Managerial Economics 2022 – Its Meaning, Definition, Nature, and Types

Businesses need to make important decisions on a day-to-day basis. These decisions can be about an investment opportunity, a new product, a new competitor, or a company’s direction.

Businesses need to rely on experts for such important decisions. These experts come from a background in managerial economics. Managerial economists sit at the table with executives rather than be part of the executive branch of the company.

They are experts who provide monetary value to various opportunities and then urge the company to move forward. Throughout history, monetary economics has attempted to answer the simple question – what is the value of money in society? It is simple today, but money had no inherent value in ancient days.

This changed when ships started operating around the world and trade began. Now, traders have devised a method of credit and exchange to facilitate trade ever since monetary economics has tried to understand the purchasing power of money and link it to interest rates and economic activity.

What is Managerial Economics?

Managerial Economics

Managerial economics is a stream of management studies that mainly emphasizes solving business problems and decision-making by applying the principles and principles of microeconomics and macroeconomics.

It is a specialized stream dealing with internal issues of the organization using various economic principles. Economics is an essential part of any business. This single concept captures all the business assumptions, forecasts, and investments. This is managerial economics, which in short means.

Nature of managerial economics

To know more about managerial economics, you need to know about its various features. In the points given below, let us read about the nature of this concept:

  • Art and Science: Management theory requires a lot of critical and logical thinking and analytical skills to make decisions or solve problems. Many economists also find it a source of research, saying that it involves applying various economic concepts, techniques, and methods to solve business problems.
  • Microeconomics: In managerial economics, managers typically deal with problems relevant to an entity rather than the economy as a whole. Therefore it is considered an integral part of microeconomics.
  • Uses Macroeconomics: A corporation operates in the outside world, i.e. it serves the consumer, who is an important part of the economy.
  • For this purpose, managers must evaluate various macroeconomic factors such as market dynamics, economic changes, government policies, etc., and their impact on the company.
  • Multidisciplinary: It uses many tools and principles that are related to different disciplines, such as accounting, finance, statistics, mathematics, production, operational research, human resources, marketing, etc.
  • Instructional/Standard Discipline: Initiating corrective steps is aimed at achieving the objective and solving specific issues or problems.
  • Management Oriented: It acts as a tool in the hands of the managers to deal effectively with the problems and uncertainties related to the business. It also allows for setting priorities, making policies, and making successful decisions.
  • Practical: The solution to day-to-day business challenges is realistic and rational.

Both managers take a different view on the principle of managerial economics. Others may focus more on customer service, while others may prioritize efficient production.

Concepts of Managerial Economics

Liberal Managerialism

A market is a democratic place where people make their choices and decisions. An organization’s actions and managers must act according to customer demand and market trends; Otherwise, it can lead to business failures.

normative managerialism

The managerial economics standard approach states that administrative decisions are based on real-life experiences and practices. They have a systematic method to study demand, forecasting, cost control, product design and promotion, recruitment, etc.

Radical Managership

Managers have to take a creative approach to business concerns, i.e. they have to take decisions to improve the current situation or situation. We focus more on consumer needs and satisfaction rather than just maximizing income.

managerial economic value

Prominent macroeconomist N. Gregory Mankiw has given ten principles to explain the importance of business operations in managerial economics.

principles of managerial economics

Let us look at the following principles to understand how the decision-making process takes place in real life:

principles of how people make decisions

  • Humans are faced with tradeoffs: to make a decision, people must choose whether or not to choose from the various options available.
  • Opportunity cost: Every decision involves an opportunity cost, which is the cost of alternatives that we are left with when choosing the most appropriate one.
  • Feel Fair About Margin: People usually think about the margin or income they get before investing their money or resources in a specific project or individual.
  • People Respond to Incentives: The decisions to be made depend heavily on the incentives related to the product, service, or activity. Negative incentives discourage people, while positive incentives encourage people.

principles of how people interact

Communication and market impact business transactions. Let us take a look at the following related theories to justify the statement:

Business can do better for anyone: The theory says that business is a way of sharing. Everyone has the opportunity to be offered the good products or services they make. And buy products or services that other people are good at manufacturing.

Markets usually represent a well-organized economic activity.

Markets often act as a means of customer and product interaction. Consumers express their wants and expectations (demands) while producers determine whether to manufacture the required products or services.

Governments can often boost market performance

During adverse market conditions, or for the benefit of society, the government intervenes in business operations. Another such example is when the government agrees on a minimum wage for the benefit of the workers.

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Theory on how the economy works

Managerial Economics – How the Economy Works
The following theory outlines the economic role of an organization’s functioning:

The standard of living of a country depends on its ability to produce goods and services

For a country’s economy to grow, companies must be productive enough to produce products and services. Ultimately it fulfills customer demand and increases the GDP to raise the standard of living in the country.

When the government prints a lot of money the prices go up.

Suppose citizens have surplus money available, their spending capacity increases, which ultimately leads to an increase in demand. Inflation occurs when producers are unable to meet market demand.

Society faces a short-term relationship between unemployment and inflation

The government introduces several economic policies to reduce unemployment. In the short term, such policies aim to improve the economy and what kind of practice contributes to inflation.

Scope of Managerial Economics

Managerial economics is commonly used to deal with various business problems within organizations. Both micro and macroeconomics have a similar impact on the organization and its functioning. The following points illustrate its importance:

Micro Economy Applied to Operational Matters

The various principles or principles of microeconomics used to solve the internal problems of the organization that arises in the course of business operations are as follows:

  • Demand Theory: Demand theory emphasizes consumer behavior towards a product or service. It considers the wishes, expectations, preferences, and conditions of the customers to enhance the manufacturing process.
  • Decision on Production and Production Theory: This theory mainly deals with the quantity of production, process, capital and labor, the cost involved, etc. It aims to optimize production to meet the demand of the customers.
  • Market Structure Pricing Theory and Analysis: It focuses on estimating the price of a product considering the competition, market dynamics, cost of production, optimizing sales volume, etc.
  • Examination and management of profits: companies working for assets; Therefore, their goal is to get maximum profit. It also depends on the demand from the market, input cost, level of competition, etc.
  • Decisions on Capital and Investment Theory: Capital is the most important business element. This philosophy prioritizes the fair distribution of a company’s resources and investment in productive programs or initiatives to promote operational performance.

Macro-Economics Applied to Business Environment

Any organization is greatly influenced by the environment in which it operates. The business environment can be defined as:

Economic Environment: The economic condition of a country, GDP, government policies, etc. have an indirect effect on the company and its operations.
Social Environment: The society in which the organization operates, such as employment status, trade unions, consumer cooperatives, etc., also influences it.
Political environment: the political system of a country, whether authoritarian or democratic; political stability; And the attitude towards the private sector, affects the growth and development of the organization.

Management economics is an important method for assessing a company’s priorities and objectives, the current role of the organization, and what management can do to fill the void between the two.

As you now know the definition of managerial economics and its definitions, we have listed down the best options you can pursue in this field.

  • banking sector
  • government sector
  • research and development
  • teaching
  • higher studies
  • professional economist
  • financial risk analyst
  • Data Analyst (Banking)
  • Financial Planner (Banking)
  • Financial Controller/Financial Economist
  • equity analyst
  • cost accountant
  • economic researcher
  • business economist
  • agricultural economist
  • investment analyst
  • Accountant

Banking sector job profiles include financial analyst, consultant, financial advisor, investment banker, environmental policymaker, development officer, or part of research and development. You can also work for the government.

If you want to become a lecturer in private schools or become a senior economics teacher, then apply for the NET/CTET exam in education. Jobs for newspapers, and becoming an economic or editorial journalist.

  • Business Economists: They deal with different sectors and companies, and their main role is to act as an intermediary between the corporate and the outside world.
  • Asset Managers: They deal with various sectors and businesses, and their main role is to act as an intermediary between the corporate and the outside world.
  • Credit and Risk Managers: We analyze the company’s financial statements and calculate the associated default risk to assist the lender and buyer.
  • Market Analyst: A market analyst analyzes the market so that their employers can make better decisions regarding product launches or services to be provided.
  • Operations Manager: From output to data review to educating new employees, an operations manager manages the day-to-day activities in the company and needs to ensure that the organization runs at optimum levels.
  • Teaching: An applicant after completing MA in Economics with at least 55 percent marks can either seek a Ph.D. in any college or appear for the National Eligibility Test of the UGC which is currently administered by NTA Is.
  • Equity Analyst: An equity analyst extracts equity information for investment purposes and explores stock market insights on where to invest or whether to move or sell in the market.
  • Economic Services of India: You will complete the MSc. and with at least 55 percent marks in economics before appearing for the MA Indian Economic Service exam. The age limit is from 21-30 years. UPSC conducts the exam.
  • Public Sector Banking Services: The Reserve Bank of India also recruits economists from the banking sector through various recruitment exams. The age limit is 21-28 years.
  • Private and Foreign Banks: An economics degree holder can try out for both private and foreign banks. The banking job categories are branch manager, clerk, economic analyst, planning and development officer, etc.
  • Agencies Worldwide: Experienced and renowned economists can find employment opportunities in renowned international organizations like the World Bank and International Labor Organization (ILO).
  • Work as a Consultant: Graduates in Economics can work independently as an economic advisor. In the case of various scientific research and consultancy in the private sector, companies can ensure optimum job opportunities.
  • Entrepreneurship: Economists must have a deep understanding of the market. They will easily understand the dynamics of the industry and the competitive business sectors. Then they will soon be able to achieve exponential growth by creating their own business. So, it will create a huge number of work opportunities. It will also help in reducing the unemployment problem of the country.

Wrapping up: Managerial Economics

The managerial economist every business requires. They look for talent that can help them manage their money and investments and help their company grow in the market. These individuals are highly sought after for their skills in analyzing market trends and practices.

In terms of scope, managerial economics leads to a well-respected and high-paying job in the corporate environment. Individuals seeking this profile need to build their skills in the world of economic principles and the arts and sciences for logical and creative thinking and management tasks. If you are determined to learn these skills, the road ahead will be much easier.

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