Importance of the study of economics
Economics has got both theoretical and practical utility ie, both light bearing and fruit bearing.
No subject of study is so important in the present day world as economics. The following is the
importance of study of economics:
(i)
Intellectual Discipline:
The study of economics is an intellectual discipline. It sharpens our intellect. We learn to think
clearly and judge correctly ie, it helps to develop analytical attitude. Economics as a science
creates and develop logical thinking towards various economic problems.
(ii)
Enables better understanding of the society and systems:
Economics explains how men are depended on each other for their daily needs. It enables
understanding of the complex economic structure of the society. The study of economics help us
to understand the concepts of national income, employment, production, consumption, savings,
demand, supply etc. It help us to understand the different economic systems like capitalism,
socialism and mixed economy.
(iii)
Helps to create better citizens:
Knowledge of economics makes a man a better citizen. A man will not destroy a public property
if he knows where from the money for the said property comes. In a democracy, political parties
issues manifestos before the elections. Knowledge of economics helps citizens to know the
content of such manifestos. Economics helps a politician to understand various economic issues
like unemployment, poverty, inflation, economic development, economic growth, national
income etc.
(iv)
Helps in mans spending:
Economics guides people in their expenditure on different goods. It enables them to get
maximum satisfaction from their spending. It tells them how to make the best possible use of
limited resources available.
(v)
Useful to a statesman:
A knowledge of economics is indispensable to a statesman particularly to a Finance Minister.
Only then can a finance minister exercise good judgment on economic policies like taxation,
expenditure, price policy, fiscal policy, monetary policy, export and import.
Eg: Finance Minister finding the injuries caused to citizens because of high taxation has scaled
down personal and corporate income tax rates.
(vi)
Useful to a businessman:
A business man can adopt appropriate price policy if he has knowledge of economics. He can
make accurate forecast of price. He can avoid losses or make more profits by correctly
anticipating depression and boom.
Objectives of economics:
The important objectives and uses of economics are:

Economics deal with problems and questions affecting individuals and families such as
type of jobs available, level of wages in the industries etc.

It studies those problems and questions which affect the society and state as a whole and
suggest suitable solutions for them.

Economics studies the actions and behaviour of business men, investors and speculators
under different circumstances.

Economic considerations play a significant role in local, national, and international
affairs.

It gives reasons for inequalities in income and wealth.

It is actively engaged in studying the causes of poverty with view to suggest effective
methods of removing it.
Micro and Macro Economics:
Economics can be classified into two branches or levels. These levels are micro and macro
levels.
Micro Economics:
The word ‘micro’ is derived from the Greek word ‘Mikros’ which means small. In economic
theory micro economics is the analysis of the behaviour of individual firm, consumer, household,
price etc. It plays a very important role in the study of economic theory. It analyses the behaviour
of consumers, producers and markets. Micro economics deals with the small component units of
the economy. For example an enquiry as to how a particular individual maximizes his
satisfaction, how a particular firm maximizes profits come under micro economics.
It states how the price of a particular commodity is determined or how the price of a
particular factor is determined. Micro economics studies the economics actions and behaviour of
individual units and small groups of individual units.
Importance and uses of micro economics:
1. It tells us how a free private enterprise economy operates – analysis of the operation of
the economy.
2. How the goods and services produced are distributed among the various people for
consumption through price mechanism – Determination of product and factor pricing.
3. It suggest suitable policies to promote economic efficiency and welfare of people – Study
of formulation of economic policies and economic welfare.
4. It is applied to various branches of economics like public finance and international trade.
Limitations:
It deals with the individual perspective but doesn’t look at the aggregate economy. Also it is
based on assumptions, which rarely hold in the real world.
Macro Economics:
The word ‘Macro’ is derived from the Greek word ‘Makros’ which means large. It is the
analysis of behaviour of economy as a whole. It deals with aggregates such as total output, total
expenditure, total demand, total supply etc. Since macro economics deals with economic system
as whole it is concerned with aggregates (totals). It divides the economy into large sectors and
studies them. It is also known as aggregate economics. It deals not with individual quantities as
such but with aggregates of these quantities, not with individual income but national income, not
with individual prices but with the general price level.
Importance:
1. The study becomes indispensable for the formulation of successful policies by the
government (general price level, general production, general volume of trade etc.)
2. Helpful in the study of micro economics.
3. Knowledge of functioning of an economy.
4. Studying economic growth.
5. Estimating welfare.
Limitations:
In macro economics we are concerned with the total of individuals, but these individuals
are not homogeneous factors (average wage – particular wages of carpenters, nurses, teachers
etc.)
Managerial Economics
Managerial Economics is otherwise known as Business Economics, economics of the
firm, enterprise, business management etc. It deals with the use of economic concepts and
principles for decision making in a business organization. In short managerial economics is a
subject which deals with the application of economic theory to business management. It provides
a number of analytical tools and models to analyse business problems, evaluate business options
and opportunities with a view to arriving at an appropriate business decision.
Definitions
“Managerial economics as the integration of economic theory with business practice for the
purpose of facilitating decision making and forward planning by management” – Spencer and
Siegelman
“Managerial economics is concerned with the application of economic principles and methods to
the decision making process within the firm or organization. It seeks to establish rules and
principles to facilitate the attainment of the desired economic goals of management” – Prof.
Evan. J. Douglas.
Thus Managerial economics is the process of application of economic principles to solve
real business problems. It is an applied branch of economics.
Business
Management –
Decision Problems
Economics- Theory
and Methodology
Managerial EconomicsApplication of economics to
solving business problems
Optimal solutions to
business problems
Managerial Economics lies on the borderlines of economics and business management. It can be
better called as the economics applied in decision making. It borrows only the analytical tools of
economics.
Nature and characteristics of Managerial Economics:
1. Micro economic in character:
Managerial economics is concerned with the problems of small individual business firms,
individual industry, individual consumer etc. That means the study is limited to individual
business unit. It doesn’t study the entire economy.
2. Normative Science
Managerial economics is normative as it involves value judgment. Economic theory is generally
descriptive in nature whereas managerial economics is prescriptive in nature. It makes value
judgments as to what should and what should be done. It says what to do and how to do it ie, it
tells what aims and objectives a firm should pursue and how best to achieve these objectives in a
given situation.
3. It is Pregmatic:
Managerial economics considers the particular environment of firms in their day-to-day
functioning and decision making.
4. Macro economics useful to managerial economics:
Macro economics is the study of the entire economy. It helps the business manager to understand
the environment. But it uses some of the macroeconomic concepts like business cycles, national
income, foreign policy etc. to explain and forecast the general behaviour of the economy.
5. It is conceptual and metrical:
Managerial economics involves theory and measurement. This helps in arriving at correct
decisions.
Distinction or Difference between Economics and Managerial Economics
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Economics
Economics has both micro and macro
aspects.
It involves economic principles and
theories
Studies both firm and individual
Both positive and normative science
Studies only economic aspects of the
problem
Studies the principles underlying rent,
wages, interest and profit.
It involves certain assumptions.
Managerial Economics
Micro in character
Applies the principles and theories to the
problems of the firm.
Studies only the problems of a business
firm.
Essentially normative in nature
Studies both economic and non economic
aspects
Studies mainly the principles of profit
only.
These assumptions disappear due to
practical situations.