Economics is the
study of nature and
uses of national
Father of Economics
Adam Smith (1723-1790)
I. Ceteris Paribus- Other things remaining equal
It is a Latin word means ‘with other things (being) the
Implies that consumers and producers measure
and compare costs and benefits before taking
Consumers: Maximising utility and minimising sacrifice
Producers : Maximising profits and minimising costs
A. Micro(individual consumers and firms)
Macro (Aggregates- Industry, not firm)
B. Positive – The distribution of income in India is
Normative – The distribution of income in India should
C. Time period
Short run -A time period not long enough for
consumers and producers to adjust to a new
Long run- Planning horizon- A time period long
enough for consumers and producers to adjust to
a new situation- All inputs can be varied-
Whether to change product lines, build
new plant etc.
“Application of economic theory and tools of
analysis of decision science and forward planning
to examine how an organization can achieve its
objectives most efficiently”
Aims at helping the management
A scientific art
Prescriptive rather than descriptive
Theory of demand
Theory of production
Variable factor of
Fixed factor of
Theory of price
Theory of profit
Theory of capital and
Industrial policy of the
Trade and fiscal policy of the
Taxation policy of the country
Price and labour policy
Select the best
5 Stage Model of Decision Making Process
o Use of Statistical Techniques
o Time Series: For Demand forecasting
o Regression: Two or multiple variables used to study
interrelationships, estimation and prediction
o Measures of central tendency and variation
What is the role of Economics in
Costs, prices, output, compensation,
strategic behaviour and ethics making.
The Big Picture- Whose job is this?
Economic theory forms management
areas such as accounts, finance,
marketing, systems and operations.
Role Of Managerial Economist: To decide
What to produce?
Allocation of resources
For whom to produce?
Which price to sell?
Plan and control business
Profit maximisation ??
The principles of managerial economics are integral to the
decision making process within business.
Managerial economics provides information on consumers,
prices, costs, quantities, competition and business strategy.
A major contribution of managerial economics is the
estimation of risk.