Department of Commerce, School of Management Sciences, Tezpur University

1. A comparison between managerial
economics and Traditional Economics

2. Sudhangshu Kashyap Saikia
Priya Jaiswal
Nikita Prasad
Supratim Dasgupta

3. Managerial economics refers to the branch of economics that is
derived from the subject matter of microeconomics that
considers the households and firms in an economy, and
macroeconomics that is concerned with the employment rates,
interest rates, inflation rates and other macroeconomic variables
that concerns a country as a whole. Managerial economics makes
the use of mathematics, statistics, management theories,
economic data and modelling techniques in order to help
business managers to carry out their operations with maximum
efficiency. Managerial economics helps managers make the
right decisions in the allocation of scarce resources such as land,
labour, capital to achieve the highest profitability while
minimizing costs. Managerial economics also helps managers
decide which products to produce, how much to produce, prices
to be set, and channels to use in the sales and distribution. It
coordinates the theoretical and practical aspects of macro and
micro divisions of study
Joel Dean declares:
"The purpose of managerial economics is to show how economic
analysis can be used in formulating business policies”

4. Features
The analysis of various definition brings before us the following
features of Managerial Economics
1. It generally falls in Microeconomics
2. Economics of firms
3. It involves application of both Micro and Macro economic
analysis in accordance to the profitability of the firm
4. Managerial economics is pragmatic and quantitative in drawing
conclusions
5.Managerial economics is normative.
6 Its main objective and functions to help the management in
In formulating suitable business policies

5.  Economics is a social science that studies the production,
distribution, trade and consumption of goods and services. It is
also the science of making decisions in the presence of scare
resources.
 Economics is concerned with how society sets about
meeting people's demands for things they want to
consume. It looks at the production, consumption and sale
of goods and services, both at the level of individual
products, firms and consumers and at the level of the total
production and consumption by countries.
 It also compares alternative ways of using the limited
resources that countries and individuals possess and
considers how efficient and/or fair such alternatives are.

6. Meaning and Definition :
General Economics :
Economics is the social science that studies economic activities
to gain an understanding of the processes that governs the
production, distribution and consumptions of goods and
services in an economy. It is the science that analyses choice
making economic behavior. Choices are made both at
individual level and national level. The economic theory
establishes general laws governing the activities of an
economy
The term Economic is derived from the ancient Greek word
“Oikonomia” (oikos means house and nomos means custom or
law)the meaning of the word is rule of the household for good
management.
According to J.M. Keynes “Economics studies how the levels
of income and employment in a community are determined”

7. 1. It is of both micro and macro character
2. It studies both individual units of the economy
(i.e firms) and aggregates of the economy as a
whole( i.e Aggregate Supply , National Income ,
etc)
3. It studies both micro and macro analysis and
theories separately
4. It is both positive as well as normative
5. It only involves theoretical analysis and deals
with theoretical aspects only

8. Managerial Economics has been described as economics applied to decision-
making. It may be viewed as a special branch of Economics. However, the
main points of differences are the following:
 1. The traditional Economics has both micro and macro aspects whereas
Managerial Economics is essentially micro in character although in
application both micro and macro analysis is applied in managerial
economics
 2. Economics is both positive and normative science but the Managerial
Economics is essentially normative in nature.
 3. Economics deals mainly with the theoretical aspect only whereas
Managerial Economics deals with the practical aspect.
 4. Managerial Economics studies the activities of an individual firm or
unit. Its analysis of problems is generally micro in nature, whereas
Economics analyzes problems both from micro and macro point of views.
 5. Economics studies human behaviour on the basis of certain
assumptions but these assumptions sometimes do not hold good in
Managerial Economics as it concerns mainly with practical problems.

9.  Under Economics we study only the economic aspect of the
problems but under Managerial Economics we have to study both
the economic and non-economic aspects of the problems.
 Economics studies principles underlying rent, wages, interest and
profits but in Managerial Economics we study mainly the
principles of profit only.
 Sound decision-making in Managerial Economics is considered to
be the most important task for the improvement of efficiency of
the business firm; but in Economics it is not so.
 The scope of Managerial Economics is limited and not so wide as
that of Economics.
 Thus, it is obvious that Managerial Economics is very closely
related to Economics but its scope is narrow as compared to
Economics.
 A trained managerial economist integrates concepts and methods
from all these disciplines bringing them to bear on business
problems of a firm.

10. Basis Economics Managerial Economics
Character The traditional economics
has both Micro and Macro
aspects.
It is essentially Micro in
character
Positive and Normative
Analysis
This is both positive and
normative science
This is essentially
normative setting in
nature.
Aspect This deals with theoretical
aspects only
While it deals with
practical aspects
Basis of Operation It involve a generalised
and theoretical study of
the economic theories
It involves practical
application of the
economic theories
Problem Solving Here problems are
analysed both from macro
and micro point of view
It studies the activities of
the individual firm of unit

11. Basis Economics Managerial Economics
Principles Here we study principles
underlying rent, wages,
interest and profits.
Here, we studied only
the principles of profits
only.
Efficiency Here efficiency of the
firm is not studied.
Here , most important
task is to study how to
improve the efficiency of
the firm.
Scope Traditional economics
scope is wide and it
covers various areas.
While the scope of
managerial economics is
limited and its scope is
not so wide as that of
traditional economics.

12. Basis Managerial Economics Economics
Practical Application Managerial Economics
covers the practical
application of economic
analysis in the
management of a
business or enterprise
Economics does not
cover the application of
the knowledge other
than through some case
studies or examples
from time to time. It's
more concerned with
theory and models and
methods of analysis.

13. Basis Economics Managerial Economics
Basis Of Study It studies human
behaviour on the basis of
the certain assumptions,
but these assumptions
do not hold good in
managerial economics.
It deals mainly with
practical problems.
Managerial Economics
study only practical
application of the
Economic principle to
the problem of firm

14. Summary of the Analysis:
 Managerial Economics is micro in character Pure
Economics is both micro and macro in character
 Managerial Economics study only practical
application of the Economic principle to the problem
of firm
Pure Economics deals with the study of principles
itself
 Managerial Economics deals with the Economic
problems of the firm
while Pure Economics deals with Economic problems
of both firm and individuals

15.  Managerial Economics deals with profit theory only
Pure Economics deals with all distribution theories like
rent, wages, interests, and profits
 Managerial Economics covers the practical application of
economic analysis in the management of a business or
enterprise. Economics does not cover the application of
the knowledge other than through some case studies or
examples from time to time. It's more concerned with
theory and models and methods of analysis.
 If we use research as a parallel, managerial economics is to
applied research, as economic is to basic research.
 General economics involves economic generalisations of
the theories whereas managerial economics studies the
application of economic theory in practical business
problems

16.  Both managerial economics and general economics involve the
production, distribution, and consumption of goods and services, and
are both reflected from the basic economic principle of using the factors
of production in an efficient manner for the production of output of
goods and services.
 Managerial economics helps the manager or the group/ groups of
people making the decisions to increase their problem analytics skills
as well as formulation solution to probabilistic problems. The main
differences between managerial economics and the other branches of
economics such as macro and micro economics is that. Micro economics
involves the allocation of scarce resources on household level. Macro
economics involve the study of economics as a whole. While
managerial economics applies the tools learnt in these branches to come
up with viable business ideas. Managerial economics is very broad and
is not only used in decisions making for profit making organization but
also useful to non-profit making organizations in the proper utilization
of their scarce resources. The concept of management economics is also
very useful in price determination, long term capital budgeting, and
insights into the demands of a commodity.

17.  Different schools of thought have suggested
that managerial economics use the concepts of
economics theory that differ from the fact that
managerial economics is a combination of
both economics theory and econometrics in
making decisions. Econometrics is the use of
statistical tools such as statistical packages
and theories to experimentally measure the
relationship that exist between economics
variables. Its main advantage is that it uses
factual data to model different scenarios

18.  The areas where Managerial Economics is
employed are:
 Capital Budgeting
 Determination of Demand
 Price Analysis
 Production Analysis
 Risk Analysis
 Profit and Capital management
 Sales and promotional strategies
 Cost Analysis

19.  Managerial economics is concerned with modeling systems and
complex managerial decision making, whereas General
economics is concerned with the production of food and other
necessities to meet daily requirements of individuals.
 Managerial economics represents the development that a
traditional economy has been through with globalization,
development in technology and modernization of economic
theories to suit managerial decision making.
 Managerial Economics is micro in character Pure Economics is
both micro and macro in character

20.  Managerial Economics study only practical application
of the Economic principle to the problem of firm Pure
Economics deals with the study of principles itself
 Managerial Economics deals with the Economic
problems of the firm
while Pure Economics deals with Economic problems of
both firm and
individuals
 Managerial Economics deals with profit theory only
Pure Economics deals with all distribution theories like
rent,
wages, interests, and profits.