This note given By Dr. Neha Jain

1. UNIT 1
“CONCEPTS & TECHNIQUES
OF MANAGERIAL
ECONOMICS”

2. Meaning of Managerial Economics
Managerial Economics is the study of
allocation of resources available to a
business firm or an organization. It is
fundamentally concerned with the art of
economising i.e making rational choices to
yield maximum return out of minimum
resources and efforts, by making the best
selection among alternative courses of
action.

3. MANAGERIAL ECONOMICS
According to Mc. Nair & Meriam:
“ Managerial Economics is the use of
economic modes of thought to analyse
business situations.”

4. According to Spencer &
Seigelman:
“Managerial Economics is the
integration of economic theory with
business practice for the purpose of
facilitating decision making and
forward planning by management.”

5. WHY DO MANAGERS NEED
TO KNOW ECONOMICS?

6. MANAGERIAL ECONOMICS &
BUSINESS DECISION MAKING
TRADITIONAL
ECONOMICS & TOOLS
AND TECHNIQUES
OF DECISION SCIENCES
MANAGERIAL
ECONOMICS
BUSINESS MANAGEMENT
IN THEORY
AND PRACTICE:
DECISIONS, PROBLEMS

7. CHARACTERISTICS OF
MANAGERIAL ECONOMICS
• Managerial economics is micro economics.
• Managerial economics is normative
economics.
• Managerial economics is pragmatic.
• Managerial economics is macro economics
also.
• Managerial economics helps the management.

8. SCOPE OF MANAGERIAL
ECONOMICS
• Theory of Demand.
• Theory of Production.
• Theory of Exchange or Price Theory.
• Theory of Profit.
• Theory of Capital & Investment.
• Environmental issues.

9. CONCEPTS OF MANAGERIAL
ECONOMICS
• Principle of Opportunity Cost
• Principle of Incremental Reasoning
• Principle of Time Perspective
• Principle of Discounting

10. Demand for a commodity
implies…..
• Desire of the consumer to buy the product.
• His willingness to buy the product.
• Sufficient purchasing power in his possession
to buy the product.

11. TYPES OF DEMAND
• Individual Demand
• Market Demand

12. DETERMINANTS OF DEMAND
• Price of the commodity.
• Income of the consumer.
• Prices of related goods.
• Taste & preference.
• Advertisements.
• Expectations:-
a) Related to their future income.
b) Related to future prices of the good & its related
goods.

13. DEMAND FUNCTION
A mathematical expression of the
relationship between quantity
demanded of the commodity and
its determinants is known as
Demand Function.

14. DEMAND FUNCTION
o Individual Demand Function.
o Market Demand Function.

15. LAW OF DEMAND
According to Prof. Samuelson;
“ Law of demand states that people will buy
more at lower prices and buy less at higher
prices,other things remaining the same.”

16. Law of Demand involves two
important aspects..
• DEMAND SCHEDULE.
• DEMAND CURVE.

17. Price of oranges (in
Rs. Per dozen)
Quantity demanded
(in dozen)
10 1
9 3
8 7
7 11
6 13
INDIVIDUAL DEMAND SCHEDULE

19. MARKET DEMAND SCHEDULE
Price of
oranges (in
Rs. per
dozen)
Quantity
demanded
(in dozens)
by “A”
Quantity
demanded
(in dozens)
by “B”
Market
Demand of
Oranges (in
dozens)
10 1 3 4
9 3 6 9
8 7 8 15
7 11 12 23
6 13 14 27

20. Why do Demand Curve Slope
Downwards?
• Law of Diminishing marginal utility.
• More Usage.
• Income Effect.
• Substitution Effect.

21. EXCEPTIONS TO THE LAW OF
DEMAND
• Giffen goods.
• Status goods.
• Change in fashion.
• Brand loyalty.
• Necessities.
• Fear of shortage.
• Speculation.

22. ELASTICITY OF DEMAND
“Elasticity of demand is the
percentage change in quantity
demanded caused by one percent
change in the demand determinant
under consideration, while other
determinants are held constant.”

23. ELASTICITY OF DEMAND
E = % change in quantity demanded of good X
% change in determinant Z

24. VARIOUS SITUATIONS OF
ELASTICITY OF DEMAND
• Perfectly Elastic.
• Highly Elastic.
• Elastic.
• Inelastic Demand.
• Perfectly Inelastic Demand.

25. FACTORS AFFECTING
ELASTICITY OF DEMAND
• Degree of necessity.
• Proportion of consumer’s income spent on the
commodity.
• Existence of substitutes.
• Habit.
• Several uses of the commodity.
• Postponement.
• Time.

26. TYPES OF ELASTICITY OF
DEMAND
• PRICE ELASTICITY OF DEMAND:-
Ep = Proportionate change in quantity demanded of good X
Proportionate change in price of good X

27. • INCOME ELASTICITY OF DEMAND:-
Ey = Percentage change in the quantity demanded of good X
Percentage change in income of the consumer

28. Ec = Percentage change in the quantity demanded of X
Percentage change in price of Y
• CROSS ELASTICITY OF DEMAND:-

29. • PROMOTIONAL ELASTICITY OF
DEMAND:-
Ea = Percentage change in the quantity demanded of X
Percentage change in the expenditure on advertising

30. ELASTICITY OF PRICE
EXPECTATIONS
• Epe = Percentage change in expected future price
Percentage change in current price

31. MARGINAL ANALYSIS
CONCEPT
• Marginal Utility.
• Marginal Productivity.
• Marginal Revenue.
• Marginal Cost.

32. TOTAL UTILITY
The total utility refers to the sum total
of satisfaction which a consumer receives
by consuming the various units of the
commodity.

33. MARGINAL UTILITY
The Marginal Utility of a good is
defined as the change in total utility
resulting from 1 unit change in the
consumption of the good .

34. Marginal Utility = Change in total utility
Change in quantity of good X

35. MARGINAL PRODUCTIVITY
The change in output resulting from
a unit change in one of the firm’s
variable inputs is called Marginal
Productivity.

36. MARGINAL REVENUE
It is defined as the change in the
total revenue when there is a change
in quantity sold of the product.

37. MARGINAL COST
It is the incremental or additional
cost incurred when there is addition
to the existing output of goods &
services.

38. ASSUMPTIONS OF MARGINAL
ANALYSIS
• Rationality Assumption.
• Homogeneous units.
• Factors of production are hypersensitive to
a change in price.

39. DEMAND FORECASTING
“ A Forecast is a prediction or
estimation of a future situation , under
given conditions.”

40. CLASSIFICATION OF DEMAND
FORECAST
 Passive Forecast.
 Active Forecast.

41. IMPORTANCE OF DEMAND
FORECASTING
• Advance production.
• Arriving at most probable figure for
production.
• Prediction for products of specific qualities.
• Focus on competitors.
• Avoidance of uncertainties.
• Forecasting for technological changes.

42. Identification of objectiveIdentification of objective
Determining the nature ofDetermining the nature of
goods under considerationgoods under consideration
Selecting a proper methodSelecting a proper method
of forecastingof forecasting
Interpretation of resultsInterpretation of results
STEPS INVOLVED IN
FORECASTING

43. METHODS
OF DEMAND
FORECASTING
QUALITATIVE
METHODS
QUANTITATIVE
METHODS
Consumer
Survey
Method
Sales Force
Opinion
Method
Expert
Opinion
Method
Trend
Projection
Method
Barometric
Techniques
Regression
Method