MANAGERIAL ECONOMICS

Module 1

1. Introduction:What is economics?

Economics occupies a primordial role in national development. The many diverse needs
of individuals are material in nature – the house where the family lives, the food,
transportation, school uniforms and myriad other needs are all the subject matter of
economics as reflected in its definition, vis:

“Economics is a social science that studies the maximization

of scarce(limited) resources in order to fulfill unlimited human
wants & needs.”

The very survival of an individual hinges on his economic status, much more the
improvement of his welfare and the whole community,

Throughout human history though, there are groups of people who are more privileged than
others. Closely examine the picture below.

We will get back to this later.

Historical Antecedent
Economics as a social science evolved in the 18 th century. However, its is only in this
century that the field is given proper recognition particularly in its provision of a set of
tools to understand socio-economic problems to arrive at rational solutions.

It is thus that this series of modules is formulated to help you understand various and
numerous problems of mankind as poverty, starvation, illiteracy, etc. This provides an entry
point for the tools you would have learned to apply to different situations and problems,
simple and complex.

Your first task is to answer the following questions. Why is it necessary for us to
understand economics? Considering the kind of lifestyle your family now has, is there still
a room to improve it? What maybe the factors hindering your family’s movement to a
higher standard of living, what can still be done, what are the things we have neglected.

Your second task is to look at the picture provided in page two. Critically compare the
two scenarios provided therein and answer the following questions.

What are the similarities What are the differences? What insights do I have
between the two pictures regarding the comparison?
presented?

1. Watch “You Tube” videos with titles like “what is economics”.

https://www.youtube.com/watch?v=2YULdjmg3o0&t=83s ; “scarcity – the basic
economic problem ” https://www.youtube.com/watch?v=1cYMW5d_bn
2. Watch out for any announcement in your chat group.

2. Branches of Economics

Branches of economics, also called levels of economic analysis are as follows.

 1. Microeconomics
2. Macroeconomics, and
3. International Economics

Microeconomics. As the prefix “micro” implies, it deals with small entities. It is thus
that it is a field or level of economic analysis that studies the smallest units of society
particularly the producing and consuming entities (i.e., consumers, producers, workers, etc.
They behave as they interact based on their individual interests). Example is a tricycle
driver who is the sole breadwinner in the family. His income is not enough to support all
the needs of the family so his wife if forced to work abroad to supplement his income.

Macroeconomics studies the aggregate performance of the small economic entities(i.e.,

household, business firms, the market and government in their interaction). It studies how a
national economy performs. Governments have a singular interest in this field by virtue of
their wanting to improve the material well being of their citizens. Governments study how
an economy is performing via macroeconomic indicators like the GNP, Poverty Incidence,
Unemployment figures, etc. so that they can devise and introduce measures to further
improve the quality of life of their citizens.

International Economics. Studies the interaction between national economic entities.

How for example the Philippines interacts with the United States in trade is an example of a
subject matter of international economics. Our economic interaction with the rest of the
world is also a subject matter.

Instruction: Your third task is to discuss what maybe the facets of life of Filipinos that
properly fall under microeconomics, macroeconomics or international economics and cite
examples for each level, the more examples, the better.(Same deadline as the first & second
task). Send to my e-mail address given beforehand.

3. Management Functions

Management is a set of principles relating to the functions of planning, organizing,

directing and controlling, and the application of these principles in harnessing physical,
financial, human, and informational resources efficiently and effectively to achieve
organizational goals. From the definition, management is therefore the efficient
organization of all resources to achieve organizational goals and objective. In the process
of pursuing the desired goals and objectives, they engage in the following activities.

1. Planning -  is the process of thinking about the activities required to achieve a
desired goal. It is the first and foremost activity to achieve desired results. It is the
process of anticipating what may possibly happen and solving problems before they
happen.
 2. Organizing - A second key function of managers is organizing, which is the
process of coordinating and allocating a firm's resources in order to carry out its
plans. Organizing includes developing a structure for the people, positions,
departments, and activities within the firm.
3. Directing - DIRECTING is said to be a process in which the managers instruct,
guide and oversee the performance of the workers and the usage of resources to
achieve predetermined goals. 
4. Controlling – is the process of setting standards, measuring actual performance, and
taking corrective action. An easy way to summarize the steps of control
management is like this: Actual performance is compared with planned
performance.

Your fourth task: Think of an activity in your household that would require all the
four(4) activities mentioned above. In what way would each one be categorized under each
activity, cite examples.(You can submit the fourth task on the date to be announced
later, send output to my email address: mstanjr@csu.edu.ph)

4. Management and Economics in Managerial Economics

Managerial economics is a branch of economics which deals with the application

of economic concepts, theories, tools, and methodologies to solve practical problems in
business. In other words, managerial economics is a combination of economic and
management theory. It is sometimes referred to as “business economics”.

The subject bridges management and economics in practice. If there is a unifying

that runs through most of managerial economics, it is the attempt to optimize business
decisions by the practical usage of economic methodologies. For example, it uses
knowledge of supply and demand analysis to optimize the production level of an enterprise.
It makes use of price theory to arrive at an “optimum” price levels for the enterprise
products.

5. Comparative Economic Systems:Capitalism, Socialism &

Mixed Market Economies

This section is included in order to properly contextualize the operation of managerial

economics in an economic system. The basic premise of managerial economics is the
freedom of management to exercise sound judgement in order to bring an enterprise to its
desired end using economic concepts and methodologies. Not in all economies can this be
done thus, the need to understand economic systems.
 What is an economic system? An economic system is made up of models that describe
the principles and approaches of economic units in making decisions on the management of
a country’s resources to address the socio-economic problems of a society.

There are three(3) basic economic systems, 1. Capitalism; 2. Communism, and 3.

Mixed Market Economy.

Characteristics of Capitalism(also known as decentralized economic system/free

market or free enterprise economy)

⮚ An economic system or ideology in which the factors of production are privately

owned and operated for profit.

⮚ Adam Smith(1723-1790) – a Scottish philosopher is called the “father of

modern capitalism”. He wrote a book titled “Wealth of Nations” whose central
thesis is “ capital is best employed for the production and distribution of wealth
under conditions of government non-interference known as “laissez-faire”.

⮚ It operates on the basic principle of the “invisible hand” – a concept that best
describe the intangible interaction between supply and demand.

What are the freedoms in capitalism?

⮚ Right to own property - but not an absolute right for the government can
expropriate properties for the common good – the right to eminent domain.

⮚ Freedom of competition - the right/privilege by the business community to

compete within the bounds of legality and morality in terms of price and
quality of goods and services.

⮚ Freedom of enterprise - to put up or establish a business not prejudicial to the

public and goods and services do no harm to users.

⮚ Freedom of cooperation – to unite or collaborate with others in the same or

other line of business.

Characteristics of communism - also called command or centrally planned or

centralized economic system.

⮚ Economic system or ideology by which all productive enterprises are

owned by the people being represented by the state.
 ⮚ Karl Heinrich Marx(1818-1883) – a German political philosopher and
revolutionary – most influential Socialist thinker of his time.

⮚ Book “Das Kapital” owners of the means of production called the capitalists
or the bourgeoisie exploited the proletarian or the working class.

⮚ Capitalists pay workers as little as possible and replace with machineries to

reduce production costs and increase profits.

⮚ Workers become poorer and capitalists richer.

⮚ Exploited workers rebel, overthrow the capitalist system and create a

classless society.

Features:

1. Revolutionary type system of government - government abolishes the private

rights of ownership. It vests the government authorities the absolute right to discern
on all matters concerning economic affairs as the only mechanism by which public
interest is made and easily addressed.

2. Classless society - government ensures every citizen the equitable and reasonable
chance and opportunity to have access to the benefits and resources of the state.

3. Centralized decision making – affecting major economic problems of society. All

industries and enterprises managed by state appointed managers.

⮚ Workers hired by the enterprises for the state.

⮚ Workers found in all sectors(agriculture, industry, trade and commerce &
service sector)
⮚ Enterprises produce goods according to central direction from the central
planning agency(production targets; quotas)
⮚ Central planning agency controlled by the government, and
⮚ Government imposes priorities and regulates consumption(through
rationing).

The Mixed-Market Type of an Economy - economic ideology where there is

public ownership or control of essential industries and social services and also
democratically controlled to assure each member of the society equitable share of goods
and services.
Features:

1. Dualistic approach in solving societal problems.

2. Ownership of basic resources and industries is vested on the hands of the state,

3. Minor industries left in the hands of the private sector, and

4. Objective is the maximization of public services and social welfare.