What is Managerial Economics? Definition, Types, Nature, Principles, and Scope | Analytics Steps (2023)

Businesses run on various theories that are explained in Economics. Managerial Economics is the stream of management studies that emphasizes solving problems in businesses using the theories in micro and macroeconomics. This branch of economics is used by firms to not only find a solution to problems in daily running but also for long-term planning. We can also say that Managerial economics is a practical application of theories in economics.

“Managerial economics is concerned with the application of economic concepts and economic analysis to the problems of formulating rational managerial decisions.”

- Edwin Mansfield, Economics Professor, University of Pennsylvania

We should also look here at What is economics? Economics is an inevitable part of any business. All the business assumptions, forecasting, and investments are based on this one single concept. Investopedia explains “Economics is a social science concerned with the production, distribution, and consumption of goods and services. It studies how individuals, businesses, governments, and nations make choices about how to allocate resources.” So, theories in economics are not just some statements written but rather they act as fuel for a firm. In the broader picture, economics also helps nations in policy formation.

So, in this blog, we will discuss the branch of economics that helps businesses to find a solution to almost every problem they may face. We will discuss the definition of managerial economics, its nature, its scope in businesses, and the principles of managerial economics.

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Definition of Managerial Economics

Managerial economics is defined as the branch of economics which deals with the application of various concepts, theories, methodologies of economics to solve practical problems in business management. It is also reckoned as the amalgamation of economic theories and business practices to ease the process of decision making. Managerial economics is also said to cover the gap between the problems of logic and problems of policy.

Managerial economics is used to find a rational solution to problems faced by firms. These problems include issues around demand, cost, production, marketing, and it is used also for future planning. The best thing about managerial economics is that it has a logical solution to almost every problem that may arise during business management and that too by sticking to the microeconomic policies of the firm.

When we talk of managerial economics as a subject, it is a branch of management studies that emphasizes solving business problems using theories of micro and macroeconomics. Spencer and Siegelman have defined the subject as “the integration of economic theory with business practice to facilitate decision making and planning by management.” The study of managerial economics helps the students to enhance their analytical skills, developing a mindset that enables them to find rational solutions.

Nature of Managerial Economics

We know about managerial economics like what it is and how different people define it. Managerial Economics is an essential scholastic field. It can be termed as a science in the sense that it fulfills the criteria of being a science.

(Video) What is Managerial Economics ? | Meaning, Definition And Scope of Managerial Economics | MBA/BBA

What is Managerial Economics? Definition, Types, Nature, Principles, and Scope | Analytics Steps (1)

Nature of Managerial Economics

We will now look at the characteristics of managerial economics in brief.

  1. Art and Science

Managerial Economics requires a lot of creativity and logical thinking to come up with a solution. A managerial economist should possess the art of utilizing his capabilities, knowledge, and skills to achieve the organizational objective. Managerial Economics is also considered as a stream of science as it involves the application of different economic principles, techniques, and methods, to solve business problems.

  1. Microeconomics

In managerial economics, problems of a particular organization are looked upon rather than focusing on the whole economy. Therefore it is termed as a part of microeconomics.

  1. Uses Macroeconomics

Any organization operates in a market that is a part of the whole economy, so external environments affect the decisions within the organization. Managerial Economics uses the concepts of macroeconomics to solve problems. Managers analyze the macroeconomic factors like market conditions, economic reforms, government policies to understand their impact on the organization.

  1. Multi-disciplinary

Managerial Economics uses different tools and principles from different disciplines like accounting, finance, statistics, mathematics, production, operation research, human resource, marketing, etc. This helps in coming up with a perfect solution.

  1. Management oriented and pragmatic

Managerial economics is a tool in the hands of managers that aids them in finding appropriate solutions to business-related problems and uncertainties. As mentioned above, managerial economics also helps in goal establishment, policy formation, and effective decision making. It is a practical approach to find solutions.

(Video) Introduction to Managerial Economics | Definition and Nature of Managerial Economics

Types of Managerial Economics

Everyone has their perceiving ability, so the same goes with managerial economics. All managers perceive the concept of managerial economics differently. For some, customers’ satisfaction can be the priority while some may focus on efficient production. This leads us to different types of managerial economics. So, let us explore the different approaches to managerial economics.

  1. Liberal Managerialism

Market is a free and democratic place in terms of decision making. Customers get a lot many options to choose from. So, companies have to modify their policies according to consumers’ demands and market trends. If not done so, it may result in business failures. This is what we call liberal managerialism.

  1. Normative Managerialism

The normative view of managerial economics means that the decisions taken by the administration would be normal, based on real-life experiences and practices. The decisions reflect a practical approach regarding product design, forecasting, marketing, supply and demand analysis, recruitments, and everything else that is concerned with the growth of a business.

  1. Radical Managerialism

Radical managerialism means to come up with revolutionary solutions. Sometimes, when the conventional approach to a problem doesn’t work, radical managerialism may have the solution. However, it requires the manager to possess some extraordinary skills and thinking to look beyond. In radical managerialism, consumer needs and satisfaction are prioritized over profit maximization.

So, these were the three different types of managerial economics. These are decided based on the different approaches by managers.

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Principles of Managerial Economics

The great macroeconomist N. Gregory Mankiw has given ten principles to explain the significance of managerial economics in business operations which can be further classified into three categories.

What is Managerial Economics? Definition, Types, Nature, Principles, and Scope | Analytics Steps (2)

Principles of Managerial Economics

Principles of How People Make Decisions

Based on the real-life decision-making processes, four principles are recalled in Managerial Economics.

1. People Face Tradeoffs

There are enormous options in the market. So, people have to make choices among the various options available.

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2. Opportunity Cost

Every decision involves an opportunity cost that is the cost of those options which we let go of while selecting the most appropriate one.

3. Rational People Think at the Margin

When we make choices from the various options available and before investing the capital or resources we look at the profit margin we would make in the investment.

4. People Respond to Incentives

It is human nature to look for something extra while purchasing something. Decision-making is affected by the incentives attached to a particular product or service. Positive incentive motivates people to opt for the particular product while negative incentive discourages.

Principles of How People Interact

Communication with the audience plays a vital role in good performance. Over the years, organizations have realized the need to communicate well with their audience. Based on this, three principles are given in Managerial Economics.

1. Trade can Make Everyone Better Off

This principle states that trade is a medium to exchange services and products. Everyone gets a fair chance to offer products and services which they are good at making and also to purchase those products and services.Also Read: The success story of Delhivery

2. Markets Are Usually A Good Way to Organize Economic Activity

Market is a place where buyers and sellers interact with each other. Consumers put in their demands and requirements and the producers decide on the production and supply of those products and services.

3. Government can better the market outcomes

Government intervenes in business operations whenever there are unfavorable market conditions like the current pandemic situation or also for the welfare of society. One example of the latter is deciding the minimum wage for laborers.

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Principle of How Economy Works as a Whole

Three principles are given to explain the role of the economy in the functioning of an organization.

1. A Country’s Standard of Living Depends on the Goods and Services produced

The role of organizations in the economic growth of a country is one of the major, so, the organizations must be capable enough to produce goods and services for the population. This ultimately raises the standard of living and also contributes to GDP growth.

2. Price Rises When Government Prints Too Much Money

If there is surplus money available with people, their spending capacity increases, ultimately leading to a rise in demand. When the producers are unable to meet the consumer’s demand, inflation takes place.Referred blog: What does the 24% shrink in India’s GDP mean?

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3. Society Faces a Short-Run Tradeoff between Inflation and Unemployment

Government bring-in policies to tackle the problem of unemployment and boost the economy in the short run as well. This further leads to inflation.

Scope of Managerial Economics

Managerial Economics has a more narrow scope. It solves a firm’s problem using microeconomics. In the situation of scarce resources, managerial economics ensures that managers make effective and efficient decisions that are equally beneficial to customers, suppliers, and the organization. The fact of scarcity of resources gives rise to three fundamental questions-

  1. What to produce?

  2. How to produce?

  3. For whom to produce?

To answer these questions, a firm makes use of managerial economics principles.

Managerial Economics is not only applicable to profit-making business organizations, but also to non- profit organizations such as hospitals, schools, government agencies, etc.

Read this article to know about the scope of Managerial Economics in detail.


We tried to explain Managerial Economics through this blog. The definition of Managerial Economics says that it is a branch of economics that deals with the application of various theories, concepts, and methodologies to solve business problems. It is said to cover the gap between problem of logic and problem of policy.

For any firm to be successful, it needs to solve its problems logically and rationally. Managerial Economics helps the managers to make effective and efficient decisions using the concepts of microeconomics. One of the top characteristics of Managerial Economics is that it uses the different factors of macroeconomics helping firms to act according to the market trends.


What is the meaning and definition of managerial economics? ›

In simple terms, managerial economics means the application of economic theory to the problem of management. Managerial economics may be viewed as economics applied to problem solving at the level of the firm. It enables the business executive to assume and analyse things.

What is the nature of managerial economic? ›

Managerial Economics is dynamic in nature

Managerial Economics deals with human-beings (i.e. human resource, consumers, producers etc.). The nature and attitude differs from person to person. Thus to cope up with dynamism and vitality managerial economics also changes itself over a period of time.

What are the principles of managerial economics? ›

Principles of Managerial Economics
  • Marginal and Incremental Principle. ...
  • Equi-marginal Principle. ...
  • Opportunity Cost Principle. ...
  • Time Perspective Principle. ...
  • Discounting Principle.

What are the 4 definition of economics? ›

The definitions are: 1. General Definition of Economics 2. Adam Smith's Wealth Definition 3. Marshall's Welfare Definition 4. Robbins' Scarcity Definition.

What are the 7 types of managers? ›

Types of Management Styles
  • Democratic.
  • Visionary.
  • Autocratic.
  • Coaching.
  • Laissez-Faire.
  • Pacesetting.
  • Servant.
17 Dec 2019

What are the 5 types of economics? ›

There are five distinct types of economic systems, including the following:
  • Traditional economic system. ...
  • Command economic system. ...
  • Centrally planned economic system. ...
  • Market economic system. ...
  • Mixed economic system.

What are the 4 types of management? ›

The four most common types of managers are top-level managers, middle managers, first-line managers, and team leaders.

What is the nature of the economics? ›

Economics is a social science which means it studies society and relationships between people. Economists analyse many different aspects of human behaviour and decision-making within and between markets, organisations and countries.

What is economics and its nature? ›

Economics is the study of how people allocate scarce resources for production, distribution, and consumption, both individually and collectively. The two branches of economics are microeconomics and macroeconomics. Economics focuses on efficiency in production and exchange.

What is nature of management definition? ›

The nature of management involves organizing people in groups and managing them. It requires different levels of empathy, understanding and dynamism. In addition to taking care of social and emotional well-being, the process involves developing, motivating and retaining employees.

What are the 12 principles of management? ›

What are the Twelve Management Principles?
  • Clearly State the Purpose and Mission of Your Business.
  • Set Specific Goals.
  • Keep a Passionate Desire in Your Heart.
  • Strive Harder than Anyone Else.
  • Maximize Revenues and Minimize Expenses.
  • Pricing Is Management.
  • Success Is Determined by Willpower.
  • Possess a Fighting Spirit.

What are the 10 principles of economics? ›

10 Principles of Economics
  • People Face Tradeoffs. ...
  • The Cost of Something is What You Give Up to Get It. ...
  • Rational People Think at the Margin. ...
  • People Respond to Incentives. ...
  • Trade Can Make Everyone Better Off. ...
  • Markets Are Usually a Good Way to Organize Economic Activity. ...
  • Governments Can Sometimes Improve Economic Outcomes.
14 May 2020

What are the 6 principles of economics? ›

Six Basic Principles to Understand Economics
  • People must make choices. All choices have a cost.
  • People respond to incentives in predictable ways. Economic systems influence people's choices.
  • Voluntary exchange creates wealth. The future consequences of our choices matter the most.

What are the four steps of the scope of economics? ›

These four aspects of economics may now be discussed.
  • Subject matter: ADVERTISEMENTS: ...
  • Science or Art: For quite a long time there was controversy among economists as to whether it is a science or an art. ...
  • Positive or Normative: ...
  • Problem-solving Nature:

What is the scope of managerial? ›

The scope of managerial economics is a continual process, as it is a developing science. Demand analysis and forecasting, profit management, and capital management are also considered under the scope of managerial economics.

What is scope of economics example? ›

Economies of scope is an economic theory stating that average total cost of production decrease as a result of increasing the number of different goods produced. For example, a gas station that sells gasoline can sell soda, milk, baked goods, etc.

What are the 3 definition of economics? ›

Economics is the study of mankind in the ordinary business of life. - Alfred Marshall. Economics is the science which studies human behaviour as a relationship between ends and scarce means which have alternative uses. - Lionel Robbins. Economics comes in whenever more of one thing means less of another.

What are the 4 main types of economics? ›

The four main types of economic systems are a pure market economy, a pure command economy, a mixed economy, and a traditional economy.

What is best definition of economics? ›

Economics is the study of scarcity and how it affects the use of resources, the production of goods and services, the growth of production and well-being over time, and many other important and complicated issues that affect society.

What are the 4 principles of management? ›

Over the years, Fayol's functions were combined and reduced to the following four main functions of management: planning, organizing, leading, and controlling.

What are the 8 types of management? ›

8 Types of Management Styles
  • Democratic management style. The democratic management style is rooted in collaboration. ...
  • Laissez-faire management style. ...
  • Autocratic management style. ...
  • Charismatic management style. ...
  • Coach management style. ...
  • Pacesetting management style. ...
  • Bureaucratic management style. ...
  • Transactional management style.

What are the 5 types of management? ›

There are many management styles, but five stand out above the rest: autocratic, democratic, laissez-faire, visionary, and servant leadership.

What are the 7 economic systems? ›

  • capitalist economy.
  • free enterprise.
  • private enterprise.
  • free market economy.
  • mixed economy.
  • transition economy.

What are the 3 tools of economics? ›

Types of economic tools

Social cost-benefit analysis. Input-output analysis.

What are the 2 types of economics? ›

Economics is divided into two categories: microeconomics and macroeconomics. Microeconomics is the study of individuals and business decisions, while macroeconomics looks at the decisions of countries and governments.

What are the 7 process of management? ›

The 7 Important Steps of Strategic Management Process
  • Identify the mission statement. ...
  • Think of the vision and the prospective future. ...
  • List your core values. ...
  • Consider long-term goals and reasonable objectives. ...
  • Develop a roadmap with detailed timelines. ...
  • Build a communication plan.
15 Dec 2020

What are the 6 types of managers? ›

Keep reading for an overview of the six management styles and when to use them.
  • Commanding Management. ...
  • Visionary Management. ...
  • Affiliative Management. ...
  • Democratic Management. ...
  • Pacesetting Management. ...
  • Coaching Management.
4 Mar 2021

What are the 3 types of management? ›

There are three broad categories of management styles: Autocratic, democratic and laissez-faire. Within these categories, there are specific subtypes of management styles, each with its own pros and cons.

What is scope and nature? ›

nature and scope of the activities means the broad categories of the outputs produced and of the markets to which they are provided; Sample 1Sample 2Sample 3.

What is nature of scope of economics? ›

The economic scope covers all the central issues faced by society, including economic decline and growth, poverty, unemployment, budgeting, etc. Answer. Economics is regarded as a social science; it studies how people in an economy employ the already scarce resources with or without using money.

What is nature of principles of management? ›

Nature of Principles of Management: By nature is intended conditions and aspects. Principles are universal declarations, which are appropriate when specific circumstances are present. These have been explained on the principle of research and trial and error as well as the personal backgrounds of the managers.

What are the 7 characteristics and nature of management? ›

Nature and Characteristics of management are Goal Oriented, Universal, Integrative Force, Social Process, Multidisciplinary, Continuous Process, Intangible, and Art and Science both.

What are the 4 nature of business? ›

Common forms of business organisations are sole-proprietorship, partnership, corporations, and limited liability companies.

What is the full meaning of managerial? ›

managerial. / (ˌmænɪˈdʒɪərɪəl) / adjective. of or relating to a manager or to the functions, responsibilities, or position of management.

What is the best definition of managerial? ›

adjective. Britannica Dictionary definition of MANAGERIAL. 1. : relating to the skill or process of controlling and making decisions about a business or organization.

What is the true definition of management? ›

: the act or art of managing : the conducting or supervising of something (such as a business) Business improved under the management of new owners. : judicious use of means to accomplish an end.

What is managerial economics PDF? ›

Managerial economics, It is the integration or application of economic principles in business practices or business administration in order to solve the problems of the business.

What are the 5 definition of management? ›

A'Management Is a distinct process consisting of planning, organising, actuating and controlling; utilising in each both science and art, and followed in order to accomplish pre-determined objectives."

Why managerial is important? ›

Simply put, without managers, organizations would fail. Managers play a huge role in the industry by producing growth with high-performing teams. In all, managers will always be a crucial part of any business by playing a role in tasks like decision-making to hiring and training new employees.

Who is father of management? ›

Peter Drucker: father of management thinking | The British Library.

What is management definition PDF? ›

management can be defined as the process of achieving organizational goals through. planning, organizing, leading, and controlling the human, physical, financial, and information. resources of the organization in an effective and efficient manner” (Bovée et al. 1993, p. 5)


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