Scope of managerial

Economics
Economics has two major
branches Micro economics and
Macro economics. Both micro and
macro economics are applied to
business analysis which can be
used to analyse the business
environment and to find solutions
to practical business problems.

Micro and Macro Economics

Micro-economics deals with the
analysis of small individual units of
economy such as individual firm, an
individual consumer, an individual
industry etc.

Macro-economics is the study of

entire economy. It also gives an
understanding of the various factors
like business cycles, national income
economic policies of Govt. like those
relating to taxation, foreign policy,
labour relations etc.

Business issues are

1. Operational or internal issues
2. Environment or external issues

Micro economics applied to

operational issue
Include all the problems which arises
within the organization.eg.Some of basic
internal issues are, Choice of business
and nature of product, choice of size of
the firm, choice of technology, choice of
price(how to price commodity),how to
promote sales, how to face price
competition, how to decide on new
investments, how to manage profit and
capital, how to manage inventory etc.

Microeconomics theories which deals

with most of these issues are
following:
Theory of demand and supply-it
explains the consumer behaviour.
How do the consumers decide
whether or not to buy a commodity
to be purchased? How do the
consumers behave when price of the
commodity, their income, tastes and
fasions etc.. change?

Cont
Theory of Production: Relationship b/w I/O.
Explains under what conditions costs increase
or decrease; how total o/p constant when
units of one factor(i/p) are increased keeping
other factors constant; how can o/p be max
from a given quantity of resourses;how can
optimum size of o/p be determined?
Market Analysis: Explains how prices are
determined under diff. market conditions;
when price discrimination is desirable,
feasible and profitable; how advertising can
be expanding sales in a competitive market.

 Profit Analysis: Determined by Demand

for the product, input prices in the factor
market, nature and degree of competition
in the product market, price behaviour
under changing conditions in the product
market
Theory of capital:Success of the firm
determined by the efficient allocation and
management of capital.Major issues
related to capital are Choise of investment
project, assessing the efficiency of capital,
most efficient allocation of capital.

Macro economic applied to Business

environment
Include overall economic , social and political
atmosphere of the country. Economic
environment of a country include the
following factors:
Type of economic system of the country.
General trends in production, employment,
income, prices, savings and investments.
Structure and trends of working of the
financial institutions .eg. Banks, insurance
companies.

Cont
Magnitude of and trends in foreign
trade. Eg. Fluctuations in the price of
crude oil in international market
affects on price of desel and petrol in
India.

 Govts economic policies- Govt

policies designed to control and
regulate economic activities of
private firms. eg. Industrial policy,
price policy.
Social factor. eg. society , property
rights , customs.
Political environment Govt attitude
towards business. eg. Democratic,
socialist.
Degree of openness of the economy
and influence of MNCs on the

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