Tools of Managerial Economics - Essay Example

Tools of Managerial Economics – with an emphasis on the political scenario in the erstwhile Soviet Union. Contents Tools of Managerial Economics – Methodology 2 Conclusion 4 References 6 Crouzet, F. 2001. Relative GDP per capita of eastern European countries. A History of the European Economy, 1000–2000. (Pg 253). University Press of Virginia. 6 Introduction Economics play a pivotal role in determining business decisions. Managerial economics, as a tool, applies to the New World economy. The various challenges that confront the management of the different organizations in this New economy are similar to those in the Old economy, different only in the scale and form of implementation. As a result the economic analysis and appropriate managerial solutions are found to be quite similar. One of the most distinct feature of the New economy is the importance of the scale and scope of economies. A prime focus now is on the concept and viability of ‘scalability’ - the degree to which the total scale and scope of the business can be increased without a corresponding increase in costs (Mankiw, 2006). 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. Tools of Managerial Economics – Methodology 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 build 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 amount 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 nations 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 behavior 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. The worst performance of the erstwhile socialist state was in agriculture. Serious deficiencies were observed and losses recorded due to lack of fertilizers, machinery, and incentives to work for peasants. The lack of storage and transport facilities caused serious bottlenecks. Soviet Union became a chronic importer of grain as production failed to keep pace with the increase in population. Sharp cyclical patterns have been noticed in the way the GDP (Gross Domestic Product) of the Soviet union has been calculated. The deceleration of Soviet economic growth started in the 1960s, if not earlier: GDP grew at 5.1 percent per year from 1950 to 1960, and at 4.6 percent from 1960 to 1973. The GDP growth fell to 1.9 percent for 1973–1989 and GDP per capita to 0.9 percent. The fall in GDP over a prolonged period of time also implied that the markets of the Soviet economy had become sluggish – there could have been less of demand, economic forces were at the mercy of the government red tape, and the economy in general suffered in the Soviet craze to become the prime Superpower. Conclusion he market for a product or service is essentially the group of sellers and buyers for that good or service (Pindyck 1995). Markets are of many forms and differ widely in the degree of organization – markets for agricultural goods are highly organized, where buyers and sellers meet at pre determined places and the equilibrium price is set by auctions. On the other hand other markets are much less organized, and sellers and buyers take the advantage of the scarcity of information as a source in deciding the price for the commodity. The change in the organization of the markets in U.S.S.R took place as they strove to get oriented according to their need of the day. The failure of the socialist block can be attributed to the failure of the administration to implement a market driven economy in the first place. The reforms that were undertaken after the initial jolt in the 1980’s were bold to say the least - the development of a semi-private sector was authorized; planning ceased to be compulsory (as a result red tape was avoided), and firms were given a wide degree of autonomy in their way of functioning. (Crouzet 2001) The transition has not been easy for the nations under the red regime. However, as the bottlenecks have been catered to – hope prevails that the forces of demand and supply, aided by non – intervention, will aid this region to prosperity. References Crouzet, F. 2001. Relative GDP per capita of eastern European countries. A History of the European Economy, 1000–2000. (Pg 253). University Press of Virginia. Mankiw, N G. 2006. The Market Forces of Supply and Demand. Markets and Competition. (Pg 157). Worth Publishers. Pindyck, R. S., & Rubinfeld, D. L. 1995. What Is a Market?. Microeconomics. (Pg 10). Prentice-Hall, Inc . Varian, H. 2005. Consumer Preferences. Intermediate Micro Economics. (Pg 34). W. W. Norton & Company. Read More