Managerial Economics - It’s Meaning, Definition, Nature and Types
February 2, 2021
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Table of Contents
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 by using various economic theories. Economics is an indispensable part of any business. All the business assumptions, forecasting, and investments are derived from this single concept. This is managerial economics meaning in a nutshell.
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 it 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 for setting priorities, formulating policies, and taking 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 make efficient production a priority.
The concepts of Managerial Economics
A market is a democratic space where people make their choices and decisions in a liberal way. The organization and the managers must function according to the demand of the customers and market trends; otherwise, this can lead to business failures.
The managerial economics normative view states that administrative decisions are based on experiences and practices of real life. They have a systematic method for the study of demand, forecasting, cost control, product design and promotion, recruitment, etc.
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 make choices on 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 that 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 for people 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 way to organize 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
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 for the development of a country’s economy. Ultimately it meets the demand of the customer and enhances GDP to increase the standard of living in the country.
Prices increase when the government’s printing lots of money.
If 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. Such policies target in the short term, 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 working. 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 behavior of the consumer towards a product or service. This takes into account 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 labor, 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 taking into account the competition, market dynamics, production costs, optimizing sales volume, etc.
exam and management of profit: the companies are operating for assets hence they always 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 what is it, we have listed down the best options you can pursue in this field.
Research and Development
Financial Risk Analyst
Data Analyst (Banking)
Financial Planner (Banking)
Financial Controller/Financial Economist
Banking sector job profiles are financial analysts, consultants, financial advisers, investment bankers, and being an environmental policymaker, development officer, 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 Economist: 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 both the lender and the buyer.
Market Analyst: A Market Analyst analyses the market so that their employers can make a better decision with respect to 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 Ph.D. 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 marks of at least 55 percent before appearing in the Indian Economic Service Exam. The age range is from 21-30 years. The test is administered by UPSC.
Public sector Banking Services: Reserve Bank of India also recruits banking-sector economists through their own 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 a well-known international organization 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 consultant 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.