Upgrade to remove ads
Terms in this set (24)
The study of the behavior of human beings in
producing, distributing and consuming material
goods and services in a world of scarce
Definition of economics
- The science of organizing and allocating a firm's
scarce resources to achieve its desired
Definition of management
The use of economic analysis to make business
decisions involving the best use (allocation) of an
organization's scarce resources.
Definition of managerial economics
Relations to other business disciplines.
What are the economic conditions in our
• market structure?
• supply and demand?
Questions that managers must answer 1.
Should our firm be in this business?
• if so, at what price?
• at what output level?
• can the firm achieve a sustainable competitive
Questions that managers must answer 2.
- What are additional economic conditions in our
• government regulations?
• international dimensions?
• future conditions?
• macroeconomic factors?
Questions that managers must answer 3.
- What is our strategy to maintain a competitive
advantage in the market?
• product differentiation?
• market niche?
• outsourcing, alliances, mergers?
• international perspective?
Questions that managers must answer 4.
- What are the risks involved?
• changes in demand and supply conditions?
• technological changes and the effect of competition?
• changes in interest and inflation rates?
• exchange rate changes for companies engaged in
• political risk for companies with foreign operations?
Questions that managers must answer 5.
Microeconomics is the study of individual
consumers and producers in specific
• supply and demand
• pricing of output
• production process
• cost structure
• distribution of income
What is microeconomics?
Macroeconomics is the study of the
aggregate economy, especially:
• national output (GDP)
• fiscal and monetary policies
• trade and finance among nations
What i macroeconomics?
Scarcity is the condition in which resources
are not available to satisfy all the needs and
wants of a specified group of people.
What i scarcity?
Opportunity cost is the amount (or
subjective value) that must be sacrificed in
choosing one activity over the next best
What is opportunity cost?
• The Nature of Scarcity
What should be produced?
How should it be produced?
For whom should it be produced?
Allocation decisions must be made because of
scarcity. Three choices:
3 Basic economic questions - Country and
- analytic tools enhance abilities to make decisions "on the feet" using soft
data in complex situations.
- emphasizes the use of logical analysis and simplification in order to break
problems down into understandable parts.
Microeconomics is an analytic discipline
1. Logical analysis is one of the important tools a manager
brings to bear on a problem (others include intuition,
experience, and knowledge of similar cases).
2. Good managers are smart but do not have infinite information-processing ability. Therefore, like good physicists, good doctors, and good economists, they simplify problems in order to reason logically about them.
The power of logical analysis
• Models. A model is a simplified or stylized description of a problem
that isolates the most important features.
• Smooth functions. Even when the underlying data is discrete, we may use smooth approximations to simplify our analysis.
• Decomposition of decision problems. Decomposing a decision problem means to divide it into smaller and simpler subproblems.
• Marginal analysis. Marginal analysis considers the incremental effects of small changes in decisions. Under the right conditions, marginal analysis provides a simple way to find an optimal decision
or to check whether a decision is optimal.
4 important features of logical analysis
Models. Logical analysis
*Most economic variables are not perfectly divisible. For example, prices must usually be quoted in a smallest currency unit, and most goods come in multiples of a smallest quantity
(fax machines, bars of soap, sheets of paper).
• Smooth relationships between economic variables simplifies much analysis.
Smooth functions. Logical analysis
Decomposition. Logical analysis
Which quantity maximizes profits?
YOU MIGHT ALSO LIKE...
Managerial Economics Chapter 1
BSB113: Week 1
Microeconomics Chapter 1
OTHER SETS BY THIS CREATOR
OTHER QUIZLET SETS
Economics exam 2
Law Test 3
Anthro Quiz Two