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Managerial Economics - The Fundamentals Of Managerial Economics

Why Study Economics? - The Fundamentals Of Managerial Economics

   Posted On :  28.05.2018 10:01 pm

A good grasp of economics is vital for managerial decision making, for designing and understanding public policy, and to appreciate how an economy functions.

Why Study Economics?
 
 
A good grasp of economics is vital for managerial decision making, for designing and understanding public policy, and to appreciate how an economy functions. The students need to know how economics can help us to understand what goes on in the world and how it can be used as a practical tool for decision making. Managers and CEO’s of large corporate bodies, managers of small companies, nonprofit organizations, service centers etc., cannot succeed in business without a clear understanding of how market forces create both opportunities and constraints for business enterprises.

 

Reasons For Studying Economics:

 
1. It is a study of society and as such is extremely important.
2. It trains the mind and enables one to think systematically about the problems of business and wealth.
3. From a study of the subject it is possible to predict economic trends with some precision.
4. It helps one to choose from various economic alternatives.
 
Economics is the science of making decisions in the presence of scarce resources. Resources are simply anything used to produce a good or service to achieve a goal. Economic decisions involve the allocation of scarce resources so as to best meet the managerial goal. The nature of managerial decision varies depending on the goals of the manager.
 
A Manager is a person who directs resources to achieve a stated goal and he/she has the responsibility for his/her own actions as well as for the actions of individuals, machines and other inputs under the manager’s control.
 
Managerial economics is the study of how scarce resources are directed most efficiently to achieve managerial goals. It is a valuable tool for analyzing business situations to take better decisions.
 
Prof. Evan J Douglas defines Managerial Economics as “Managerial Economics is concerned with the application of economic principles and methodologies to the decision making process within the firm or organization under the conditions of uncertainty”
 
According to Milton H Spencer and Louis Siegelman “Managerial Economics is the integration of economic theory with business practices for the purpose of facilitating decision making and forward planning by management”
 
According to Mc Nair and Miriam, ‘Managerial Economics consists of the use of economic modes of thoughts to analyze business situations’.
 
Economics can be divided into two broad categories: micro economics and macro economics. Macro economics is the study of the economic system as a whole. It is related to issues such as determination of national income, savings, investment, employment at aggregate levels, tax collection, government expenditure, foreign trade, money supply etc., Micro economics focuses on the behavior of the individuals, firms and their interaction in markets. Managerial economics is an application of the principles of micro and macro economics in managerial decision making.
 
The economic way of thinking about business decision making provides all managers with a powerful set of tools and insights for furthering the goals of their organization. Successful managers take good decisions, and one of their most useful tools is the methodology of managerial economics.

Nature Of Managerial Economics:

 
1. Managerial economics is concerned with the analysis of finding optimal solutions to decision making problems of businesses/ firms (micro economic in nature).

2. Managerial economics is a practical subject therefore it is pragmatic.

3. Managerial economics describes, what is the observed economic phenomenon (positive economics) and prescribes what ought to be (normative economics)

4. Managerial economics is based on strong economic concepts. (conceptual in nature)

5. Managerial economics analyses the problems of the firms in the perspective of the economy as a whole ( macro in nature)

6. It helps to find optimal solution to the business problems (problem solving)

 

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