The document discusses key concepts in economics including: 1) Economics is defined as the management of household resources, with different economists providing varying definitions focused on wealth, welfare, or scarcity. 2) Microeconomics examines decision-making by individuals and firms, while macroeconomics studies aggregate economic indicators like GDP and unemployment rates. 3) The law of demand states that as price increases, quantity demanded decreases, and vice versa. The supply curve slopes upward to show quantity supplied increases with rising price.

1. L. D. COLLEGE OF
ENGINEERING
RUBBER TECHNOLOGY
Sub:- engineering economics and management
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2. Topic:-Introduction to Economics,
Theory of Demand and
Supply
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3. Economics
Definition:-
Economics word derived from
two Greek words- ‘Oikos’ and
‘Nemein’.
‘Oikos’ means ‘household’
‘Nemein’ means ‘Management’
Management of household is
known as economics.
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4. Economics
Meaning of Economics:-
There are many definitions by different
economists at different time, which is differ from
each other.
There are classified into three categories as
under;
•Wealth oriented(Adam Smith,J.B.Say,J.S. Mill)
•Welfare oriented( Marshall, Pigou etc)
•Scarcity oriented(Robbins)
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5. Nature of Economics
There are four factors affecting to
nature of economics as per below;
•Economics is a Science.
•Economics is an Art.
•Economics is Positive & Normative
Science.
•Economics is Micro and Macro.
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6. Microeconomics
versus Macroeconomics
• Microeconomics
– The study of decision making undertaken by
individuals (or households) and by firms
– Like looking though a microscope to focus on
the smaller parts of the economy
• Decision of a worker to work overtime or not
• A family’s choice of having a baby
• An individual firm advertising
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7. Microeconomics
versus Macroeconomics
• Macroeconomics
– The study of the behavior of the economy as a
whole
– Deals with economy wide phenomena
• The national unemployment rate
• The rate of growth in the money supply
• The national government’s budget deficit
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8. Microeconomics
versus Macroeconomics
• Macroeconomics deals with aggregates, or
totals—such as total output in an economy.
• Modern economic theory blends micro and
macro concepts.
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12. Law of Demand
•The law of demand expresses the nature
of functional relationship b/w two
variables of the demand relation viz; the
price and the quantity demanded.
•It simply states that demand varies
inversely to change in price.
•So, D=f(P)
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14. Application of law of Demand: Policy
to Reduce Smoking
• Option #1: Raise prices of cigarettes by
levying a tax
• Option #2: Introduce a public awareness
program regarding ill effects of smoking
• Policy impact on substitutes
• Policy impact on complements
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15. Supply
• The analysis of the supply of produced goods
has two parts:
– An analysis of the supply of the factors of
production to households and firms.
– An analysis of why firms transform those
factors of production into usable goods and
services.
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16. The Law of Supply
• There is a direct relationship between price
and quantity supplied.
– Quantity supplied rises as price rises, other things
constant.
– Quantity supplied falls as price falls, other things
constant.
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17. The Supply Curve
• The supply curve is the graphic representation
of the law of supply.
• The supply curve slopes upward to the right.
• The slope tells us that the quantity supplied
varies directly – in the same direction – with
the price.
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18. S
A
Quantity supplied (per unit of time)
0
Price(perunit)
PA
QA
A Sample Supply Curve
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20. Shift Factors of Supply
• Other factors besides price affect how much
will be supplied:
– Prices of inputs used in the production of a good.
– Technology.
– Suppliers’ expectations.
– Taxes and subsidies.
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21. Factors that Shift Supply
Prices of Related
Goods and Services
Number
Of
Producers
Expectations
Of
Producers
Technology
And
Productivity
Resource
Prices
Supply
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22. Definition Of Price Elasticity Of Demand
• The change in the quantity demanded of a
product due to a change in its price is known
as Price elasticity of demand. Thus, the
sensitiveness or responsiveness of demand to
change in price is as called elasticity of
demand
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23. A Graphical Interpretation
of Price Elasticity
• For small changes in price
YΔY
QΔQ
elasticityIncome 
Where Q is the original quantity and P is the original price
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24. Price Elasticity Regions along
a Straight-Line Demand Curve
Quantity
Price
b/2
a/2
a
b
1
1
1
Observation
Price elasticity varies at every point
along a straight-line demand curve
Inelastic
Elastic
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25. Income Elasticity of Demand
The income elasticity of demand is defined as
the percentage change in quantity divided by
the percentage change in income,
YΔY
QΔQ
elasticityIncome 
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26. Effect Income elasticity
coefficient
Classification of
good
A proportionately
larger change in
the quantity
demanded
>1 Luxury good
A proportionately
smaller change in
the quantity
demanded
<1 Normal
A negative change
in the quantity
demanded
<0 Inferior good
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