IGCSE Economics Paper-2: Specimen Questions with Answers 22 - 23 of 100

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Passage

Managerial Economics deals with practical business-problems relating to production, pricing, and sales.

Question 22 (1 of 5 Based on Passage)

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State the role of managerial economics in decision making.

Explanation

The role of managerial economics is as follows:

  • Managerial economics is an evolutionary science; it is a journey with continuing understanding and application of economic knowledge- theories, models, concepts, and categories emerging in business.
  • Decision making is the curricular aspect of dealing with business problems. Decision becomes essential since business problem would usually imply basic question: What is the alternative course of action?
  • For making an optimum economic choice as an aid to better decision making. It provides an understanding of the framework and economic tools needed by managers/businessman in business decision making.
  • It seeks to establish rules and principles to facilitate the attainment of desired economic goals of management.
The Basic Business Problems

Question 23 (2 of 5 Based on Passage)

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How decision regarding resource allocation is made?

Explanation

The basic business problems where managerial decision making is based on economic understanding

  • What to produce
  • How much to produce
  • How to produce
  • Where to produce

All these problems in gist involve allocation and utilization of productive resources such as land, labor, and capital, enterprise, including finance or money in a modern economy. Five MS: Men, Machines, Materials, Management, and money are important elements of input production decision making and these are scarce means need to be economized in use. Optimal utilization of these resources is taught by economics.

Decision About Allocation of Resources is Made in Three Stages

  • Allocate decision: What types of goods and services to be produced from the available productive resources which are scarce
  • Productive decision: How much to be produced and how to combine these resources for desired quantity and pattern of goods and services.
  • Distributive decision: To whom these products and services are to be distributed/marketed or supplied.
The Basic Economic Problem

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