ME - PDP MBA SEC

7/29/2019 ME - PDP MBA SEC

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SREENIVASA INSTITUTE OF TECHNOLOGY AND MANAGEMENT STUDIES

Prepared by

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

Submitted To

Mr. T.P.SARATHI

DEPARTMENT OF MANAGEMENT STUDIES


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Economics is a social science . Its basic function is to study howpeople

individual house holds, firms and nations maximizing

their gains from their limited resources and opportunities.

ECONOMICS

Definitions of Economics:

Wealth Definition- Adam Smith, J.B.Say, J.S.Mill(Classical Definition)

Welfare Definition-Marshall, A.C.Pigue.(Neoclassical Definition)

Scarcity definition- Robbins(Modern Definition)

Growth Definition- Paul A Samuelson

(Modern Definition)


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RAGNER FRISCH dividedEconomics into two major branches. As1. Micro Economics2. Macro EconomicsMicro means small, it study - A Firm /A Business / A Consumer .

where as

Macro means big. It studies the Society/ Industry


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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.

MANAGERIAL ECONOMICS

The origin of the subject could be traced from the works of the Greek philosopherAristotle, 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 &NORMSwhich means LAW OF HOUSE HOLDS.


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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.

MANAGERIAL ECONOMICS - DEFINITION


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Law of Demand establishes a relationship between price and

quantity demanded for a product. It does not tell us exactly ashow strong or weak the relationship happens To be.

A manager needs an exact measure of this relationship forappropriate business decisions. From this point of the degree of

responsiveness of change in quantity demand as a result ofchange in Price or any other demand determinant is called

ELASTICITY OF DEMAND

ELASTICITYmeans CHANGE

This concept was introduced into the economic theory by

ALFRED MARSHALL.

ELASTICITY OF DEMAND


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ELASTICITY OF DEMAND - DEFINITION


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Demand

Price

PRICE ELASTICITY OF DEMAND

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

The degree of responsiveness of quantity demanded as a

result of change in Price is called Price Elasticity of Demand

Pd =


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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 > )


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45

1. Anincreasein price . . .

Price

(a) Perfectly Inelastic Demand: Elasticity Equals 0

Demand

1000 Quantity

2. . . . leaves the quantity demanded unchanged.


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The Price Elasticity of Demand

(b) Inelastic Demand: Elasticity Is Less Than 1

Quantity0

5

90

Demand1. A 22%increasein price . . .

Price

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

4

100


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

(c) Unit Elastic Demand: Elasticity Equals 1

Quantity

4

1000

Price

5

80

1. A 22%increasein price . . .

Demand



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(d) Elastic Demand: Elasticity Is Greater Than 1

Demand

Quantity

4

1000

Price

5

50

1. A 22%increasein price . . .

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


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(e) Perfectly Elastic Demand: Elasticity Equals Infinity

Quantity0

Price

$4 Demand

2. At exactly Rs 4,consumers willbuy any quantity.

1. At any priceabove Rs 4, quantity

demanded is zero.

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


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