Topic Introduction to Economics Subject 102 Economic Analysis

Topic: Introduction to Economics Subject: 102 -Economic Analysis for Business Decisions Prof. Manisha Shelkande

Syllabus 1. Basic Concepts of Economics 2. Demand Analysis & Forecasting 3. Cost Concepts 4. Money and Capital Market in India 5. Public Finance Infrastructure

Reference Books 1. Managerial Economics: D. M. Mithani 2. Managerial Economics: H L Ahuja, S Chand & Co. New Delhi 3. Managerial Economics: G. S. Gupta

Evaluation 1. University Paper: 50 Marks 2. University Online: 20 Marks 3. Internal: 30 Marks – Prelim Exam – 10 Marks – Unit Test – 5 Marks – Attendance – 5 Marks – Assignment – 5 Marks – Presentation – 5 Marks Total: 30 Marks

Introduction to Subject

Unit - 1 Basic Concepts of Economics

Economics • Economics is a science of wealth • The practical science of the production and distribution of wealth • “Economics is social science, which studies human behavior in relation to optimizing allocation of available resources to achieve the given ends. ”

Introduction Economic is a social science. Its basic function to study how people individual, households, firm, and nations maximize their gains from their limited resources and opportunities. In economic terminology, this is called maximizing behavior or, more appropriately, optimizing behavior.

Meaning And Definition of Economics The term ‘Economics’ in English language has its origin in two Greek word- Oikos (household) and Nemein (management). Thus, they mean ‘ management of household’. Definition : According to Dr. Marshall, “ Economics is a study mankind in the ordinary business of life. It examines that part of individual and social action which is most closely connected with attainment and use of material requisite of well- being. ”

Nature of Economics • • Fundamental Academic subject Economic Rationale of Business Administration Allocation of Resources Micro economic Nature Theory of the firm Market conditions Macro setting

Cont… • • Profit and Pricing Basis for Decision making Pragmatic Approach Normative Science Elements of Macro Economics Help of Quantitative Techniques Socio-cultural Aspects

Scope of Economics • • • Basic Problem Theory of the firm Organization of Business Demand Analysis Production and Cost Analysis Pricing and output Determination Cost-Benefit Analysis Profit analysis Capital Management Government and Business

Demand • Desire + Ability + Will to spend • Desire or Want for something • It is relative concept • It is always related to Price and Time • It may be direct or derived “ The demand for a commodity refers to the amount of it which will be bought per unit of time at a particular price. ”

Cont… “ Ability and willingness of a customer to buy or purchase a commodity or product at a given price at a given time. ” e. g. : Demand for milk by a household per month at Rs. 40 per lit.

Types of Demand • • • Consumer goods & Producers goods Perishable goods & Durable goods Derived demand & Autonomous demand Industry goods & Company goods Demand by Market segment & by total Market

Determinants Individual Demand: 1. Price of the product 2. Income 3. Taste and Habits 4. Relative prices of other goods 5. Consumer expectations 6. Advertisement Effect

Cont… Market Demand: • Price of the product • Distribution of income and wealth in the community • Community’s common habits and scale of preferences • General standards of living and spending habits of the people • Number of buyers in the market and the growth of population

Cont… • • Age structure and gender ratio of the population Future expectation Level of taxation Inventions and Innovations Fashion Climate or Weather conditions Advertisement

Elasticity of Demand • Price Elasticity • Income Elasticity • Cross Elasticity

Price Elasticity • Perfectly Elastic Demand: ∞ • Elastic Demand: >1 • Unitary or Unit Elastic Demand: =1 • Inelastic Demand: <1 • Perfectly Inelastic Demand: ‘ 0’

Supply • Definition: The amount of the commodity which the sellers or producers are able and willing to offer for sale at a particular price, during a certain period of time • Supply always referred to in relation to Price and Time

Supply and Stock • • Supply comes out of stock Stock determines the potential supply Stock is the outcome of production Reservation price affects the release of stock for the supply in the market

Demand- Supply-Price ( Cont. . ) • Demand exceeds Supply- Price go up D>S Price • Supply exceeds Demand- Price go down S>D Price • Demand is equal to Supply- Price stable D=S Price stable

Determinants of Supply • Cost of production: Raw material cost e. g. Real estate • Objective of the firm: Profit Maximization Sales Maximization e. g. Reliance, Raymond, FMCG

Determinants of Supply (Cont. . ) • Prices of other products: RM or Related Product Substitute Product e. g. Petrol & Car, Tube light & CFL • State of Technology: Inventions e. g. Plastic bags

Determinants of Supply (Cont. . ) • Tax and Subsidy: e. g. Petrol- Patil petrol pump • Factors outside the Economic Sphere: Weather conditions Flood, Drought Fire, War, Earthquakes

Determinants of Supply (Cont. . ) • Transport conditions: Temporary Decrease • Seller’s expectations: Future Price e. g. Investment flats, Petrol pump