Managerial Economics - It’s Meaning, Definition, Nature and Types


Businesses need to make crucial decisions on a day to day basis. These decisions can be about an investment opportunity, a new product, a new competitor, or a company’s direction. For such important decisions, businesses need to rely on experts. These experts come from the background of Managerial Economics. Managerial Economists get to sit at the table with the executives rather than be a part of the company’s executive branch. They are the experts who provide monetary value to the different opportunities and then urge the company to proceed. 

Throughout history, monetary economics has tried to answer the simple question –  What value does money hold in society? It is simple today, but money had no inherent value in the ancient days. This was changed when ships started to sail across the world and trade began. Now, merchants have devised a way of credit and exchange to facilitate trade ever since monetary economics has tried to understand the purchasing power of money and link it to interest rates and economic activities.

What is Managerial Economics?

Managerial economics is a stream of management studies that emphasizes primarily solving business problems and decision-making by applying the theories and principles of microeconomics and macroeconomics. It is a specialized stream dealing with an organization’s internal issues using various economic theories. Economics is an indispensable part of any business. This single concept derives all the business assumptions, forecasting, and investments. This is managerial economics, meaning in a nutshell.

Managerial Economics
January 21, 2022
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Table of Contents

Nature of managerial economics

You need to know about its various characteristics to get more information about managerial economics. In the mentioned below points, let’s read about the nature of this concept:

  • Art and Science: Management theory requires a lot of critical and logical thinking and analytical skills to make decisions or solve problems. Many economists also find it a source of research, saying it includes applying different economic concepts, techniques and methods to solve business problems.
  • Micro Economics: In managerial economics, managers typically deal with the problems relevant to a single entity rather than the economy as a whole. It is therefore considered an integral part of microeconomics.
  • Uses Macro Economics: A corporation works in an external world, i.e. it serves the consumer, which is an important part of the economy.
  • For this purpose, it is important that managers evaluate the various macroeconomic factors such as market dynamics, economic changes, government policies, etc., and their effect on the company.
  • Multidisciplinary: It uses many tools and principles that belong to different disciplines, such as accounting, finance, statistics, mathematics, production, operational research, human resources, marketing, etc.
  • Prescriptive/Normative Discipline: By introducing corrective steps aims at achieving the objective and solves specific issues or problems.
  • Management Oriented: This serves as an instrument in managers’ hands to deal effectively with business-related problems and uncertainties. This also allows setting priorities, formulating policies, and making successful decision-making.
  • Pragmatic: The solution to day-to-day business challenges is realistic and rational.

Both managers take a different view of the principle of managerial economics. Others may concentrate more on customer service, while others may prioritise efficient production.

The concepts of Managerial Economics

Liberal Managerialism

A market is a democratic space where people make their choices and decisions. Organization action and the managers must function according to the customers’ demand and market trends; otherwise, this can lead to business failures.

Normative managerialism

The managerial economics normative view states that administrative decisions are based on experiences and practices of real life. They have a systematic method for studying demand, forecasting, cost control, product design and promotion, recruitment, etc.

Radical Managership

Radical Managership

Managers have to have a creative approach to business concerns, i.e. they have to make decisions to improve the current situation or circumstance. We concentrate more on the need and satisfaction of the consumer rather than just the maximization of income.

Managerial economic values

The excellent macroeconomist N. Gregory Mankiw has given ten principles to explain the significance of business operations in managerial economics.

Principles of Managerial Economics

Principles of How People Decide

Let us go through the following principles to understand how decision-making takes place in real life:

  • Humans face tradeoffs: To make decisions, people have to choose whether to choose from the different options available.
  • Price of Opportunity: Each decision involves a cost of opportunity, which is the cost of those options we let go of while choosing the most appropriate one.
  • Feel fair about the margin: People typically think about the margin or income they receive before investing in a specific project or individual with their money or resources.
  • People respond to stimulus: Decisions to be made highly depend on incentives related to a product, service or activity. Negative incentives discourage people, whilst positive incentives encourage people.

Principles of How People Interact

Communication and market impact business transactions. Let us take a look at the following related principles to justify the statement:

Trade Could Better Anyone: The theory states that trade is a way to share. Everyone gets an opportunity to offer those good products or services they make. And buy those products or services that other people are good at manufacturing.

Markets usually represent a good organized economic activity.

Markets often serve as a means of customer and product interaction. Consumers express their desires and expectations (demands) while producers determine whether or not to manufacture necessary products or services.

Governments may often boost the performance of the market

During the time of adverse market conditions, or for the benefit of society, the government intervenes in business operations. Another such example is when the government agrees on minimum wages for the benefit of workers.

Principles on How Economy Works

Managerial Economics- How economy works

The following theory outlines the economic role of an organization’s functioning:

The standard of living of a country depends on its capacity to generate goods and services

The companies must be productive enough to produce products and services to develop a country’s economy. Ultimately it meets the customer’s demand and enhances GDP to increase the standard of living in the country.

Prices increase when the government’s printing lots of money.

Suppose surplus money is available with citizens, their capacity to spend increases, eventually leading to a rise in demand. Inflation takes place when the manufacturers are unable to satisfy market demand.

Society faces a short-term correlation between unemployment and inflation

The government introduces numerous economic policies to reduce unemployment. In the short term, Such policies target to improve the economy and what kind of practice contributes to inflation.

Scope of Managerial Economics

Managerial economics is commonly used to deal with various business problems within organizations. Both micro and macroeconomics have an equal effect on the organization and its work. The points which follow illustrate its significance:

Micro-economy Applied to operational matters

The various theories or principles of microeconomics used to solve the internal problems of the organization arising in the course of business operations are as follows:

  • Demand Theory: Demand Theory emphasizes the consumer’s behaviour towards a product or service. This considers the customers’ desires, expectations, preferences, and conditions to enhance the manufacturing process.
  • Decisions on Production and Production Theory: This theory is primarily concerned with the volume of production, process, capital and labour, costs involved, etc. It aims to optimize production to meet customer demand.
  • Market Structure Pricing Theory and Analysis: It focuses on assessing a product’s price considering the competition, market dynamics, production costs, optimizing sales volume, etc.
  • Exam and management of profit: the companies are operating for assets; hence, they aim to maximize profit. It also depends on demand from the market, input costs, level of competition, etc.
  • Decisions on capital and investment theory: Capital is the most important business element. This philosophy takes priority over the proper distribution of the resources of the company and investments in productive programs or initiatives to boost operational performance.

Macro-Economics Applied to Business Environment

Any organization is greatly affected by the environment in which it operates. The business climate can be defined as:

  • Economic environment: A country’s economic conditions, GDP, government policies, etc., have an indirect effect on the company and its operations.
  • Social environment: The society in which the organization, like employment conditions, trade unions, consumer cooperatives, etc., functions also affects it.
  • Political environment: a country’s political system, whether authoritarian or democratic; political stability; and attitude towards the private sector, impact the growth and development of the organization.

Management economics is an important method for assessing the company’s priorities and objectives, the organization’s current role, and what the management can do to fill the void between the two.

As you now know the definition of managerial economics and its definition, we have listed down the best options you can pursue in this field.

  • Banking Sector
  • Government Sector
  • Research and Development
  • Teaching
  • Higher Studies
  • Professional Economist
  • Financial Risk Analyst
  • Data Analyst (Banking)
  • Financial Planner (Banking)
  • Financial Controller/Financial Economist
  • Equity Analyst
  • Cost Accountant
  • Economic Researcher
  • Business Economist
  • Agricultural Economist
  • Investment Analyst
  • Actuary

Banking sector job profiles are financial analysts, consultants, financial advisers, investment bankers, environmental policymakers, development officers, or part of Research and Development. You can also work for the government. If you want to be a lecturer or become a senior economics teacher in private schools, apply for the NET / CTET exam in the field of education. Job for newspapers, and become an economic or editorial journalist.

  • Business Economists: They deal with various sectors and companies, and their main role is to serve as an intermediary between the corporate and the outside world.
  • Asset Manager: They deal with different sectors and businesses, and their main role is to act as an intermediary between the corporate and the outside world.
  • Credit and risk manager: We analyze the company’s financial details and calculate the associated default risk to help the lender and the buyer.
  • Market Analyst: A Market Analyst analyses the market so that their employers can make a better decision concerning product launching or rendering services.
  • Operations Manager: From output to review of statistics to educating new staff, an Operations Manager manages all day-to-day activities in the company and needs to make sure that the organization runs at an optimal level.
  • Teaching: After completing an M.A in Economics with a mark of at least 55 percent an applicant can either seek a PhD at any college or appear for the National Eligibility exam of the UGC currently being administered by the NTA.
  • Equity Analyst: An equity analyst extracts equity information for investment purposes and explores stock market insights as to where to invest or whether to proceed or sell on the market.
  • Economic services of India: You will complete M.Sc. And MA. in economics with at least 55 percent marks before appearing in the Indian Economic Service Exam. The age range is from 21-30 years. UPSC administers the test.
  • Public sector Banking Services: The Reserve Bank of India also recruits banking-sector economists through various recruitment exams. The age limit is 21-28 years.
  • Private and foreign banks: A holder of an Economics degree can try for both private and foreign banks. The Banking job categories are branch managers, clerks, economic analysts, planning and development officers, etc.
  • Agencies Worldwide: Experienced and famous economists in well-known international organizations such as the World Bank and the International Labor Organisation(ILO) can get employment opportunities.
  • Work as an advisor: Graduates in Economics can work as an economic consultants independently. In the case of various scientific research and consulting in the private sector, companies can ensure optimal job opportunities.
  • Entrepreneurship: Economists should have a profound understanding of the market. They will easily understand industry dynamics and competitive business sectors. Then they will soon be able to achieve exponential growth by creating their own business. So, this will generate a huge number of work opportunities. It’ll also help to reduce the country’s unemployment problem.

Learn and Earn with Chegg 

We barely have enough time to sit back and work on our skills in this fast-paced world. Daily jobs, family duties etc., often derail us from reaching our true potential. But, that is not the case now. With Chegg, you can work as a part-time Subject Expert in different subjects and learn to expand on your skills. 

Subject Matter Expert is one of the flagship programs of Chegg India. Chegg hires individuals with in-depth knowledge in particular subjects looking for online teaching jobs from home. Students worldwide take subscriptions of any subject they face problems in and post related queries and questions. A subject matter expert of that particular subject answers the questions online through Chegg Study. 

If you are interested in economics and think you can help students worldwide with their queries, join the program now and avail the benefits offered to our Subject Experts. Click to Apply now.

Perks for Chegg Subject Experts: 

One would not expect many perks from home-based part-time jobs. But, at Chegg, we consider you a part of the company and thus offer certain perks to all who have joined as Subject Experts: 

  • Bonus Hours

Bonus Hours is a plan we run for those who wish to earn a little more. In a corporate world, bonus hours would be like working overtime. You get paid extra for working overtime. But, since this is a part-time job from home, overtime doesn’t work for us. Instead, for those passionate freelancers who want to work a little more, we offer the plan of bonus hours. 

The process is simple. We engage in bonus hours on a few holidays, like Diwali, Holi, or Just any random day, etc. Once engaged, Subject Matter Experts can earn almost twice their base earnings per question once engaged. We send out emails and messages to all our subject matter experts informing them about the bonus hours so that more willing Subject Matter Experts can answer more questions and earn more amounts. 

  • Phone and laptop friendly portal

We understand the world is transitioning to mobile-first, and we don’t want to be left behind. Thus, we have made our Subject Matter Portals easy to use on laptops, phones, iPad, etc. The portal is within the use and easy to access, 24 hours, every day! 

  • Expert meets

After you enter as a Chegg Subject Expert, you become part of the larger Chegg community. You are then allowed to attend expert meetups organized by us, thereby allowing you to network and make connections within the peer group of your subject. This not only allows you to build relationships and discuss ideas, but it can also help you build contacts that can lead to opportunities to excel in your chosen careers. 

Final Thoughts 

Managerial Economists are the need of every business. They look for talent who can help manage their money and investments and help their company grow in the market. These individuals are highly sought after for their skills to analyze the market trends and practices. 

In terms of scope, Managerial economics leads to a well respected and high paying job within the corporate environment. Individuals seeking this profile need to build their skills in economic theories and the world of Arts and Sciences for logical and creative thinking and management operations. If you are determined to learn these skills, the road ahead will be much simpler. 

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