Price elasticity is a crucial concept in economics that measures the responsiveness of quantity demanded or supplied to changes in price. Understanding price elasticity is vital for businesses, policymakers, and economists as it helps predict the impact of price changes on market behavior and revenue. Here's why price elasticity is important: 1. Determining Revenue Impact: Price elasticity helps businesses predict how changes in price will affect their total revenue. If demand is elastic (responsive to price changes), decreasing prices may lead to higher revenue. Conversely, if demand is inelastic (insensitive to price changes), increasing prices may result in higher revenue. 2. Optimizing Pricing Strategies: Businesses can use price elasticity to determine the optimal pricing strategy for their products or services. By understanding the price sensitivity of consumers, companies can set prices that maximize profitability and market share. 3. Forecasting Market Behavior: Price elasticity provides insights into consumer behavior and market dynamics. It helps forecast how changes in prices, incomes, or competitor actions will impact demand and market equilibrium. 4. Policy Decision Making: Policymakers use price elasticity to design and evaluate economic policies, such as taxation, subsidies, and regulations. Understanding the elasticity of supply and demand helps assess the effectiveness and unintended consequences of policy interventions. There are five cases of price elasticity of demand A. Perfectly elastic demand: When small change in price leads to an infinitely large change is quantity demand, it is called perfectly or infinitely elastic demand. In this case E=∞. Sometimes, even there is no change in the price, the demand changes in huge quantity. In case of perfect elastic demand, the demand for a commodity changes even though there is no change in price. This elasticity is very rarely found in practice. We can see a straight line demand curve parallel to the X axis Ep = ((Q2 − Q1)/Q1) /((P2 − P1)/P1) 𝐸𝑝 = (1000 − 100)/100 /(10 − 10)/10 = ∞ The demand curve is horizontal straight line. It shows the at Rs. 10 price any quantity is demanded and if price increases, the consumer will not purchase the commodity. B. Perfectly Inelastic Demand A commodity is said to have perfectly inelastic demand, when even a large change in price of the commodity causes no change in the quantity demanded. The elasticity coefficient of perfectly in elastic demand is Ep = 0. The shape of the demand curve for perfectly inelastic is vertical as shown below. Price Demand 10 100 20 100 Ep = ((Q2 − Q1)/Q1) /((P2 − P1)/P1) 𝐸𝑝 = (100 − 100)/100 /(20 − 10)/10 = 0 When price increases from Rs. 10 to Rs.20, the quantity demanded remains the same. In other words the response of demand to a change in Price is nil. In this case ‗E‘=0. C. Relatively elastic demand: Demand changes more than proportionately to a change in price. i.e. a small change in price leads to

1. BUSINESS ECONOMICS AND FINANCIAL
ANALYSIS (AHSC13)
COURSE OVERVIEW:
The course gives an overview of concepts of Economics.
Managerial Economics enables students to understand micro environment in which markets operate
how price determination is done under different kinds of competitions.
Financial Analysis gives clear idea about concepts, conventions and accounting procedures along with
introducing students to fundamentals of ratio analysis and interpretation of financial statements.
Break Even Analysis is very helpful to the Business Concern for Decision making, controlling and
forward Strategic Planning.
Ratio analysis gives an idea about financial forecasting, financial planning, controlling the business
and decision making.

2. BUSINESS ECONOMICS AND FINANCIAL
ANALYSIS (AHSC13)
COURSE OBJECTIVES: The students will try to learn:
I The concepts of business economics and demand analysis helps in optimal
decision making in business environment.
II The functional relationship between Production and factors of production and
able to compute breakeven point to illustrate the various uses of breakeven
analysis.
III The features, merits and demerits of different forms of business organizations
existing in the modern business environment and market structures.
IV The concept of capital budgeting and allocations of the resources through
capital budgeting methods and compute simple problems for project
management.
V Various accounting concepts and different types of financial ratios for knowing
financial positions of business concern.

3. BUSINESS ECONOMICS AND FINANCIAL
ANALYSIS (AHSC13)
COURSE OUTCOMES: After successful completion of the course, students should be able to:
CO 1 Relate the basic concepts of business economics to real world business scenarios..
CO 2 Identify the role of economies of scale to optimize outcomes and enhance competitiveness.
CO 3 Examine the behaviour of individual markets, firms and consumers to improve business performance
CO 4 Assess various forms of business organizations to strengthen the market environment.
CO 5 Apply capital budgeting techniques to assess their potential impact on financial performance in real
business scenario.
CO 6 Develop and interpret financial statements to weigh financial health of a company.

4. BUSINESS ECONOMICS AND FINANCIAL
ANALYSIS (AHSC13)

5. MODULE – I: INTRODUCTION TO BUSINESS
ECONOMICS
Key points with animations
After going through this topic, the learner will be able to:
explain the meaning and definition of managerial economics.
Understand the characteristics and scope of managerial economics.
Describe the techniques of managerial economics
Explain the application of managerial economics in various aspects of
decision Making

6. MODULE – I: INTRODUCTION TO BUSINESS
ECONOMICS
- Economics is a social science.
- It focuses on the production, distribution, and consumption of goods
and services.
- Analyzes the choices that individuals, businesses, governments, and
nations make to allocate resources.
- Economics is the study of how people allocate scarce resources for
production, distribution, and consumption, both individually and
collectively.
- Assuming humans have unlimited wants within a world of limited
means.
- Economists analyze how resources are allocated for production,
distribution, and consumption.

7. MODULE – I: INTRODUCTION TO BUSINESS
ECONOMICS
Why Economics: Study of how people choose to use
resources.
Resources include the time , machine ,money, material and
talent of people, land, buildings, equipment, and other tools
on the hand.
The knowledge of how to combine them to create useful
products/goods and services.
It is the social science that studies the production, distribution
and consumption of goods and services

8. MODULE – I: INTRODUCTION TO BUSINESS
ECONOMICS
Meaning and Definition: ‘A queen of Social Sciences’
Economics = ‘OKIOS’+ ‘NOMOS’ ( Greek Words)
‘OIKOS’ = ‘HOUSE’ and ‘NOMOS’= MANAGEMENT
According to J.S.Mill- Economics is “ The practical science of production
and distribution of wealth.”
‘It is the study of how people produce and spend income.’
“Managerial Economics is the integration of economic theory with
business practice for the purpose of facilitating decision making and
forward planning by management”
-Spencer and Siegel man
“The applications of economics theory and methodology to business
administration practice”.
- E. F. Brigham

9. Branches of Economics
Economics can be mainly divided into two branches:
Micro Economics
Macro Economics
1. Micro Economics: ‘It is the study of particular firms, households,
individual prices, wages, incomes, individual industries, industries.”
Microeconomics is the social science that studies the implications of
incentives and decisions, specifically about how those affect the
utilization and distribution of resources.
It shows how and why different goods have different values, how
individuals and businesses conduct and benefit from efficient production
and exchange, and how individuals best coordinate and cooperate with
one another.
Alfred Marshall is regarded as the founding father of Microeconomics.

10. Branches of Economics
Examples of Microeconomics
Price determination of a particular commodity.
Consumer equilibrium.
Output generated by an individual organization.
Individual income and savings.
Application of Microeconomic Study:
Microeconomics study is applied in the field of agricultural economics,
international economics, labor economics, comparative economics,
consumer economics, regional economics, welfare economics, aspects of
public finance, and other fields.

11. Basic Concepts of Microeconomics
The study of microeconomics involves several key concepts, including (but not
limited to):
Incentives and behaviors: How people, as individuals or in firms, react to the
situations with which they are confronted.
Utility theory: Consumers will choose to purchase and consume a combination
of goods that will maximize their happiness or “utility,” subject to the constraint
of how much income they have available to spend.
Production theory: This is the study of production—or the process of
converting inputs into outputs. Producers seek to choose the combination of
inputs and methods of combining them that will minimize cost in order to
maximize their profits.
Price theory: Utility and production theory interact to produce the theory of
supply and demand, which determine prices in a competitive market. In a
perfectly competitive market, it concludes that the price demanded by
consumers is the same supplied by producers. That results in economic
equilibrium.

12. Branches of Economics
Macro Economics: ‘It deals not with individual quantities as such but
with aggregates of these quantities, not with individual incomes but
with national income.’
Macroeconomics is the branch of economics that studies the behavior
and performance of an economy as a whole. Its primary focus is the
recurrent economic cycles and broad economic growth and
development.
Some of the theories which come under Macro Economics,
–Theory of total output and employment.
–Theory of Inflation.
–Theory of trade cycles
–Economic growth, etc.…
–The founding father of Macroeconomics ‘John Maynard Keynes’ wrote
the General Theory of Interest, Employment, and Money in 1936.

13. Branches of Economics
Examples of Macroeconomics
National income and savings.
General price level.
Aggregate demand and Aggregate Supply
Poverty.
Rate of unemployment
Application of Macroeconomic studies:
Macroeconomic studies are applied in the fields of formulation and
execution of economic policies, studying economic development,
understanding microeconomics, welfare studies, the study of inflation
and deflation studies, and even international comparisons lie in the study
of macroeconomics.

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Microeconomics Vs Macroeconomics
Microeconomics study
is determined by the
method known as
Partial Equilibrium
whereas
Macroeconomics
study is determined
by the method known
as Quasi General
Equilibrium Analysis.

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Effect of Micro and Macro Economics
Any changes in these categories have a direct impact on a country’s economy. Several
factors affect it.
Decision Making
Uncontrollable external factors such as changes in interest rate, regulations, number
of competitors present in the market, cultural preferences, etc. play a key role in
influencing an organization’s strategies and performance. These can have a
cumulative effect on a nation’s economy as well.
Economic Cycles
Experts consider macroeconomics as a cyclic design. Higher demand levels, personal
income, etc. can influence price levels, which in turn can affect a nation’s economy.
Contrarily, when supply outweighs demand, the cost of daily goods reduces. This
pattern continues until the next cycle of supply and demand.
Price of Products and Services
The primary goal of an organization is to keep costs at the minimum and increase the
profit margin. The cost of labor is one of the highest expenses incurring factors in
microeconomics, thereby directly affecting the overall cost of production and retail.

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MODULE – I: INTRODUCTION TO BUSINESS
ECONOMICS

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MODULE – I: INTRODUCTION TO BUSINESS
ECONOMICS
Managerial decisions are an important component in
the working wheel of an organization. The success or
failure of a business is reliant upon the decisions taken
by managers. Increasing complexity in the business
world has spewed forth greater challenges for
managers.

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MODULE – I: INTRODUCTION TO BUSINESS
ECONOMICS
Managerial economics is a discipline that is designed
to facilitate a solid foundation of economic
understanding for business managers and enable them
to make informed and analyzed managerial decisions.

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MODULE – I: INTRODUCTION TO BUSINESS
ECONOMICS
Concept of Managerial Economics
The discipline of managerial economics deals with
aspects of economics and tools of analysis, which are
employed by business enterprises for decision-making.
Business and industrial enterprises have to undertake
varied decisions that entail managerial issues and
decisions.

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MODULE – I: INTRODUCTION TO BUSINESS
ECONOMICS
Decision-making can be delineated as a process where
a particular course of action is chosen from a number
of alternatives. This demands an unclouded
perception of the technical and environmental
conditions, which are integral to decision making. The
decision maker must possess a thorough knowledge of
aspects of economic theory and its tools of analysis.

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MODULE – I: INTRODUCTION TO BUSINESS
ECONOMICS
Almost any business decision can be analyzed with managerial economics
techniques.
The most frequent applications of these techniques are as follows:
Risk analysis: Various models are used to quantify risk to manage risk.
Production analysis: Microeconomic techniques are used to analyze
production efficiency, optimum factor allocation, costs and economies of
scale.
Pricing analysis: Microeconomic techniques are employed to examine
various pricing decisions. This involves transfer pricing, joint product
pricing, price discrimination, price elasticity estimations and choice of the
optimal pricing method.
Capital budgeting: Investment theory is used to scrutinize a firm's capital
purchasing decisions.

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MODULE – I: INTRODUCTION TO BUSINESS
ECONOMICS
MEANING OF MANAGERIAL ECONOMICS:
Managerial economics is a branch of economics that deals with the
application of microeconomic analysis to decision-making techniques of
businesses and management units.
Managerial economics is a study of application of managerial skills in
economics It helps in anticipating, determining and resolving potential
problems or obstacles. These problems may pertain to costs, prices,
forecasting future market, human resource management, profits and so
on.

23. MODULE – I: INTRODUCTION TO BUSINESS
ECONOMICS
Economics is a social science,
which studies human behavior
in relation to optimizing
allocation of available resources
to achieve the given ends.
Brighman and Pappas define
managerial economics as, “the
application of economic theory
and methodology to business
administration practice”.