MANAGERIAL

ECONOMICS
Prepared by:
MARIANNE O. CLEMENTE, MBM

1
To have an intuitive knowledge about
economics, we have to answer four
basic questions:
1. Is economics a science?
2. How do economists allocate resources?
3. What is scarcity?
4. Is it possible to achieve maximum
satisfaction or wants?

2
Is economics a science?
 To be accurate, economics is a branch of
social science.
 Social science deals with the human society
and an individual’s role in the society.

3
 How Do Economists Allocate Resources?
 Efficiency means attaining maximum output with
the least possible input. Input does not only refer
to money, but it may also refer to other variables
such as raw materials, time, and effort that a firm
needs to produce a certain commodity. Output,
meanwhile, is the result of the final product in
production.
 Effectiveness can be attained by getting the
desired outcome.

4
 What is Scarcity?
 Scarcity is the condition where the wants and
needs of people are not satisfied because of
limited resources. Equally, the law of scarcity
provides that resources are limited for the
unlimited wants of man.
 The word shortage is a temporary condition where
the demand on a certain commodity or service
cannot be met by the current supply.

5
Is it possible to achieve maximum
satisfaction or wants?
 If all things are managed well, we can
achieve maximum satisfaction or want.

6
 The Economic Way of Thinking
 There are many ways to depict how economists
think, but this discussion would opt to describe it
in three applicable ways:
1. decision-making during scarcity;
2. rational behavior; and
3. marginal analysis.


7
 The Economic Way of Thinking
“In a world of scarcity, most of
the things we do would require us
to make choices”.
“There is no such thing as free
lunch”.


8
 Table 1.1. Hypothetical Computation of Government
Subsidy in One Year
Subsidy per Average number Average amount Average amount
Individual of people taking of subsidy every of subsidy
the LRT every day day every year
45 500,000 22,500,000 8,212,500,000

 Opportunity cost is the cost we forgo to get something else.

 Production possibilities frontier (PPF) represents points at
which an economy is most efficiently producing its goods
and services, limiting the economy to two commodities.

9
10
 This relationship shows a trade-off between
two commodities: when one increases, the
other should decrease, whatever it takes.
 This is the reason why we always hear the
saying, there are always winners and losers, in
economics.

11
12
 Point D, meanwhile, is considered as an
inefficient point or a point where the
resources are not yet maximized.
 Relatively, Point E is a point that could not be
met by the current resources of the economy.

13
 Rational Behavior
 In economics, one of the assumptions we
always acknowledge is that human behavior
reflects “rational self-interest.
 Utility in economics is an individual’s
pleasure, happiness, or satisfaction.
 Rational behavior means that the same person
may make different choices under different
circumstances.

14
 Marginal Analysis
 In essence, before we choose a certain alternative, we
often ask ourselves if this will be “beneficial or not” or
“should we pursue this action or not”
 In economic perspective, these questions are also asked,
but they are often answered uniquely by using an approach
we call Marginal Analysis or comparing the marginal cost
and marginal benefits. The word marginal means an
additional, change in or add-in. This means that before a
certain action is made, economists would look at how it
may affect the firm at the margin.

15
16
 Why there is a need to study
Economics?

 To help a person better know and understand

what is happening in the world and hopefully
be a driver for social change.

17
 Branches of Economics
 Microeconomics focuses on how decisions are made by
individuals and firms, and the consequences of those
decisions.
 Macroeconomics examines the aggregate behavior of the
economy, which includes the actions taken by all
individuals and firms to produce a particular level of
economic performance as a whole. Variables such as
inflation rate, and others are macroeconomics in nature
because these values could only be derived once the
country has data of all the people involved.

18
 Methodologies of Economics

 Positive economics looks at how the economy works.

These are statements that are based on facts and are not
influenced by the values or opinions of other people.
 Normative economics, meanwhile, focuses on what should
be. This means that it is often influenced by value
judgments, depending on the circumstances.

19
20
 Basic Circular Flow
 It shows the interdependence of two entities in the
economy: households and firms.
 Factors in an economy:
1. markets for goods and services (product market)
2. Markets for factors of production (factor market)

21
 Basic Circular Flow
 Households have four factors in the market:
1. land;
2. labor;
3. capital; and
4. Entrepreneurship.

22
 Basic Circular Flow
 Inputs of production:
1. rent for the land;
2. wages for the labor;
3. interest for the capital; and
4. profit for the entrepreneurship.
 These will be the income of the people of the household, which
they could spend on the product market. The goods and services
purchased and spent by the households will be the revenue of
the firms, which can then be allocated again on the factors of
payments, which are rent, wages, interest, and profit, and the
cycle goes on.

23
Thank you!

24