M.

E:-Nature & Scope

Meaning.

Nature.
Positive & Normative Science. Subject Matter. Scope. Principles.

Meaning:
It is not a branch of economic theory but a

separate discipline by itself having its own selection of economic principles & methods. It is the application of economic theory & methodology to decision making process. It is a field of study that has developed to bridge the gap between the economic theory as taught in universities, B-Schools & economic practice as applied in the day to day activities of the business world.

Nature:
It is applied in nature.

It concerned with micro economics.

It also related with macro economics. It is normative rather than positive. It studies both private & public firms. It is goal oriented & prescriptive. It is pragmatic. It is multidisciplinary.

Positive & Normative Science:

The economics is divided into positive or normative science. Positive economics deals with explanation of actual behavior while normative economics deals with what to be done. M.E combines the methodology of both positive & normative economics.

Cont..
It has a normative orientation in the sense that the objective in most of the problems is to optimize. It has a positive orientation in the sense that it applying economic theory to real life problems to estimate relationship among economic variables empirically.

Subject Matter of M.E:

Micro Level:

Demand analysis & Elasticity of demand.

Managerial cost. Managerial revenue. Production. Market structure. Pricing policy. Govt. regulations.

Cont.
Macro Level:

Investment magnitude.
Level of national income. Level of employment. Level of consumptions. Change in total output. Consumer price index. Exports & Imports.

Scope of M.E:
Internal( Operational):

External( Environmental):

Internal:
Theory of demand & demand forecasting.

Pricing & Competitive strategy.

Cost analysis. Resource allocation. Profit analysis. Capital analysis. Investment analysis. Strategic planning.

External:
Type of economic system.

General trend in production, employment,

income, price saving & investment. Govt. policy. Trends in labour & Capital market. Trends in working of financial institutions. Magnitude & trends in foreign trade.

Economic principles for managers:

The role of managers is to make decisions. Decisions are always among alternatives. Decisions alternatives always have cost &

benefits. The anticipated objective of management is to increase the firms value. The firms value is measured by its expected profits. The firms sales revenue depends on demand for its product.

Count.
The firm must minimize cost for each level of

output. The firm must develop a strategy consistent with its market. The firms growth depends on rational investment decisions. Successful firms deal rationally & ethically with laws & regulations.