Professional Documents
Culture Documents
ME
Business
Management
in theory& Practice:
Decision, Problems
In Economic Theory:
MAIN CHARACTERISTICS OF ME
Applied Micro economics
Science as well as art of management
disciplines.
Concerned with the firm's behavior in optimal
allocation of resources.
Provides tools for best alternatives and
competing activities in any productive sector.
Incorporates both Micro and Macro Economics
for optimal decisions.
Helps Manager to understand the intricacies of
the business problems which make the problem
solving easier and quicker.
contd.
Managerial Economics:
IS ME POSITIVE OR NORMATIVE?
+ve economics explains the economic phenomenon as
Decision Making
Forward Planning
Demand Estimation and forecasting
Business and sales forecasting
Analysis for extent and nature of competition.
Analyzing the issues and problems of the concerned industry.
Assisting the bus Planning process of the firm.
Discovering the new and possible fields of business endeavors
and its cost benefit analysis.
Advising on pricing , investment, and capital budget policy.
Evaluation of capital budgets.
Building micro and macro eco models for solving business
problems.
Directing Economic research activities.
Briefing the management on current domestic and global
economic issues and emergiing challenges.
Keeps an eye on fast changing technological developments.
A Decision-Making Model
Objectives
Define the
problem
Alternative
Solutions
Social
constraints
Evaluation
Organizational
and input
constraints
Implement and
monitor the
decision
11
Scope of ME
Objectives of a firm
Demand Analysis and Forecasting
Cost and Production Analysis
Pricing Decisions, Policies and Practice
Profit Management
Capital Budgeting
Linear Programming and the theory of games
Market structure and conditions
Strategic Planning
Others Areas (Macroeconomic Management, Fiscal and
Importance of Managerial
Eco.
It gives guidance for identification of key variables in decision
making process.
It helps the business executives to understand the various
intricacies of business and managerial problems and to take
right decision at the right time.
It provides the necessary conceptual, technical skills, toolbox
of analysis and techniques of thinking to solve various
business problems.
It is both a science and an art. In the context of globalization,
privatization, liberalization and a highly competitive dynamic
economy, it helps in identifying various business and
managerial problems, their causes and consequence, and
suggests various policies and programs to overcome them.
Consumer Demand
It is the
Desire to buy
Willingness to pay
Ability to pay
which determines the quantity with reference to
price
Period of time
place
Definition of Demand
The demand for a product refers to the
Determinants of demand
Factors influencing Individual demand
Price of product
Income availability
Tastes , habits and preferences
Price of substitutes and compliments
Consumer expectation
Advertisement effect
Season prevailing at the time of purchase
Fashion
DeterminantsMarket
demand
Price
Distribution of income and wealth in the community.
Standards of living and spending habits
Growth of population
Number of buyers in the market
Age group
Gender ratio
Future Expectations
Taxation and tax structure
Fashion and Innovation
Climate
Customs
Advertisements
Demand Function
Mathematical expression establishing relationship
between demand and its various variables
Dx= F(Px, Ps,Pc,Yd,T, A, N, u)
Px Own price
Ps - Price of a substitute
Pc Price of complements
Yd Disposable income
T - buyers tastes and preferences
A effect of advertisement
N- population growth
U other aspects
Law of demand
All other things remaining constant (ceteris
paribus), the quantity demanded of a
commodity increases when its price decreases
and decreases when its price increases.
Demand curve :
Price of Shirts
No Of Shirts
Demand Schedule
Demand schedule is a tabular representation of
Buyer A
(demand
in
dozen)
Buyer B
(demand
in
dozen)
Buyer C
(demand
in
dozen)
Buyer D
(demand
in
dozen)
Market
Demand
(dozens)
10
14
25
11
12
10
37
13
14
12
45
Demand Curve
Demand curve is a diagrammatic representation
of demand schedule. It is a graphical
representation of price- quantity relationship.
Individual demand curve shows the highest price
which an individual is willing to pay for different
quantities of the commodity.
While, each point on the market demand curve
depicts the maximum quantity of the commodity
which all consumers taken together would be willing
to buy at each level of price, under given demand
conditions.
Demand Curve
Features of demand
curve
Demand curve has a negative slope
Change in demand
Increase and decrease in demand More is demanded at a given
price when demand increases and vice versa. This change in
demand is due to other factors than price.
Network externalities in
demand
Bandwagon effect
The demand for products is not by their
usefulness but mostly influenced by trend
setters/ pace setters.
It is the result of the buyers desire to be in
style or fashion.
This forms the basic objective of advertising
and marketing of many products and
manipulates market demand.
Helps in determining the pricing strategy of the
business firm for such firms.
Veblen effect
The desire of a person to own exclusive/
Veblen paradox
At high prices, limited but high demand from
the rich.
Slight upward variation in demand when the
prices are reduced a little.
After a certain extent of price reduction,
demand dips.
Once the product is made available to the
common man, it follows the usual law of
demand.