SREENIVASA INSTITUTE OF TECHNOLOGY AND MANAGEMENT STUDIES

DEPARTMENT OF MANAGEMENT STUDIES

Prepared by

Submitted To

Dr. V. MURALI KRISHNA & Ms. R.J.CHITRA

Mr. T.P.SARATHI

ECONOMICS
Economics is a social science . Its basic function is to study how
people individual house holds, firms and nations maximizing their gains from their limited resources and opportunities.

Definitions of Economics: Wealth Definition - Adam Smith, J.B.Say, J.S.Mill Welfare Definition -Marshall, A.C.Pigue.
(Classical Definition)

Scarcity definition - Robbins (Modern Definition)

Growth Definition- Paul A Samuelson
(Modern Definition)

(Neoclassical Definition)

RAGNER FRISCH

1. Micro Economics 2. Macro Economics

divided

Economics

into two major branches. As

Micro means small, it study - A Firm /A Business / A Consumer . where as

Macro means big. It studies the Society/ Industry

MANAGERIAL ECONOMICS
Managerial economics can be broadly defined as

the study of economic

theories, logic and tools of economic analysis that are used in the

process of decision making.

Economic theories and techniques of economic

analysis are applied to analyze business problems, evaluate business options and opportunities with a view to arriving at an appropriate business decision.

The origin of the subject could be traced from the works of the Greek philosopher Aristotle, who confined the study of economics to household management and acquiring, guarding and making proper use of wealth. The term economics is derived from Two

Greek

words

OIKON &

NORMS which means LAW OF HOUSE HOLDS.

MANAGERIAL ECONOMICS - DEFINITION

Spencer and Seigleman : It is the integration of economic theory with business practice for the purpose of facilitating decision making

and forward planning by management

Mansfield : He defines that managerial economics is concerned with the application of economic concepts and economic tools to the problems of formulating rational decision making.

ELASTICITY OF DEMAND
Law of Demand establishes a relationship between price and quantity demanded for a product. It does not tell us exactly as how strong or weak the relationship happens To be. A manager needs an exact measure of this relationship for appropriate business decisions. From this point of the degree of responsiveness of change in quantity demand as a result of change in Price or any other demand determinant is called

ELASTICITY OF DEMAND
ELASTICITY means

CHANGE

This concept was introduced into the economic theory by

ALFRED MARSHALL.

ELASTICITY OF DEMAND - DEFINITION

PRICE ELASTICITY OF DEMAND

The degree of responsiveness of quantity demanded as a result of change in Price is called Price Elasticity of Demand Demand

Pd =

Price

DETERMINANTS OF PRICE ELASTICITY 1.The number of close substitutes for a good / uniqueness of the product 2.The cost of switching between different products .

3.The degree of necessity or whether the good is a luxury.

4.The % of a consumers income allocated to spending on the good . 5.Whether the good is subject to habitual consumption . 6.Peak and off-peak demand

TYPES OF PRICE ELASTICY

1.PERFECTLY ELASTICITY OF DEMAND (Ed > 1)
2.PERFECTLY INELASTICITY OF DEMAND (Ed < 1) 3.UNITARY ELASTICITY OF DEMAND (Ed = 1) 4.RELETIVELY ELASTICITY OF DEMAND (Ed > 0) 5.RELETIVELY INELASTICITY OF DEMAND (Ed >

(a) Perfectly Inelastic Demand: Elasticity Equals 0 Price Demand 5

4
1. An increase in price . . .

100

Quantity

2. . . . leaves the quantity demanded unchanged.

The Price Elasticity of Demand

(b) Inelastic Demand: Elasticity Is Less Than 1

Price

5 4 1. A 22% increase in price . . . Demand

90

100

Quantity

2. . . . leads to an 11% decrease in quantity demanded.

The Price Elasticity of Demand

(c) Unit Elastic Demand: Elasticity Equals 1 Price

4
1. A 22% increase in price . . . Demand

80

100

Quantity

2. . . . leads to a 22% decrease in quantity demanded.

Copyright2003 Southwestern/Thomson Learning

The Price Elasticity of Demand

(d) Elastic Demand: Elasticity Is Greater Than 1

Price

5 4 1. A 22% increase in price . . . Demand

50

100

Quantity

2. . . . leads to a 67% decrease in quantity demanded.

The Price Elasticity of Demand

(e) Perfectly Elastic Demand: Elasticity Equals Infinity Price 1. At any price above Rs 4, quantity demanded is zero. $4 2. At exactly Rs 4, consumers will buy any quantity. Demand

0 3. At a price below Rs 4, quantity demanded is infinite.

Quantity