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Manageri
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July 1
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Topic
Unit I
10
Introduction to Economics
Economics is the science of choice in the face of unlimited ends and scarce
resources that have alternative uses. The concepts and theories of economics help
us to economize i.e. to achieve maximum output by using the minimum input.
Acc to ALFRED MARSHALL , economics is the study of mans action in the ordinary
business of life, it enquires as how he gets his income, and how he utilizes it. Thus
on the one hand it is the study of wealth; on the other hand it is the study of man.
(WELFARE ECONOMICS)
Acc to LIONEL ROBBINS, Economics studies human behavior as a relationship
between unlimited ends and scares means, which have alternative uses. (SCIENCE
OF CHOICE )
KEYNES defined economics as the study of administration scarce of scarce resources
and of the determinants of employment, income and growth.
Contents of economics
Two views about the subject- matter of economics
Traditional View
Consumption
Relates to the study of the consumer, the nature of human wants, their
satisfaction and the nature of demand.
II.
Production
o The factor inputs are converted in to output. Land, Labor, Capital and
Management are the four agents of production. Different combinations
of these agents yield different outputs.
III.
Exchange
o Refers to transactions producers and consumers. It examines the price
and output decisions under various market conditions.
IV.
Distribution
o Studies the respective shares, i.e. rent, wages, interest and profit that go
to the four agents of production.
Modern View
o
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with the economic system as a whole. It analyses the total income, expenditure,
employment and growth of the entire economy.
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How to produce
For whom to produce
Deepak Srivastava
KIT, Kanpur
10
Economy
Rich Economy
Poor Economy
Socialist Economy
Capitalist Economy
Developed Economy
Underdeveloped Economy
Do not have a balance between agricultural and industrial productivity and predominantly rely
on agriculture for sustenance
Developing Economy
They are in the stage of transition from under- developed to developed stage
Agricultural Economy
Industrial Economy
Deepak Srivastava
KIT, Kanpur
10
Planned Economy
Unplanned Economy
Form Utility
Place Utility and
Time Utility
Value
The value of a good denotes the goods/ services that we can have in exchange for
it. Although to layman, value may have the meaning as utility; in economics the two
are quite different. For a good to have value, besides possessing utility, it should
also be scares and transferable. Unless all these three attributes are present in a
good, it cannot have value.
For example: Rotten egg/ Car
Price
Value when expressed in terms of money is called. In the early stages of economic
evolution, when the barter system was prevalent, price was the same as value.
Now, since goods are exchangeable for money, the price of a good is its monetary
Deepak Srivastava
KIT, Kanpur
10
Deepak Srivastava
KIT, Kanpur
10
10
Micro Economics
Macro Economics
Micro Economics
The study of the economic behavior of individual decision making units such as:
Individual consumers
Resource owners and
Business firms in a free enterprise system.
Macro Economics
The study of total or aggregate level of output, income, employment, consumption,
investment, and prices of the economy viewed as a whole.
Economic Theories seek to predict and explain economic behavior
The methodology of economics (and science in- general) is to accept a theory or
model if it predicts accurately and if the predictions follow logically from the
assumption.
Deepak Srivastava
KIT, Kanpur
10
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Whichever field of enquiry fulfills the above criteria is called a science. The
important examples of science are physics, chemistry, biology, zoology etc.
Fundamental Concepts
The interaction of individuals and firms in a market economy can be
described as a circular flow of money, goods and services and resources
through product and factor markets
Firms exist because the costs of production are lower and returns to the
owners of labor and capital are higher than if the firm did not exist.
Limits are imposed on the size of firms because the cost of organizing
transactions rises as the firm becomes larger and because managerial ability
is limited.
Economic profit refers to revenues minus all relevant costs, both explicit and
implicit.
Profit plays two roles in the market economy:
1. Changes in profit signals producers to change the rate of production,
and
2. Profit is a reward to entrepreneurs for taking risks, being especially
innovative in developing new products, and reducing production costs.
Firms can earn economic profits because they have monopoly power in a
market. In general, such profits are not socially useful.
The primary Decision- Making role of managerial economics is in determining
the optimal course of action where there are constraints imposed on the
decision.
Question Bank
Short
1. Define economics as a science of material welfare.
2. How will you argue for economics as a science of allocation of scarce
resources?
3. What is business economics?
4. Explain the concept of managerial economics.
5. What is the scope of macro economics?
6. Do you consider economics as science? Give reasons.
7. Explain as a positive science.
8. Why economics is called a normative science?
Deepak Srivastava
KIT, Kanpur
10
10
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Class test I- A
MANAGERIAL ECONOMICS AND
ENGINEERING
EHU- 501
B. TECH- CS
SEMESTER V
TIME: 55 MINUTES
MAXIMUM MARKS:
08
Deepak Srivastava
KIT, Kanpur
10
Class test I- B
MANAGERIAL ECONOMICS AND
ENGINEERING
EHU- 501
B. TECH- CS
SEMESTER V
TIME: 55 MINUTES
MAXIMUM MARKS:
08
Deepak Srivastava
KIT, Kanpur