Economics and Managerial Economics Essay

Economics and Managerial Economics

Economics may be defined as a branch of knowledge dealing with allocation of scarce resources among competing ends. Managerial Economics may be defined as application of eco for problem solving at corporate level.

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Factors affecting Managerial decision
Often only pure logic does not contribute to decision making Human Factor
Human behavioral considerations often influences a manager into compromising or moderation a decision which would otherwise have made eco sense Eg. Impact of a decision on an employee’s morale or motivation, which is outside eco consideration, is taken into account Many entrepreneurs prefer to do biz on a modest scale fearing that expansion would hamper their lifestyle and increase their stress levels despite the fact clear prospects of increased growth and better earnings await them. A final decision is therefore taken by consideration both eco factors and human elements. It s not uncommon for sentiments and emotions to play a part in very imp decisions even if that means a slight erosion in profits as long as there is a long term advantage. Technology

In the present day biz scenario, the influence of tech is too persuasive (pervasive) to be ignored, An assessment of tech alternatives, tech measures of competitors and new emerging tech are critical factors in a managerial decision on planning and resource allocation within the enterprise. Even short term productions and marketing decisions are bound to take into account appropriate tech inputs. However, beware that only technological options can provide a basis for decision making – it has to be essentially interplay of economic and tech factors.

In fact, economic considerations often decide the fate of technological applications.

Environment
Environmental pressures operating on the enterprise affect managerial decisions when they are primarily economic in nature. Economic sense may
call for price rise but political and social factors often come in the way of doing so. Political parties, consumer groups, trade unions and community organizations constantly put forth their view point.

Managerial economics and other disciplines.
It is customary to divide economics into positive and normative economics. Positive eco deals with description & explanation of eco behavior. Normative eco, value judgement is made as to what should be done and not to be done. Managerial eco is a part of normative eco as its focus is more on explaining choice and action and less on explaining what has happened. Thus the system of logic that managerial economics uses comes from this heritage of eco theory. Primary task of managerial eco is to fit relevant data into the framework of logical analysis for enabling decision. Eg a decision based on linear programming approach or a pricing based on a model approach. Another branch of eco which is normative like managerial eco is public policy analysis which is concerned which is concerned with managing the govt. of a country.

Demand
Demand refers to consumer response related to purchase of goods and services in a give market condition

Law of demand states that other things remaining the same, rise in price leads to a fall in demand and vice versa. ie. They are inversely proportional to each other. 1.Price of air ticket, impact on air travel/railway travel. 2.Price of cylinder/impact on consumer

3.Price of petrol/impact on car demand
4.Price of diesel/impact on purchase of car
5.Price of wheat/impact on demand for rise.
6.Govt. introduces rationing for essential goods, demand for these goods in free market 7.Interest rates reduced by rbi/ demand for housing.
Determinants of individual demand:
1.Price of commodity
2.Level of income, personal taste
3.Price of substitute goods
4.Price of alternate goods