MANAGERIAL ECONOMICS Prepared By: Sayed Abu Sufyan

Lecture no.: 01 Student ID: ZR 1801005

Date: July 3, 2018
Key takeaways from Lecture 01
 Basic principle of Economics?
To answer the basic principle of ‘economics’, three basic questions need to be answered: (1) what
to produce (goods or products); (2) for whom to produce; and (3) how to produce.
Every business (organizations) and governments need to identify what they are going to produce
(for an organization it could be fruit juice; and for a government it could be education or
healthcare system); form whom they will be producing (the whole population of the country or
only top 10% of the country etc.) and how they are going to produce (the process of producing
the goods or services).
 Microeconomics and macroeconomics:
Microeconomics deals with the behavior of individual and organizations in decision making
process regrading the allocation of limited resources and the interactions among these individuals
and organizations. Key areas: Labor economics; profit maximization; supply and demand;
consumer behavior etc.
Macroeconomics, on the other hand, deals with the national economy as a whole and focuses on
the issues that affect the individuals and companies. Key areas: GDP, GNP, monetary policy, fiscal
policy, national budget, inflation and deflection, taxes etc.
 Demand and Supply:
In economic principle, Demand is the consumer’s desire and willingness to pay a price for a
specific products or services. Demand is a function of price, income of the consumers, social
status, preferences etc. Considering all factors but price remain unchanged, an increase in price
of a product or service will decrease the demand and vice versa.
Supply, on the other hand, describes the total amount a specific good or service that is available
to the consumers. It is the ability to produce a specific good or service and willingness to sell to
the consumers. Supply is a function of price of the goods or services, complimentary products or
substitute products or services offered by the seller, availability of the raw materials to produce
etc. Considering all factors but price remain unchanged, an increase in price of a product or service
will increase the supply and vice versa.
 Demand and Supply curve:
When supply and demand are equal (that means when the supply function and demand function
intersect), it is said to reach an equilibrium point. At this equilibrium point, the allocation of goods
is at most efficient because the amount of goods being produced and supplied is exactly equal to
the amount of goods being demanded. At this point, price is denoted as P* and quantity is
denoted as Q*.
Disequilibrium occurs when the price or the quantity is not equal to the P* and Q* respectively.
Governments or non-market intervention can create disequilibrium to this demand-supply curve.
If the price is set too high than P*, then there will be surplus of supply (excess supply). In this
situation, the market pressure will be in downward direction so that the price can reach at P* to
regain equilibrium point.
On the other hand, if the price is set below than P*, then there will be shortage of supply (excess
demand). As the price is too low, many consumers want the goods or services while sellers or
producers are not producing or supplying enough of it. In this situation, the market pressure will
be in upward direction so that the price can reach at P* to reach at the equilibrium point.