Basic Introduction to Managerial Economics.

1. Managerial Economics Basic

2. Defining Moments of Economics
• Defining Moments of Economics is the set of
related events or ideas over time that has
changes fundamentally in the manner we
conduct our everyday lives or in the way we
think about economy.

3. • Five phases in the moments of economics:
– Industrial revolution
– Capitalism
– Rise and fall of socialism
– Great Depression
– Information Revolution

4. Externalities
• An externality is an effect on a third party that
is caused by the consumption or production of
a good or service.
• It is the situation in which a person’s activities
such as, production and consumption of
goods and services effect the well-being of
uninvolved people.

5. Types of Externalities
• Positive Externalities:
– A positive externality is a positive spillover that
results from the consumption or production of a
good or service.
– For example, although public education may only
directly affect students and schools, an educated
population may provide positive effects on society
as a whole.

7. Types of Externalities
• Negative Externalities:
– A negative externality is a negative spillover effect
on third parties.
– For example, secondhand smoke may negatively
impact the health of people, even if they do not
directly engage in smoking.

9. Market Failure
• Market failure occurs due to inefficiency in the
allocation of goods and services.
• Reasons for market failure includes following:
– Asymmetric Information
– Monopoly power
– Lack of public goods
– Externalities

10. Public Goods
• Public goods are the goods which are
produced and are made available to the
member of the society.
• They are the goods , which are non-rival and
non-exclusive in nature and provide benefit to
the people at 0 marginal cost (MC).

11. Characteristics of Public Goods
• Non-rival
– Goods that are non rival can be made available to
everyone without affecting any individual’s
opportunity for consuming them.
– Eg: Highway, lighthouse, etc.
• Nonexclusive
– People cannot be excluded from consuming it.
– It is difficult or impossible to charge people for using
nonexclusive good; the goods can be enjoyed without
direct payment.
– E.g. national defense,

12. The circular flow of economic activity

13. References
• https://www.boundless.com/economics/textb
ooks/boundless-economics-textbook/market-
failure-externalities-7/introducing-market-
failure-57/causes-of-market-failure-219-
12310/