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10B11PD311
Economics
Title: Managerial Economics
Course Code: 10B11PD311 (2 – 1 – 0)
Objective
The course is designed to enable students to appreciate the
contribution of economics to the business process and to evaluate
economics of corporate objectives, market structure and costs.
Learning Outcomes
The course will develop students' capacity to:
1.
Think critically about the contribution of economics in business.
2.
Understand the constraints the environment places on the
organization's pursuit of its goals
3.
Analyze the economic environment in which an org. operates.
Methodology
The course will commence with making the students understand
the basic economic theories and subsequently learn about practices
followed by the organizations. The tutorials focus on the core
topics, articles on these topics and make use of IT tools.
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10B11PD311
Economics
Text Book
 Managerial Economics, (Fourth edition) H.Craig Petersen, W. Cris Lewis
Reference books
 Managerial economics in a global economy, Dominick Salvatore
 Managerial economics, Damodaran, Suma
 Managerial economics, Dwivedi, D.N.
 Managerial economics, H.L.Ahuja
 Managerial economics, Truett Lila J.
 Managerial economics, Hirschey, Mark
 Modern Economic Theory, K.K.Dewitt & Navalkur
 S.K. Misra & V. K. Puri, Indian Economy, Himalaya Publishing House,
2011.
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Topic
Introduction
Basics of Demand, Supply and Equilibrium
Theory of Consumer Choice
Demand forecasting
Production Theory & Analysis
Cost Theory and Analysis
Market Structure
Macro Economics: Issues
Macro Economics: Concepts
4
Exam
T-1
T-2
End Sem.
Exam
Assignments
Tutorials,
Projects,
Quizzes &
Regularity in
attendance.
% of Marks
20
20
Duration
Coverage
1 hr
Syllabi covered upto T-1.
1hr
Syllabi covered
between T-1 & T-2.
Full Syllabi
35
25
2 hr
Entire
Semester
As decided and
announced by the
teacher concerned in
the class at the
beginning of the
course
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10B11PD311
Economics
 Economy
– A system that provides living to the
people
 Economic
activity – any activity performed for
earning money for the satisfaction of human wants.
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10B11PD311

Economics
A social science concerned with those aspects of social behavior
and those institutions which involve the allocation of scarce
resources among unlimited and competing uses, to produce and
distribute goods and services in the satisfaction of human
wants, which are innumerable and insatiable.
Scarce
Resources
Unlimited
Wants
Alternative uses of
resources
Produce & distribute goods & services
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SCARCITY
WEALTH
GROWTH
WELFARE
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10B11PD311
Economics
 Wealth
Definition by Adam Smith
a science which studies the nature, causes and growth of
the wealth of nations
 Adam Smith – Father of economics

 Criticism

No attention was paid to man for whom wealth is really
meant.
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10B11PD311
Economics
 Welfare

Definition by Alfred Marshall
study of mankind in the ordinary business of life; it
examines that part of individual and social action which
is most closely connected with the use of the material
requisites of well being. Thus it is, on the one side, a
study of wealth; and on the other, and more important
side the study of man.
 Criticism
Non-material goods are not acknowledged by Marshall.
 Limited to those activities which increase human welfare.

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10B11PD311
Economics
 Scarcity


is the science which studies human behavior as a
relationship between ends and scarce means which have
alternative uses.
Four characteristics





Definition by Lionel Robbins
Man has unlimited wants or ends.
The means or resources to satisfy them are limited.
These resources are not specific & have alternate uses.
Man has therefore to choose between wants.
Criticism


Aggregates of the entire economy (national income, total
output etc.) and the problem of unemployment and
instability are not covered
The causes and growth patterns of national income and
per capita income are left untouched.
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10B11PD311
Economics
 Growth

Definition by Paul A. Samuelson
is a study of how man and society choose, with or without
the use of money, to employ scarce productive resources
which could have alternate uses, to produce various
commodities over time and distribute them for
consumption now and the future among various people
and groups of society.
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10B11PD311
Economics
Concerns of Modern Economics

Allocation of society’s resources among alternative uses

Efficiencies and inefficiencies of economic system

Distribution of the society’s output among individuals and
groups

Ways in which production and distribution change over time
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10B11PD311
Economics
 Consumers
 Producers
 Administrators
 Planners
 Academicians
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10B11PD311
Economics
Studies individual units like individual household,
pricing of a firm, wages of a worker, profits of an
entrepreneur, and so on.




Theory of Demand
Theory of Production
Price determination in Commodity market
Price determination in Factor market
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10B11PD311
Economics
 Microeconomic
 choices:
 the
issues
what, how and for whom
concept of opportunity cost
 rational
economic decision making: marginal costs
and marginal benefits
 microeconomic

efficiency

equity
objectives
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10B11PD311
Economics
Deals with the average and aggregates of the system rather
than the particular items in it, and attempts to define these
aggregates in a useful manner and examines their
relationship.
 Theory of National Income
GDP/GNP/NDP
 Theory of Employment
 Unemployment, its types and rate
 Theory of Money
 Commodity money (barter), modern money (paper), banking
and insurance, interest rates.
 Three purpose – transaction, saving and speculative

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10B11PD311

Economics
Theory of General Price Level


Theory of International Trade


Wholesale Price index, consumer price index
Balance of payment, foreign exchange rate and
purchasing power parity theory
Economics of Growth


Four factors – human resource, natural resource,
capital formation and technological changes and
innovation
Business cycles, investment and savings
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10B11PD311
Economics
 Macroeconomic





issues
growth
unemployment
inflation
balance of payments problems
cyclical fluctuations
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Examples of microeconomic and macroeconomic concerns
Micro
Economics
Macro
Economics
Production
Prices
Income
Employment
Production/Output
in Individual
Industries and
Businesses
Price of
Individual
Goods and
Services
Distribution of
Income and
Wealth
How much steel
How many offices
How many cars
Price of medical
care
Price of
gasoline
Food prices
Apartment
rents
Employment by
Individual
Businesses &
Industries
Jobs in the
steel industry
Number of
employees in a
firm
National
Production/Output
Aggregate Price
Level
Total Industrial
Output
Gross Domestic
Product
Growth of Output
Consumer price
index
Producer Price
index
Rate of Inflation
Wages in the
auto
industry
Minimum
wages
Executive
salaries
Poverty
National
Income
Total wages
and salaries
Employment
and
Unemployment
in the Economy
Total corporate
profits
Total number of
jobs
Unemployment
rate
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• Production The process by which resources are
transformed into useful forms
• Resources/ Inputs Anything provided by nature
or previous generations that can be used directly
or indirectly to satisfy human wants.
• Capital Things that have been already been
produced that are in turn used to produce other
goods and services
• Producers Those people or groups of people,
whether private or public, who transform
resources into usable products.
• Outputs Usable products
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10B11PD311
Economics
Illustrates the principles of constrained choice,
opportunity cost and scarcity.
A graph that shows all the combinations of goods and
services that can be produced if all of society’s
resources are used efficiently
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A production possibility curve
8
a
Units of food (millions)
7
6
5
Units of food Units of clothing
4
a
8m
7m
6m
5m
4m
3m
2m
1m
0
3
2
1
0.0
2.2m
4.0m
5.0m
5.6m
6.0m
6.4m
6.7m
7.0m
0
0
1
2
3
4
5
Units of clothing (millions)
6
7
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8
A production possibility curve
8
b
Units of food (millions)
7
6
5
Units of food Units of clothing
4
8m
7m
6m
5m
4m
3m
2m
1m
0
b
3
2
1
0.0
2.2m
4.0m
5.0m
5.6m
6.0m
6.4m
6.7m
7.0m
0
0
1
2
3
4
5
Units of clothing (millions)
6
7
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8
A production possibility curve
8
Units of food (millions)
7
x
6
5
4
3
2
1
0
0
1
2
3
4
5
Units of clothing (millions)
6
7
25
8
A production possibility curve
8
Units of food (millions)
7
w
x
6
5
4
3
2
1
0
0
1
2
3
4
5
Units of clothing (millions)
6
7
26
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10B11PD311
Economics
 The
production possibility curve
 microeconomics
and the production possibility
curve:

choices and opportunity cost
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Increasing opportunity costs
8
7
x
Units of food (millions)
6
1
5
y
1
4
3
2
1
0
0
1
2
3
4
5
6
Units of clothing (millions)
7
28
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10B11PD311
Economics
 The
production possibility curve
 microeconomics
and the production possibility
curve:

choices and opportunity cost

increasing opportunity cost
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Increasing opportunity costs
8
7
x
Units of rice (millions)
6
1
5
y
1
4
2
z
3
1
2
1
0
0
1
2
3
4
5
Units of wheat (millions)
6
7
30
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10B11PD311
Economics
 The
production possibility curve
 microeconomics
and the production possibility
curve:

choices and opportunity cost

increasing opportunity cost
 macroeconomics
and the production possibility
curve:

production within the curve
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Making a fuller use of resources
Food
Production inside
the production
possibility curve
v
O
Clothing
32
Making a fuller use of resources
Food
x
v
O
Clothing
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Making a fuller use of resources
Food
x
y
v
O
Clothing
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10B11PD311
Economics
 The
production possibility curve
 microeconomics
curve:
and the production possibility

choices and opportunity cost

increasing opportunity cost
 macroeconomics
curve:
and the production possibility

production within the curve

shifts in the curve
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Food
Growth in potential output
Now
O
Clothing
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Growth in potential output
Food
5 years’ time
Now
O
Clothing
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10B11PD311
Economics
 Managerial
economics consists of the use of
economic modes of thought to analyze business
situations.
McNair and Meriam
 The
purpose of Managerial Economics is to show
how economic analysis can be used in
formulating business policies by
Identifying possible courses of action
 Evaluating the revenues and costs associated with each
course of action
 Choosing the one course that best meets the goal or
objective of a firm

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10B11PD311
Economics
 The
application of economic theory and the
tools of decision science to examine how an
organization can achieve its aims or
objectives most efficiently.
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10B11PD311
Economics
Households
 The consuming units in an economy
 Firms
 The producing units in an economy
 Product or Output markets
 The market in which goods and services are
exchanged
 Input or Factor markets
 The markets in which the resources used to
produce products are exchanged
 Labor market
 Capital market
 Land market

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41
Goods and services
42
Goods and services
Consumer
expenditure
43
Goods and services
Consumer
expenditure
Services of factors of production (labour, etc)
44
Goods and services
Consumer
expenditure
Wages, rent
dividends, etc.
Services of factors of production (labour, etc)
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Goods and services
Consumer
expenditure
GOODS MARKETS
FACTOR MARKETS
Wages, rent
dividends, etc.
Services of factors of production (labour,46etc)
Engineering is a great applied science that studies how to make
solutions to practical scientific problems.
•While engineering deals with how to solve these problems,
economics is the complementary science of how to optimize these
solutions.
•Economics analyses production mathematically and statistically. For
engineering, microeconomics is the invaluable tool to determine
optimization with given resource constraints
•The best solutions in engineering are not always the best-designed or
the ones of highest quality but also the ones which are cost-effective
and efficient given constraints. Economics can master these concepts.
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