CLASSIFIED
INTO VARIOUS CATEGORIES :
1.
FINANCIAL DECISIONS :
COSTING, BUDGETING, ACCOUNTING,
AUDITING, TAX PLANNING, DIVIDEND
DISTRIBUTION.
2.
PRODUCTION DECISIONS :
PRODUCT QUANTITY, INVENTORY
CONTROL, CHOICE OF TECHNOLOGY,
PLANT LOCATION & LAYOUT,
PRODUCTION SCHEDULE.
3.
PERSONNEL DECISIONS :
RECRUITMENT, SELECTION, TRAINING,
DEVELOPMENT, PLACEMENT, PROMOTION,
TRANSFER, RETIREMENT.
4.
MARKETING DECISION :
SALES VOL. SALES FORCE, SALES
PROMOTION, PRICE DISCOUNT, MR,
AFTER SALES SERVICE, NEW PRODUCT
POSITIONING, ADVERTISING.
5.
MISC. DECISIONS :
INFORMATION SYSTEM, DATA PROCESSING,
PUBLIC RELATIONS.
ECONOMIC
THEORY &
METHODOLOGY
DECISION
PROBLEMS
IN BUSINESS
MANAGERIAL ECONOMICS
(Application of Economics
Theory and Methodology of
Solving Business Problems)
OPTIMAL SOLUTIONS TO
BUSINESS PROBLEMS
ROLE OF MANAGERIAL ECONOMICS IN
BUSINESS DECISION-MAKING
PERFORMING SENSITIVITY ANALYSIS
CHOOSING BEST ALTERNATIVE
ASSESSING CONSEQUENCES OF
VARIOUS ALTERNATIVES
EXPLORING AVAILABLE ALTERNATIVES
DETERMINING OBJECTIVES
DEFINING BUSINESS PROBLEM
STEPS IN DECISION MAKING