Managerial Economics & Financial Analysis
Introduction To Managerial Economics
Introduction to Economics
Economics is a study of human activity both at individual and national level. The economists of
early age treated economics merely as the science of wealth. The reason for this is clear. Every one of
us in involved in efforts aimed at earning money and spending this money to satisfy our wants such as
food, Clothing, shelter, and others. Such activities of earning and spending money are called “Economic
activities”. It was only during the eighteenth century that Adam Smith, the Father of Economics,
defined economics as the study of nature and uses of national wealth’.
Dr. Alfred Marshall, one of the greatest economists of the nineteenth century, writes
“Economics is a study of man’s actions in the ordinary business of life: it enquires how he gets his
income and how he uses it”.
Thus, it is one side, a study of wealth; and on the other, and more important side; it is the study
of man. As Marshall observed, the chief aim of economics is to promote ‘human welfare’, but not
wealth. The definition given by AC Pigou endorses the opinion of Marshall. Pigou defines Economics as
“the study of economic welfare that can be brought directly and indirectly, into relationship with the
measuring rod of money”.
Lord Keynes defined economics as ‘the study of the administration of scarce means and the
determinants of employments and income”.
The study of an individual consumer or a firm is called microeconomics (also called the Theory of
Firm). Micro means ‘one millionth’. Microeconomics deals with behaviour and problems of single
individual and of micro organization. Managerial economics has its roots in microeconomics and it deals
with the micro or individual enterprises. It is concerned with the application of the concepts such as
price theory, Law of Demand and theories of market structure and so on.
The study of ‘aggregate’ or total level of economics activity in a country is called
macroeconomics. It studies the flow of economics resources or factors of production (such as land,
labour, capital, organisation and technology) from the resource owner to the business firms and then
from the business firms to the households. It deals with total aggregates, for instance, total national
income total employment, output and total investment. It studies the interrelations among various
aggregates and examines their nature and behaviour, their determination and causes of fluctuations in
the. It deals with the price level in general, instead of studying the prices of individual commodities. It is
concerned with the level of employment in the economy. It discusses aggregate consumption,
aggregate investment, price level, and payment, theories of employment, and so on. Though
macroeconomics provides the necessary framework in term of government policies etc., for the firm to
act upon dealing with analysis of business conditions, it has less direct relevance in the study of theory
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