
Hello and welcome again to managerial economics. This is part 1 of the overview of managerial
economics and what we're going to talk about throughout this entire overview are four topics. What is
managerial economics? What is this topic all about? Economic systems, okay, different types of systems
for allocating resources in different economies. And we talked specifically, we drilled down into the
economics underlying managerial economics, which is micro economics and macroeconomics. No, That
doesn't mean small and big or small and large. And then we look at applications of micro and
macroeconomics to get you familiar with the type of things that policymakers and business people may
use in order. And we refer to make better decisions.
----Hello and welcome to managerial economics. This is part 1 of the overview of managerial economics.
We're going to talk about four topics in this overview. What is managerial economics? What is this topic
all about? Economic systems, different types of systems for allocating resources in different economies.
And then we will talk about the economics underlying managerial economics, which is microeconomics
and macroeconomics. No, that doesn't mean small and large. And then we look at applications of micro
and macroeconomics to get you familiar with the type of things that policymakers and business people
may use in order to make better decisions.

0:57 So application of micro and macroeconomics for business management, that's what managerial
economics is. we take microeconomic theory and we take macroeconomic theory and we use that in
order to make better business decisions.
----Managerial economics: the application of micro and macroeconomics for business management.
Microeconomic and macroeconomic theory is used to make better business decisions.

1:14 Okay, so if we talk about, let's say, what is microeconomics? Microeconomics is really about the
demand and supply for a particular product or service and the resulting price that comes from it. Now
that could be at the industry level, let's say the price of a, of a, of a barrel of oil, okay? In the industry or
in the international commodity market, or it could be the price of home heating oil, let's say in southern
New Jersey. But anyway, you know, that deals more with the particular industry, a particular firm and
the demand, supply, sales and the resulting price. And so some of the thing, so firms are affected by the
markets in which they do business. Let's say if you're a farmer, okay, there's a demand for your, for your
vegetable and there's a supply for your vegetable. And, and that may or may not be affected by the
macroeconomy. A probably a better example of that, okay, Let's say would be automobiles, okay,
there's a demand and supply for different types of automobiles. But they are heavily affected by, okay,
by the macroeconomics, by the macroeconomic strengths in that economy. In other words, when you
go into recessions that demand for automobiles in a, drops tremendously. There's a couple of examples.
For example, the wholesale electricity market, okay, effects utility prices for power. There's a market for
electricity to the wholesale market every day, every hour. Suppliers bid into the electricity market and
buyers buy electricity, okay, every hour, 24 hours a day. If the demand for electricity is high, wholesale
prices and then retail prices are going to rise. And that would be, let's say in a hot summer afternoon
when it's really hot and air conditioners are on. of course, in October or during off-peak season, Okay,
the demand is low. The demand, the supply may be there, but the demand is low and therefore prices
fall. So that's a simple example of a in the electricity market. The other one, okay? Another example is
the strengths of the US economy also affects sales of electric power, okay, staying with did it in the same
market. The level of output in the economy has it as a huge impact on, on your wholesale electricity
market. Because not only do residential household use electricity, but businesses use a lot of electricity,
specifically industrials. If I can come back to my, in my statement again about the automobile electricity,
they use extraordinarily large amounts of electricity, everything from steel refining to, you know, to the
production of automobiles. And if they're producing, let's say, 40 and 50 percent less automobiles. Well,
there's a large electricity content in the production of automobiles, and therefore, the demand for, for
electricity drops. Not because it's hot or cold out, but because the economy is very weak, GDP is
shrinking, okay? Which is a measure of output in the economy. Okay? So there are two examples for
both, from both micro and macroeconomics.
----Microeconomics is about the demand and supply for a particular product or service and the resulting
price that comes from it. That could be at the industry level, let's say the price of a barrel of oil in the
industry or in the international commodity market, or it could be the price of home heating oil, let's say
in southern New Jersey. Microeconomics deals more with the particular industry, a particular firm and
the demand, supply, sales and the resulting price. So, firms are affected by the markets in which they do
business. Let's say if you're a farmer and there's demand for your vegetable and there's a supply for
your vegetable. That may or may not be affected by the macroeconomy.
A better example would be automobiles. There's a demand and supply for different types of
automobiles. But they are heavily affected by the macroeconomics strengths in that economy. In other
words, when you go into recessions, the demand for automobiles drops tremendously. For example, the
wholesale electricity market effects utility prices for power. There's a market for electricity to the
wholesale market every day, every hour. Suppliers bid into the electricity market and buyers buy
electricity every hour, 24 hours a day. If the demand for electricity is high, wholesale prices and then
retail prices are going to rise. And that would be, let's say in a hot summer afternoon when it's really hot
and air conditioners are on. In October or during off-peak season, the demand is low. The supply may be
there, but the demand is low and therefore prices fall.
Another example is the strength of the U.S. economy also affects sales of electric power. The level of
output in the economy has a huge impact on the wholesale electricity market because residential
households use electricity and businesses use a lot of electricity, specifically industrials. Automobile
electricity use large amounts of electricity, from steel refining to the production of automobiles. And if
they're producing 40 and 50 percent less automobiles, there's a large electricity content in the
production of automobiles, and therefore, the demand for, for electricity drops. Not because it's hot or
cold out, but because the economy is very weak, GDP is shrinking. Which is a measure of output in the
economy.
----Microeconomics focuses on the demand and supply for specific products or services and the resulting
prices. This can be at the industry level, such as the price of a barrel of oil in the international
commodity market, or more localized, like home heating oil prices in southern New Jersey.
Microeconomics primarily deals with particular industries, firms, and their demand, supply, sales, and
pricing.
Firms are influenced by the markets in which they operate. For instance, a farmer’s vegetable sales may
or may not be affected by the macroeconomy. However, a better example is the automobile industry,
which is heavily impacted by macroeconomic conditions. During recessions, the demand for
automobiles drops significantly.
The wholesale electricity market illustrates microeconomic principles. Suppliers bid into the electricity
market, and buyers purchase electricity hourly. When demand is high, such as on hot summer
afternoons, wholesale and retail prices rise. Conversely, during off-peak seasons like October, lower
demand leads to falling prices.
The strength of the U.S. economy also affects electric power sales. The level of economic output
significantly impacts the wholesale electricity market, as both residential households and businesses
consume electricity. Industrial sectors, particularly automobile manufacturing, use large amounts of
electricity. When automobile production decreases 40-50%, the demand for electricity drops, not due to
weather conditions, but because of a weak economy and shrinking GDP, which measures economic
output.
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04:29 So, so what does this have to do with making, Planning and decision-making for firms? Firms
develop strategic plan based on future conditions of the market. Okay, So they, so there's, so there's
two, there's two fundamental things, if you, if you will, that will affect the demand for the product,
okay? One is industry conditions, okay? And the other one is the state of the economy. There are, there
are certain, you know, so in other words, you can have, let's say, a very strong economy, whereas
there's a very weak demand for your product. I use the relatively extreme example of typewriters, no
matter how cheap typewriters or you can't give them away. Right now the economy's booming. That
doesn't mean you're going to be able to sell a typewriter. Okay? And so, so here's a couple of more
examples. So they, so firms develop strategic plans based on the demand and supply in your industry.
Based on demand, based on aggregate demand and supply. How strong or weak is the overall economy?
Because as I've already pointed out, that can affect small firms as well as large firms. Couple of examples
here, okay, in terms of looking at managerial economic examples, as utilities, such as bridges, I know a
lot of people only think of electric, gas, water, utilities, but bridges, toll highways, as well as electric, gas
and water utilities. They have a tendency to raise prices by large amounts. Why is that? Because their
sales or the use of their infrastructure, such as crossing a bridge, driving on Turnpike, or buying
electricity, natural gas, or water, okay, is relatively small. You increase prices and there's very little sales
impact, very little sales reduction. And why is that? Because they're necessities. Well, these utilities
know that and they understand that. So when they increase price, they try to increase price a lot.
Because if you increase your price a lot and there's very little reduction in your level of sales volumes,
that's going to have a big increase in your revenues. So that's a microeconomics example from a public
utility, a macroeconomic example that the same utility may be concerned about the strength of the US
economy as a recession will cause sales to fall. Now I don't know so much about bridges and highway
tolls, but I do know that electric, gas, and water sales are very much affected by a reduction in business
use as well as industrial use. And so if the US economy is expected to weaken or go into a recession,
which happens sooner or later. Even though sometimes some pundits seem to forget it or your
economics courses. And then I'll recall that after nine or ten years of an expansion that the recession will
be forthcoming. Just a question of time because not every business cycle looks the same, but if GDP is
expected to decline at some particular point in time, which it will, households and businesses will use
less electric power.
----So, what does this have to do with Planning and decision-making for firms? Firms develop strategic plans
based on future conditions of the market. There are two fundamental things that will affect the demand
for the product. One is industry conditions and the other is the state of the economy. In other words,
you can have a very strong economy, whereas there's a very weak demand for your product. I use the
relatively extreme example of typewriters, no matter how cheap typewriters are, you can't give them
away. Right now, the economy's booming, that doesn't mean you're going to be able to sell a
typewriter.
Firms develop strategic plans based on the aggregate demand and supply. How strong or weak is the
overall economy? That can affect small firms as well as large firms. Couple of examples, utilities, such as
bridges. I know a lot of people only think of electric, gas, water, utilities, but bridges, toll highways, as
well as electric, gas and water utilities, they have a tendency to raise prices by large amounts. Why is
that? Because their sales or the use of their infrastructure, such as crossing a bridge, driving on
Turnpike, or buying electricity, natural gas, or water is relatively small. You increase prices and there's
very little sales impact, very little sales reduction. And why is that? Because they're necessities. The
utilities know that and they understand that. So when they increase price, they try to increase price a
lot. Because if you increase your price a lot and there's very little reduction in your level of sales
volumes, that's going to have a big increase in your revenues. So that's a microeconomics example from
a public utility.
A macroeconomic example that the same utility may be concerned about the strength of the U.S.
economy as a recession will cause sales to fall. Now I don't know so much about bridges and highway
tolls, but I do know that electric, gas, and water sales are very much affected by a reduction in business
use as well as industrial use. So, if the US economy is expected to weaken or go into a recession, which
happens sooner or later. Even though sometimes some pundits seem to forget it or your economics
courses. And then I'll recall that after nine or ten years of an expansion that the recession will be
forthcoming. Just a question of time because not every business cycle looks the same, but if GDP is
expected to decline at some particular point in time, which it will, households and businesses will use
less electric power.
----How does this relate to planning and decision-making for firms? Firms develop strategic plans based on
future market conditions. Two fundamental factors affect product demand: industry conditions and the
state of the economy. A strong economy doesn’t guarantee demand for all products. For example,
typewriters have little demand regardless of economic conditions or price.
Firms develop strategic plans based on aggregate demand and supply, considering overall economic
strength or weakness. This affects both small and large firms. Utilities, including bridges, toll highways,
and electric, gas, and water providers, tend to raise prices significantly. This is because their services are
necessities, and price increases typically result in minimal sales reduction. Consequently, substantial
price increases often lead to significant revenue growth, exemplifying a microeconomic strategy for
public utilities.
From a macroeconomic perspective, the same utilities may be concerned about the U.S. economy’s
strength as recession cause sales to decline. While the impact on bridges and highway tolls may vary,
electric, gas, and water sales are significantly affected by reduced business and industrial use during
economic downturns.
If the U.S. economy is expected to weaken or enter a recession—which is inevitable, despite some
pundits or economics courses overlooking this cyclical nature—firms must prepare. Economic
expansions don’t last indefinitely, though the timing and nature of each business cycle vary. When GDP
is anticipated to decline, which it will at some point, households and businesses will consume less
electric power.
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07:38 Okay, so one of the things that we're going to find out in, out in later seminar series, okay, is that
we're going to learn how to model and quantitatively predict the impact of a price increase or decrease
and changes in GDP. Notice two things here, reads, we are seeing how our sales, okay, sales for your
product, sales for your pizza, Okay. Yeah. Sales for automobiles. How are your sales, not revenue, sales,
how are your sales? How much do they depend upon price and GDP? Now it seems obvious, well, my
price of my products, high sales are going to fall and if the economy is starting to rise or decline, that's
going to affect my sales. But notice we're talking about the application of micro and macroeconomics.
Okay? What is an industry price or your own firm's price? And the other one is a macroeconomic
variable. What's the level of output in the economy? Okay, So as I said, so q here refers to quantity,
sales. Sales are not revenue. Revenue is price times sales, and that gives you the dollar volume, okay, of
the dollar volume of sales. This is actually physical units. So for example, q here could be tons of milk,
okay? Or gallons of milk, not revenues are dollar amount. So this will be the subject of your, if you had a
course project which I want to know when this course was taught as a, as a credit course. This would be,
this is one of the primary important things that you learn in Managerial Economics. And, and this will be
discussed as we go along because what are these? This is a demand function. What is it used for? It is
used for predicting sales. Predicting sales is critical because that's how corporate budgets are
developed, you predict what you're going to sell. You multiply that by your expected price, and that
gives you your top line, okay? And then all the expenses you incur our plan based upon how much you
expect to sell. And that is why when the seminar series was an actual course, okay, as a course project,
that, that would be the subject of the, of the course project because that is a critical okay. All corporate
planning functions. Okay. Usually have a resident economist or somebody that knows enough about
economics and statistical analysis in order to estimate demand functions, which is what that is. So sales
quantity demanded depends upon price and GDP. Now, as I said, note that both micro and macro
variables are included in the same equation, which is, as I just said, the demand function.
----Later in the seminar series, we're going to learn how to model and quantitatively predict the impact of a
price increase or decrease and changes in GDP. Notice two things here, we are seeing how our sales,
sales for your product, sales for your pizza, sales for automobiles. How are your sales, not revenue,
sales, how are your sales? How much do they depend upon price and GDP? Now it seems obvious, well,
my price of my products, high sales are going to fall and if the economy is starting to rise or decline,
that's going to affect my sales. But notice we're talking about the application of micro and
macroeconomics. What is an industry price or your own firm's price? And the other one is a
macroeconomic variable. What's the level of output in the economy? “Q” in the powerpoint slide refers
to quantity of sales. Sales are not revenue. Revenue is price multiplied by sales, and that gives you the
dollar volume of sales. This is actually physical units. So for example, “Q” could be gallons of milk - not
revenues or dollar amount. So this would be the subject if you had a course project, which it was when
this course was taught as a credit course. This is one of the primary important things that you learn in
Managerial Economics. And this will be discussed as we go along because what are these? This is a
demand function. What is it used for? It is used for predicting sales. Predicting sales is critical because
that's how corporate budgets are developed, you predict what you're going to sell. You multiply that by
your expected price, and that gives you your top line. And then all the expenses you incur our plan
based upon how much you expect to sell. And that is why when the seminar series was an actual course,
as a course project, that would be the subject of the course project because that is a critical. All
corporate planning functions usually have a resident economist or somebody that knows enough about
economics and statistical analysis in order to estimate demand functions, which is what that is. So sales
quantity demanded depends upon price and GDP. Now, as I said, note that both micro and macro
variables are included in the same equation, which is, as I just said, the demand function.
----Later in this seminar series, we’ll learn to model and quantitatively predict the impact of price changes
and GDP fluctuations. We’ll focus on how sales—not revenue—for your product, whether it’s pizza or
automobiles, depend on price and GDP. While it may seem obvious that higher prices reduce sales and
economic changes affect demand, we’re applying both micro and macroeconomic principles here.
We’ll examine industry prices or your firm’s specific pricing (microeconomic) alongside GDP, a
macroeconomic variable. In our PowerPoint slides, “Q” refers to quantity of sales, which are physical
units, not revenue. For example, “Q” could represent gallons of milk, not dollar amounts. Revenue is
price multiplied by sales, giving you the dollar volume.
This concept was a central focus when this material was taught as a credit course. It’s a crucial aspect of
Managerial Economics. We’re discussing a demand function, used for predicting sales. Sales predictions
are critical for developing corporate budgets: you predict sales, multiply by expected price to get your
top line, and plan expenses based on expected sales volume.
In a full course setting, this would typically be the subject of a course project. Most corporate planning
functions employ economists or professionals skilled in economic and statistical analysis to estimate
demand functions.
The demand function we’re examining shows that sales quantity depends on both price and GDP.
Importantly, this equation incorporates both micro and macroeconomic variables, demonstrating their
interconnected nature in real-world economic analysis and business planning.

10: 16 So again, come back to economic systems. Resources are allocated by central planner or
governments such as Russia. Whereas there's market economies, resources are allocated solely by
prices in markets, which is solely that's kind of a purist view, he says, But there's mixed account in other,
are really mixed economies, which is the United States, Europe, Japan, Canada, uses a combination of
prices, markets, as well as government allocate resources. All different, you know, not just federal
governments, local, state and county. They intervene with taxes to reallocate resources to industries
that have value but are difficult to price. So which some of them are social goods, police service, okay,
Non-toll highways, national defense, and many others. And so we have in a mixed economy, it's mainly
resources are mainly driven by price, demand, and supply. But there is a, in some cases, it's very difficult
to develop a price. But we know that there's a high demand for their services and that's where the
government steps in and provides those services. For example, how would you how would how would
we determine the price for national defense? If we asked everybody how much they'd be willing to pay
for national defense? That would be a very interesting survey question. But since that's very difficult to,
to get a signal for how much value people put on or demand national defense. To determine the supply
of national defense, we have the government steps in and allocate some resources in the economy to
that. Okay, So this is the, so this is the end of the first part of the overview of Managerial Economics.
Thank you very much.
----So again, come back to economic systems. Resources are allocated by central planner or governments
such as Russia. Whereas there's market economies, resources are allocated solely by prices in markets,
which is solely that's kind of a purist view, but there's mixed economies, which is the United States,
Europe, Japan, Canada, uses a combination of prices, markets, as well as government allocate resources.
All different, not just federal governments, local, state and county intervene with taxes to reallocate
resources to industries that have value but are difficult to price. Some of them are social goods, police
service, non-toll highways, national defense, and many others. And so we have in a mixed economy, it's
resources are mainly driven by price, demand, and supply. But there is a, in some cases, it's very difficult
to develop a price. But we know that there's a high demand for their services and that's where the
government steps in and provides those services. For example, how would you determine the price for
national defense? If we asked everybody how much they'd be willing to pay for national defense, that
would be a very interesting survey question. But since that's very difficult to get a signal for how much
value people put on or demand national defense to determine the supply of national defense, we have
the government steps in and allocate some resources in the economy to that.
----Revisiting economic systems, we see three main types:
1. Centrally planned economies, like Russia, where resources are allocated by governments.
2. Pure market economies, where resources are allocated solely by prices in markets.
3. Mixed economies, such as the U.S., Europe, Japan, and Canada, which use a combination of
market forces and government intervention.
In mixed economies, resources are primarily driven by price, demand, and supply. However,
governments at federal, state, and local levels intervene with taxes to reallocate resources to industries
that have value but are difficult to price. These often include social goods like police services, non-toll
highways, and national defense.
While mixed economies are mainly driven by market forces, government intervention is necessary for
goods and services that are challenging to price but have high demand. National defense is a prime
example. It would be impractical to survey individuals about their willingness to pay for national
defense. Due to the difficulty in determining the public’s valuation and demand for such services, the
government steps in to allocate resources for their provision.
This approach ensures that essential services, which might not be adequately provided through market
mechanisms alone, are available to society. The government’s role in a mixed economy is to balance
market efficiency with the provision of public goods and services that are crucial for societal well-being
but challenging to allocate through pure market forces.