Fundamentals Of Managerial Economics Essay


Discuss about the Fundamentals of Managerial Economics.



The statement provided is not correct even though on a given morning, a particular individual may be able to enjoy as much coffee as he/she likes but it would be insufficient to meet the coffee demand over the life time. This is especially true for a perishable product such as coffee which has a limited shelf life and hence periodic replenishment of stock is imperative. Hence, present fulfilment of a particular need does not guarantee that the same would be satisfied in the future also. The supply of coffee in the future may shrink to such an extent that its price may become sky high as a result of which affordability becomes an issue and hence coffee enjoyment in desired quantities would become difficult (Mankiw, 2014).
There is resource requirement for good production and there quantity is limited as the resource availability is scare. It is the underlying scarcity of a particular resource that determines its prevailing market price. In the event any particular resource has unlimited stock available, then it would be priced for free which is not usually the case. Thus, if the available resources were in unlimited supply not only in the present but potentially in the future, then the production capacity would also be immense and thus the concept of scarcity would not be there (Pindyck & Rubinfeld, 2001). But because the resource availability Is finite, hence the pricing of these takes place and these are not given for free.
The existence of economic problems can be explained on two counts namely the unlimited human desires which are potentially insatiable and the scare availability of resources. The direct result of the above is that there is always a demand supply mismatch that persists and hence the solutions to economic problems are not static. Hence, while currently solutions may be robust but there would be a change in the demand or the resource availability and the exiting solution would fail (Krugman & Wells, 2013). As a result of the constant interplay between these two key parameters, the economic problems cannot be sustainably resolved and thus present solutions if possible are only shortlived.
The explanation for the various demand elasticity figures is offered below.


Clearly, the demand for physicians is inelastic as the demand elasticity in absolute magnitude is lower than 1. This may be explained on the importance of health in society. Even if the fee for physicians is increased, the customers would still continue to go as the patient’s health invariably is more important than money. Also, the availability of close alternatives for physicians is less especially in western countries where alternative treatment therapies are not popular (Nicholson & Snyder, 2011).

Foreign Travel

Clearly, the demand for foreign travel is elastic as the demand elasticity in absolute magnitude is significantly greater than 1. The explanation of this lies in the fact that foreign travel is a luxury good and hence susceptible to alterations in the price. Additionally, there is wide availability of alternatives also especially for casual travellers who may decide to go on trips to domestic locations instead of going abroad. Foreign travel is not a crucial element of a common man’s life and hence the demand is closely connected with the prices as the travellers want the best deals (Mankiw, 2014).

  • for newspapers

Clearly, the demand for newspaper is highly inelastic as the demand elasticity in absolute magnitude is significantly lesser than 1. Two reasons that are responsible for the same are mentioned below (Krugman & Wells, 2013).

  • The spending on newspaper is so miniscule as a % of total spending that even though the price may increase, in absolute terms the burden on the customer is minor only.
  • Further, there is no close substitute of newspapers which provides news in a condensed form especially for the non-tech savvy generation.

Radio and Television Receivers

Clearly, the demand for radio and television receivers is elastic as the demand elasticity in absolute magnitude is greater than 1. This may be because of availability of alternatives such as mobiles, laptops which can be used for entertainment and watching television and listening to radio is possible through internet. This is especially the case for younger generation who is technology savvy (Nicholson & Snyder, 2011).

During the earlier time, due to lack of economic growth, people focused only on subsistence level of production which focused only on satiation of current needs and the concept of surplus was considered insignificant. But with the boom in the economic growth, the capacity to produce various goods and services has tremendously enhanced which in turn had led to abundant supply of various goods and services, But in the production of these abundant supply, one of key inputs is the human time and effort. Thus, a substantial amount of time goes into the production function and therefore it has dramatically reduced the time available for consumption of these goods (Samuelson & Marks, 2003). Thus, the given statement highlights the intrinsic trade off that is involved with regards to production time and time available for goods consumption

In order to take every decision with absolute rationality, it would be required to consider all possible aspects and alternatives, evaluate these using all possible data and thus make a choice. There would be a huge requirement of time in this process. However, the complete rationality process needs to critically analysed in the wake of the value of time. In order to achieve complete rationality, so much time is consumed that the small gains in terms of decision making may not be able to exceed the cost in terms of time spent. (Mankiw, 2014). Hence, in accordance with cost benefit analysis, limited rationality seems a more viable choice. Thus, pursuit for complete rationality is a self-defeating proposition in itself and must not be adhered to unless the gains outweigh the cost in terms of time and resources spent (Samuelson & Marks, 2003).


Krugman, P & Wells, G 2013, Microeconomics, 3rd eds. Worth Publishers, London

Mankiw, G 2014, Microeconomics, 6th eds., Worth Publishers, London

Nicholson, W & Snyder, C 2011, Fundamentals of Microeconomics, 11 th eds., Cengage Learning, New York

Pindyck, R & Rubinfeld, D 2001, Microeconomics, 5th eds., Prentice-Hall Publications, London

Samuelson, W & Marks, S 2003, Managerial Economics, 4th eds., Wiley Publications, New York

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