Douglas - Managerial economics is ..

the application of economic principles and methodologies to the decision-making process within the firm or organization. Pappas & Hirschey - Managerial economics applies economic theory and methods to business and administrative decision-making. Roles of managerial economists: Act as operation researcher: -To design the course of operation and to increase productivity. - To make a right decision on improving the business through selecting best alternative. Act as an economic advisors:

- To make advice regarding the growth of the nation, performance of the industry. They will carry out forecasting on demand. To advice on international trade, investment appraisal. Acts as a decision maker: To make decisions regarding production, pricing related decisions. To make decision on expansion of business. Acts as a security management analyst:

- To maintain the information regarding the production methods secretly.

Resposibilities of managerial economists: To measure increase in earning capacity of the firm. To make successful forecasting. To contact the source of economic information and experts. To keep the management informed of all possible economic trend. To perform function sincerely.

Demand Desire of the consumer with purchasing power to purchase a commodity .

Law of Demand: The Law of Demand says that a decrease in a goods own price will result in an increase in the amount demanded, holding constant all the other determinants of demand.(ceteris paribus). The Law of Demand says that demand curves are negatively sloped.

Demand curve:- (refer book for diagram) Demand schedule: A demand schedule is a table that lists the quantity of a good a person will buy at each different price.

Price Rs.

Quantity Demanded(Kgs) 2 4 6 8

10 20 30 40

- Market demand schedule is a table that lists the quantity of a good all consumers in a market will buy at every different price Factors affecting the demand: Good's own price Price of related goods Income Tastes or preferences

Consumer expectations about future prices and income:

Exception: Veblen goods. Giffen paradox, Speculation, Emergency products Elasticity: Percentage change in demand and Percentage change in determinants of demand.

Determinants: Price

Income Substitutes and complementary. Types of Elasticity: PRICE ELASTICITY OF DEMAND Price elasticity = Proportionate change in Demand Proportionate change in price Methods to measure price elasticity:Method Percentage method Formula % change in quantity demanded ---------------------------------------------% change in price Change in Demand of price -----------------------*---------------------Change in price of quantity Lower segment of the demand curve Upper segment of the demand curve Total revenue * quantity purchased Sum

Arc method

Sum

Point method

Total outlay method

Factors affecting price elasticity:-

INELASTIC Nature of commodit y Availabilit y of Subs Necessities (eg: Salt, sugar)

ELASTIC Luxury (e.g.: gold and diamond) Yes(eg: tea and coffee) Multi use Low High(eg:car) Perishables Long Yes(eg: car)

No availabity of substitutes (eg: salt)

Number of Single Uses Income Expenditu re Durability Time Postpone ment High Low(eg.salt) Durable Short No(eg: medicine)

Income elasticity of demand Income elasticity = Proportionate change in Demand Proportionate change in income

Cross elasticity cross elasticity = Proportionate change in Demand of commodity X Proportionate change in price of commodity Y