Managerial Economics
Chapter
Chapter 1: Introduction to Managerial Economics
1
Introduction to Managerial Economics
CHAPTER SUMMARY
Managerial economics is the science of directing scarce resources to manage cost effectively. It consists of three branches: competitive markets, market power, and imperfect markets. A market consists of buyers and sellers that communicate with each other for voluntary exchange. Whether a market is local or global, the same managerial economics apply.
A seller with market power will have freedom to choose suppliers, set prices, and use advertising to influence demand. A market is imperfect when one party directly conveys a benefit or cost to others, or when one party has better information than others. An organization must decide its vertical and horizontal boundaries. For effective management, it is important to distinguish marginal from average values and stocks from flows. Managerial economics applies models that are necessarily less than completely realistic. Typically, a model focuses on one issue, holding other things equal.
KEY CONCEPTS managerial economics microeconomics macroeconomics economic model marginal value
average value stock flow other things equal vertical boundaries
horizontal boundaries market industry market power imperfect market
GENERAL CHAPTER OBJECTIVES
1. Define managerial economics and introduce students to the typical issues encountered in the field.
2. Discuss the scope and methodology of managerial economics.
3. Distinguish a marginal concept from its average and a stock concept from a flow.
© 2001 I.P.L. Png and C.W.J. Cheng
1
Chapter 1: Introduction to Managerial Economics
4. Describe the importance of the "other things equal" assumption in managerial economic analysis.
5. Describe what constitutes a market, distinguish competitive from non-competitive markets, and discuss imperfect markets.
6. Emphasize the globalization of markets.
NOTES
1. Definition.
Chapter 1: Introduction to Managerial Economics
1
Introduction to Managerial Economics
CHAPTER SUMMARY
Managerial economics is the science of directing scarce resources to manage cost effectively. It consists of three branches: competitive markets, market power, and imperfect markets. A market consists of buyers and sellers that communicate with each other for voluntary exchange. Whether a market is local or global, the same managerial economics apply.
A seller with market power will have freedom to choose suppliers, set prices, and use advertising to influence demand. A market is imperfect when one party directly conveys a benefit or cost to others, or when one party has better information than others. An organization must decide its vertical and horizontal boundaries. For effective management, it is important to distinguish marginal from average values and stocks from flows. Managerial economics applies models that are necessarily less than completely realistic. Typically, a model focuses on one issue, holding other things equal.
KEY CONCEPTS managerial economics microeconomics macroeconomics economic model marginal value
average value stock flow other things equal vertical boundaries
horizontal boundaries market industry market power imperfect market
GENERAL CHAPTER OBJECTIVES
1. Define managerial economics and introduce students to the typical issues encountered in the field.
2. Discuss the scope and methodology of managerial economics.
3. Distinguish a marginal concept from its average and a stock concept from a flow.
© 2001 I.P.L. Png and C.W.J. Cheng
1
Chapter 1: Introduction to Managerial Economics
4. Describe the importance of the "other things equal" assumption in managerial economic analysis.
5. Describe what constitutes a market, distinguish competitive from non-competitive markets, and discuss imperfect markets.
6. Emphasize the globalization of markets.
NOTES
1. Definition.