This document provides an introduction to economics. It defines economics as the study of production, distribution, and consumption of goods and services. It also distinguishes between microeconomics, which focuses on individual agents, and macroeconomics, which analyzes the whole economy. The document then covers concepts in demand such as the determinants of demand, demand functions, the law of demand, and elasticity of demand. It also discusses the meaning of supply, supply functions, the law of supply, and elasticity of supply. Finally, it explains how equilibrium price and quantity are determined by the intersection of supply and demand curves.

1. Introduction to Economics

2.  The term economics comes from the Greek
word ‘Oikonomia’ i.e., ‘management of a
household administration’.
 Economics is a social science that analyzes the
production, distribution & consumption of
goods & services.

3.  Engineering Economics deals with the
methods that enable one to take economic
decision towards minimising cost &
maximising benefits to business
organization.

4.  It is of 2 types
Micro Economics:
 It focuses on Individual consumers.
 It examines the behaviour of basic elements in the
economy (such as household, firm, buyers, sellers) and
their interaction with market.
Macro Economics:
 It concentrates on the behaviour of the aggregate
economy. So it is also known as aggregative economics.
 It analyses the entire economy & issues affecting it,
including unemployment, inflation, economic growth,
monetary policy.

5.  Economics is a fundamental academic
discipline.
 It is governed by a method of its own.
 Optimum utilisation of resources is one of the
major challenges faced by economist.
 It is related to market conditions.
 The growth of profit depends upon the
pricing practices followed by industries.
 It provides the concept for decision making.

6.  Economics gives the guidance for identification of
key variables in decision making process.
 It helps a firm in forecasting the most important
factors like demand, supply, cost, revenue, price
sales, profit.
 It helps in formulate sound industrial policy
 It helps in achieving other objective of a firm like
attaining industry leadership, social responsibilities
etc.
 It helps in the optimum use of limited resources of a
firm to maximise its profit.
 It helps the business executives to become more
responsive , realistic & competent to face the
challenges in the modern business world.

7.  Meaning of Demand
 Types of Demand
 Determinants of Demand
 Demand Function
 Law of Demand
 Elasticity of Demand

8.  Demand means a desire backed by necessary
purchasing power and willingness to spend
money.

9.  Joint Demand- Pen & Ink
 Derived Demand- Car & fuel
 Perishable Demand- Cement
 Non-Perishable Demand- Car, machine..
 Alternative Demand- Light: Electricity, gas,
kirosene
 Short-run & Long run Demand
 Domestic & Industrial Demand

10.  Price of the commodity (Px ): inverse relation
 Income of the Individual (I): Direct relation
 Price of substitute goods (PY): Direct relation
 Price of complementary goods (Pz): inverse
relation
 Advertisement (A): Direct relation
 Budget of Individual(B): Direct relation
 Price expectation of Individual (PE): Direct
relation
 Taste & Preference of Individual (T):
 Quality or Brand (Q): Direct relation

11.  Demand function is a functional statement of
quantity demanded of a commodity & the
factors determining the demand.
 Qdx= f (Px, I, Py, Pz, A, B, PE,T, Q,……….)
 Qdx =Quantity demanded for commodity X

12.  In the words of Prof P A Samuelson, Law of
Demand states that people will buy more at
lower price & buy less at higher prices other
thing remaining constant.
 In the words of Ferguson “according to Law
of Demand the quantity demanded varies
inversely with price”.
 In symbol Law of Demand is
Qx= f(Px)
(With other factors remaining Constant.)

13.  Individual should be a rational person.
 Taste, habit, preference of individual should not
change.
 Price of related goods should not change.
 Size of population remain constant.
 There should not be expectation of price change
in near future.
 The commodity should not have any close
substitute.
 The commodity should not have any prestige
value.

14.  Giffen Goods- Salt, Potato
 Vebeln Effect- Diamond
 Conspicuous Necessities-Automobile, Phone
 Change in Fashion
 War & other emergencies
 Psychological bias

15.  It indicates the degree of responsiveness of
quantity demanded of a commodity to
change in own price of the commodity or
change in related prices or change in income
of the individual.
 It is of 3 types
1. Price Elasticity of Demand
2. Income Elasticity of Demand
3. Cross Elasticity of Demand

16.  The degree of responsiveness of quantity
demanded of a commodity to change in price
of the commodity is known as Price Elasticity
of Demand.
 Mainly 2 methods are there to measure the
price elasticity
1. Slope Method
2. Percentage Method

17.  It is of 2 types
Horizontal Demand Curve:
 Demand increases at same price.
 It means demand is perfectly elastic
Vertical DemandCurve:
 It indicates quantity demanded does not
respond to price change. .
 It means demand is perfectly inelastic.

18.  According to Prof Alfred Marshall Price Elasticity of
demand is the ratio of proportionate or percentage
change in quantity demanded to proportionate or
percentage change in price.
 Price Elasticity (EP)= ( Percentage change in demand/
Percentage change in Price)
=[{Change in demand (ΔQdx)/Initial Quantity demand
(Qdx)/} * 100]/ [{Change in price (Δ Px) /Initial Price (Px) }
* 100]
= (ΔQdx / Δ Px ) * (Px /Qdx)

19.  It can be defined as the degree of
responsiveness of quantity demanded of a
commodity due to small change in income of
an individual.
 Ey = (Proportionate change in quantity
demanded/ Proportionate change in Income)
= (Δ Q/ Δ y)* (y/Q)

20.  It can be defined as the degree of
responsiveness of quantity demanded of a
commodity ‘X’ due to small change in price of
the commodity ‘Y’.
 Ec = (Proportionate change in quantity
demanded of commodity ‘X’ / Proportionate
change in price of commodity ‘Y’)
= (Δ Qx/ Δ Py) * (Py/Qx)

21.  Meaning of Supply
 Supply Function
 Law of Supply
 Elasticity of Supply

22.  Supply by an individual seller is the quantity
of commodity that he is willing to sell in the
market in a given period of time.

23.  The supply function is the symbolic expression of the
relationship between supply and those factors that
affect the willingness & ability of a supplier to affect
goods for sale.
Qsx= f (Px, Pr, Pi,G,S,T,…)
Where Qsx = Quantity supplied of commodity X
Determinants of Supply:
Px =Price of commodity X
Pr = Price of related commodity
Pi=Prices of factors of production
G= Goal of the supplier
S= Numbers of producers & suppliers of commodity
T= State ofTechnology

24.  It explains the functional relationship
between the price of a commodity & its
quantity supplied.
 Sx=f(Px) (When other factors remain
constant)
Where Sx= Quantity supplied of Commodity X
Px= Price per unit of that commodity

25.  The law does not apply to rare article like ancient
coins, paintings, rare stamps etc. There supply is
being fixed can’t change with change in price.
 In case of expectation of fall in price, producers
will supply more even at a lower price because
they anticipate that the prices will bring them
loss.
 When the business man want to close his
business, they sell the stock at lower prices. So
the law fails here.
 This law does not applicable in the case of
certain agricultural commodities.

26.  It may be defined as the degree of
responsiveness of supply of a commodity to a
change in its price.
 Es= (Percentage change in supply)
/(percentage change in price)
=[{Change in supply (ΔQsx)/Initial Quantity
supply (Qsx)/} * 100]/ [{Change in price (Δ Px)
/Initial Price (Px) } * 100]
= (ΔQsx / Δ Px ) * (Px /Qsx)

27. When we combine the demand and supply curves for a good in a single graph, the
point at which they intersect identifies the equilibrium price and equilibrium
quantity. Here, the equilibrium price is $6 per pound. Consumers demand, and
suppliers supply, 25 million pounds of coffee per month at this price

28.  The demand curve shows the quantities of a particular good
or service that buyers will be willing and able to purchase at
each price during a specified period.
 The supply curve shows the quantities that sellers will offer
for sale at each price during that same period.
 By putting the two curves together, we should be able to find
a price at which the quantity buyers are willing and able to
purchase equals the quantity sellers will offer for sale.
 The equilibrium price in any market is the price at which
quantity demanded equals quantity supplied. The
equilibrium price in the market for coffee is thus $6 per
pound.
 The equilibrium quantity is the quantity demanded and
supplied at the equilibrium price.