WHAT IS MANAGERIAL ECONOMICS

 Introduction to Managerial Economics 

Managerial Economics is the youngest of all social sciences and has great importance in business organization. The prime function of a manager in a business organization is decision-making and forward planning. Managerial economics is an offshoot of two disciplines - economics and management. Therefore, it is necessary to understand what these disciplines are, to understand the nature and scope of managerial economics. The two disciplines are vast. So let us have a brief note about these two disciplines. According to Adam Smith, the father of modern economics, economics is the subject which studies as to how the wealth is produced and consumed as the wealth is the main objective and purpose of every human activity. He considered economics as the study of nature and uses of national wealth. This is true because if we look around the world of business enterprises, we find that every individual business represents activity 

Definition of Economics:- 

Economics is defined on the basis of four major concepts:

 I. Wealth concept 2. Welfare concept 3. Scarcity concept and 4. Growth concept. 

1. Wealth

- dejillitioll/collcept: Adam Smith defines economics as 'an enquiry into the nature and causes of wealth'. This view is vigorously criticized on the ground that it was too materialistic as it completely ignored the welfare of an ordinary man and the society. According to this view wealth is the ultimate goal of a man. BuL in our rcal life procurement of wealth is not the ultimate objective. We work hard to make our life comfortable and to earn money. Thus, our ultimate objective is not wealth. Dr. Allj'ed Marshall for the first time defined economics in which the focus of economics was shifted from wealth to human welfare.

2. Welfare - dejillitioll/collcept: According to Alfred Marshall, "Economics is a study or 

man's actions in the ordinary business of life; it enquires how he gets his income and 

how he uses it". He strongly believes that the ultimate purpose or objective of economics 

is to promote the well-being of mankind and thus welfare of society, Thus according to 

him economics is a study of wealth, on the one hand. However, the more important 

side, on the other hand, is that it is the study of man and his welfare. 

3. Scarcity - dejillitioll/collcept: Prof. Lionel Robbins in his book, "An Essay on the 

Nature and Significance of Economic Science" put forward a more precise detinition of 

the economics, According to him economics is, ·'the science, which studies human 

behavior as a relationship between ends and scarce means, which have alternative, 

uses". The essential features of this definition are:

Ulllimited humall wallts: We have unlimited number of wants and moreover Lhey are ever recurring.

 Limited or scarce resources: The resources like money, materials and time which are required to satisfy the needs are limited and scarce. Unlimited ends (wants) and limited means (resources) give rise to economic problem

.ALTERNATIVE USESS

The resources which are scarce can be put to alternative uses. They can be used for more than one purpose, uses of resources can also he graded in the order of priority. Choice: Choice has to be exercised in selecting the ends to be satisfied and the uses of means to an end

4. Growth - dejil1itiol1icollcept: The growth concept of economics is given by the modern Economists. It does not condemn the scarcity concept; rather it is a modification to it. According to this concept, there are three types of economic activities. They are production, consumption and exchange

.PRODUCTION 

deals with the activities where by the resources are transformed into products or services to satisfy human desires or wants.

 Consumption is the process of using the goods and services for getting these desires or wants satisfied.

 Exchallge deals with the process of buying and selling of goods and services. Prof. Boulding supports this concept. According to him exchange not only includes exchange of goods and services or money but also includes the determination of price and determination of commodities in the market. The nature of managerial economics can be understood by understanding its relation with other displines such as micro and macro economics.

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