Competitive markets, Market power and imperfect markets are the three main areas of interest in managerial economics. Managerial economics underlies the basic factors which monitor the process of a manager - the external and internal factors. As the implies the internal factors lie in the purview of a manager and correspondingly microeconomics define the basic tenets of managerial economics.
Thus managerial economics has a more limited scope - it is more application of microeconomics to managerial issues. Thus when we try to analyze a basically macroeconomic phenomenon, the fall of the Socialistic regime in Eastern Europe, we will be basically analyzing the forces which defined the characteristics of different markets in this market under several external forces, the most important being government intervention.
Individuals are found to share common motivations that lead them to behave rationally in making economic choices - this is the foundation of managerial economics. This implies that an individual who, when faced the same choices at two different times, will behave in the same way during both the times (Varian 2005).
The entire conceptual base is economics is built on the theory of Demand and Supply - the main pillars on which the subject stands. Thinking of the buying process as a contest, demand and supply are the forces which monitor and shape the strategies that the two sides adopt in the market.
The aspect of nations it is demand and supply again which determine the level and efficiency in the macro levels of economic activity. The political and economic systems built by the communists in eastern Europe started on its route to collapse by 1973. A prime economic problem of allocation occurred - the planners in this socialist economy stressed on the allocation of a large share of its GNP to in armaments production and heavy industries.
This investment, done at the cost of living, led to the immobilization of a large number of resources. Thus the U.S.S.R. was at one time leading the world in the production of several primary goods like coal, oil, electricity, steel, and cement, which was not getting reflected in the final products or finished goods.
When one tries to understand the reason for the collapse of the system in U.S.S.R, one should realize that this is a classic example of how the extreme government expenditure has caused a nation's economy to go bankrupt. This is a classic example of a situation where a perfect market has been suppressed - factors of production were being employed at abnormal prices and market demand was being met by a monopolist - the state here.
Economists and managers alike, build models of economic behaviour by inductive reasoning. The model is tested with actual empirical data. If the tests support the model, it can be accepted; otherwise, it should be revised.
The situation in eastern Europe has thrown across several important information – like the growth of an economy in the midst of severe administrative bottlenecks, the lack of meaningful foreign trade, and political dissonance.