Why do manager needs to know economics?

Answer 1

Good question, though I'm not sure that all managers do need to study economics, since I'm sure that there have been many excellent managers who never studied economics. However, given that a person intends to become a manger, I think that studying economics makes good sense for at least two reasons.

First, knowledge of economic theory can inform managerial decision making. For example, a manager who has studied microeconomics understands that the profitability of his or her firm can depend critically on the extent to which that firm possesses market power, which basically means how sensitive its sales revenue is to the price it charges. Such managers are also trained to anticipate how managers of rival firms are likely to respond to one another's actions (e.g., to one another's pricing, advertising, and capital investment decisions).

A second reason that economics can inform managerial decision making is because economics includes a large body of knowledge about how to use statistical techniques in managerial decision making. For example, if a manager is considering a price change, then it is useful to know have an estimate of the demand for its product and on which variables that demand significantly depends. And the branch of economics called econometrics teaches managers to estimate demand and identify the statistically significant independent variables on which demand depends.