Managerial economics

Managerial Economics

By Rajesh Singh

Meaning of Managerial Economics

According to  Mc Gutgan and Moyer “Managerial economics is the application of economic theory and methodology to decision-making problems faced by both public and private institutions”.

Scope of Managerial Economics

Micro Economics Macro Economics Statistics Math's

Micro Economics

Microeconomics seeks to understand how individuals and companies make decisions about how to allocate scarce resources

For example, microeconomics would look at how a specific company could maximize it's production and capacity so it could lower prices and better compete in its industry.

Nature of Micro Economics

Micro AnalysisIndividual StudyAllocation of

Resoures

Scope of Micro Economics

Theory of demand and supply Theory of utility Theory of production & cost Theory of factor pricing

Macro Economics

Macroeconomics is used at the national level to understand a country’s growth, inflation and unemployment rates.

For example, macroeconomics would look at how an increase/decrease in net exports would affect a nation's capital account or how GDP would be affected by unemployment rate.

Nature of Macro Economics

Macro Analysis Overall study of Economics System

Scope of Macro Economics

National Income

Employment

inflation

Business Cycle

Money

Demand

Demand means that almost any kind of wish or desire or need. But to an economist , demand refers to both willingness and ability to pay.

Factors Influence Demand

Micro Factors Macro Factors

Micro Factors

Prices of goods

Prices of related goods

Income

Taste

Macro factors

Elasticity of Demand

The degree to which demand for a good or service varies with its price. Normally, sales increase with drop in prices and decrease with rise in prices.

Types of Elasticity of Demand

Price Elasticity of Demand

Cross Elasticity of Demand

Income Elasticity of Demand

Price Elasticity of Demand

The price elasticity of demand measures the responsiveness of quantity demanded to a change in price, with all other factors held constant.

Degree of Price Elasticity of Demand

Perfectly Elasticity Demand

Perfectly Inelasticity Demand

Unitary Elasticity Demand

More than Unitary Elasticity Demand

Less than Unitary Elasticity Demand

Perfectly Elasticity Demand

Perfectly Inelasticity of Demand

XQO

P2

P

P1

Quantity

Price

Y

Unitary elasticity Demand

X

P

P1

O Q Q1

Y

Price

Quantity

More than Unitary Elasticity Demand

P

P1

Y

XQ1Q

Price

Quantity

Less than Unitary Elasticity Demand

XQ1QO

P

P1

Y

Price

Quantity

Cross Elasticity of Demand

Cross elasticity of demand measures the degree of responsiveness of the quantity demanded of one good (Good A) to change in the price of another good (Good B).

Negative Complementary goods Positive Substitute goods

Degrees of Cross Elasticity of Demand

Positive Cross Elasticity of

Demand

Negative Cross Elasticity of

Demand

Zero Cross Elasticity of

Demand

Positive Cross Elasticity of Demand

P

P1

D D1 XO

Y

Price of Goods Y

Demand of Goods X

Negative Cross Elasticity of Demand

XDD1

O

P

P1Price of Goods Y

Y

Demand of Goods X

Zero Cross Elasticity of Demand

XO D

Y

P1

P

P2

Price of Goods Y

Demand of Goods X

Degrees of Income Elasticity of Demand

Positive Income Elasticity of

Demand

Negative Income Elasticity of

Demand

Zero Elasticity of Demand

Positive Income Elasticity of Demand

X

Y

I1

I

D D1

O

Negative Income Elasticity of Demand

X

Y

O D1 D

I1

IPrice

Demand

Zero Income Elasticity of Demand

XDO

I

I1

I2

Y

Demand Forecasting

Forecasting is a tool used for predicting future demand based on past demand

information.

Factors Determining of Demand Forecasting

Period cover under

forecasting

Level of forecasting

Purpose of Forecasting

Nature of products

Others factors

Period cover under Forecasting

Medium term

Forecasting

Long term Forecasting

Short term Forecastin

g

Level of Forecasting

•Macro level•Individual level

•Firm level

Method of Demand Forecasting

Opinion Poll Metho

d

Statistical

Methods

Opinion Poll Method

Consumer Survey Method

Collection Opinion Method

Experts Opinion Method

Consumer Survey Method

Complete Enumeration Method

Sample Survey Method

End Use Survey

Statistical Method

Trend Projection Method

Regression Method

Simultaneous Equations Method

Trend Projection Method

Time Series Analysis

Moving Average Graphic Method Arima Method

Process of Forecasting

Setting the Objective

Selection of Goods

Selection of Method Interpreting the

Results

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