Managerial economics is a discipline which deals with the application of economic theory to business management. It deals with the use of economic concepts and principles of business decision making. Formerly it was known as “Business Economics” but the term has now been discarded in favor of Managerial Economics. Managerial Economics may be defined as the study of economic theories, logic and methodology which are generally applied to seek solution to the practical problems of business. Managerial Economics is thus constituted of that part of economic knowledge or economic theories which is used as a tool of analyzing business problems for rational business decisions. Managerial Economics is often called as Business Economics or Economic for Firms. Definition of Managerial Economics: “Managerial Economics is economics applied in decision making. It is a special branch of economics bridging the gap between abstract theory and managerial practice.” — Haynes, Mote and Paul. “Business Continue reading
Economics Basics
Factors Affecting / Limiting Consumption
As the demand for a good depends upon its price, similarly consumption of a community depends upon the level of income. In other words, consumption is a function of income. The consumption function relates the amount of consumption to the level of income. When the income of a community rises, consumption also rises. How much consumption rises in response to a given increase in income depends upon the propensity to consume or consumption function. It should be borne in mind that the consumption function or the propensity to consume is the whole schedule which describes the amounts of consumption at various levels of income. Consumption is the sole end and purpose of all production. What restricts consumption? The factors which limit consumption are: The product and its limitations: This is a part of market research which is of great importance to product development and design. Solution may be obtained Continue reading
Fiscal Policy – Definition, Objectives and Techniques
The term fiscal has been derived from the greek word fisc, meaning a basket to symbolize the public purse. Fiscal policy thus means the policy related to the treasury of the government. Fiscal policy is a part of general economic policy of the government which is primarily concerned with the budget receipts and expenditures of the government. All welfare projects are completed under this policy .It also suggests measures to control economic fluctuations which may become violent and create great upheavals in the socio-economic structure of the economy. It also outlines the influence of resource utilization on the level of aggregate demand through affecting the level of aggregate consumption and investment expenditure. Definitions of Fiscal Policy According to U. Hicks “Fiscal policy is concerned with the manner in which all the different elements of public finance, while still primarily concerned with carrying out their own duties, may collectively be geared Continue reading
Roles of Managerial Economist in Business
A managerial economist can play a very important role by assisting the management in using the increasingly specialized skills and sophisticated techniques, required to solve the difficult problems of successful decision-making and forward planning. In business concerns, the importance of the managerial economist is therefore recognized a lot today. In advanced countries, large companies employ one or more economists. A managerial economist can contribute to decision-making in business in specific terms. Different roles of managerial economist in business as follows: Environmental Studies of a Business Firm An analysis and forecast of external factors constituting general business conditions, for example, prices, national income and output, volume of trade, etc., are of great significance since they affect every business firm. Certain important relevant factors to be considered in this connection are as follows: The outlook for the national economy, the most important local, regional or worldwide economic trends, the nature of phase Continue reading
Price Discrimination in Managerial Economics
In today’s economies where product and service competition is dense, to sell products and services to consumers in the way as expected by the company has become harder but at the same time necessary compared to the past. It has become unavoidable for the firms to use various pricing strategies alongside with the classical selling strategies to reach this goal. In today’s economic conditions in which the markets being far from full competitive state resulted the firms functioning in this market to become more or less a price-maker. For this reason, one of the ways for the firms that aim to increase the total income thus the total profit can use is, to implement different pricing for consumers with different specialties instead of applying the same pricing for all the consumer groups. Because the consumers having different income levels, taste and choice cause them to have a desire to pay Continue reading
Law of Substitution or Equi-Marginal Utility – Definition, Significance and Criticisms
The law of substitution is also known as the law of equi-marginal utility or the law of maximum satisfaction. This law was first developed by H.H Gossen. Therefore, this law is also known as second law of Gossen. Prof. Marshall has developed and given the present shape of this law. This law states that in order to get maximum satisfaction, a consumer should spend his limited income on different commodities in such a way that the last dollar spent on each commodity yield him equal marginal utility. The law of substitution is also known as “The Law Of Maximum Satisfaction” because the consumer can maximize his/her satisfaction by spending income in accordance with this law. It is called “The Law Of Substitution” because the consumer will go on substituting one commodity with higher marginal utility for another commodity with lower marginal utility till the marginal utility of each commodity is Continue reading