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Note for Engineering Economics - EE by shweta sharma

  • Engineering Economics - EE
  • Note
  • Dr. A.P.J. Abdul Kalam Technical University - AKTU
  • 4 Topics
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Shweta Sharma
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September 2013 IENGINEERS- CONSULTANTS LECTURE NOTES SERIES ENGINEERING AND MANAGERIAL ECONOMICS V SEM BTECH UNIT1 them for consumption, now or in the future, among various persons or groups in society. Economics analyses the costs and the benefits of improving patterns of resource use.” SCOPE OF ECONOMICS A discussion about the true scope of economics includes the subject matter of economics, whether economics is a science or an art, or is a positive or a normative science. ECONOMICS AS A SCIENCE: A science is a systematized body of knowledge ascertainable by observation and experimentation. It is body of generalizations, principles, theories or laws which traces out a causal relationship between cause and effects. For any discipline to be a science (a) it must be systematized bodies of knowledge; (b) have its own laws or theories; (c) which can be tasted by observation and experimentation; (d)can make predictions; (e) be self-corrective; (f) have universal validity. If these features of a science are applied to economics, it can be said that economics is a science. Economics is also a science because its laws possess universal validity such as the law of diminishing returns, the law of diminishing marginal utility, the law of demand etc. Again economics is a science because of its self-corrective nature. It goes on revising its conclusions in the light of new facts based on observations. ECONOMICS AS AN ART: Art is the practical application of scientific principles. Science lays down certain principles while art puts these principles into practical use. To analyze the causes and effects of poverty falls within the purview of science and to lay down principles for the removal of poverty is art. Art facilitates the verification of economic theories. Economics is thus both a science and an art in this sense. ECONOMICS AS A POSITIVE SCIENCE: A positive science may be defined as “a body of systematized knowledge concerning what is.” Thus positive economics is concern with “what is”. ECONOMICS AS A NORMATIVE SCIENCE: Engineering and Managerial Economics UNIT-1 By: Mayank Pandey 2

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September 2013 IENGINEERS- CONSULTANTS LECTURE NOTES SERIES ENGINEERING AND MANAGERIAL ECONOMICS V SEM BTECH UNIT1 Economics is a normative science of “what ought to be.” As a normative science, economics is concerned with the evaluation of economic events from the ethical viewpoint. Marshall, Pigou and few other economists do not agree that economics is only a positive science. They argue that economics is a social science which involves value judgments and value judgments cannot be verified to be true or false. It is not an objective science like natural sciences. MICROECONOMICS: Microeconomics is the study of the economic actions of individuals and small groups of individuals. This includes the study of particular firms, particular households, individual prices, wages, income, individual industries and particular commodities. SCOPE OF MICROECONOMICS Importance / Advantages of Microeconomics: 1. 2. 3. 4. 5. 6. 7. 8. Individual Behaviour Analysis Resource Allocation Price Mechanization Helps in Economic Policy formulation Free Enterprise Economy Helpful in Public Finance management Helpful in Foreign Trade Social Welfare Disadvantages / Limitations of Microeconomics: Engineering and Managerial Economics UNIT-1 By: Mayank Pandey 3

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September 2013 IENGINEERS- CONSULTANTS LECTURE NOTES SERIES ENGINEERING AND MANAGERIAL ECONOMICS V SEM BTECH UNIT1 1. Unrealistic Assumptions 2. Inadequate Data 3. Ceteris Paribus MACROECONOMICS: Macroeconomics is that branch of economic theory which deals with the study of the economy in the aggregates with specific focus on unemployment, inflation, unemployment, business cycles, growth, monetary and physical policies. Definition: In the words of Boulding. “Macroeconomics deals not with individual quantities such as, but with aggregate of these quantities, not with individual income but with national income, not with the individual output but with national output.” In the words of Shapiro. “Macroeconomics deals with the functioning of the economy as awhole.” Scope of Macroeconomics: 1. 2. 3. 4. 5. 6. 7. 8. Theory of National Income Theory of Employments Theory of Money Theory of General Price Level Theory of Economic Growth Theory of International Trade Macro Theory of Distribution Theory of Trade Cycles Importance / Advantages of Microeconomics: 1. 2. 3. 4. 5. 6. To understand the working of economy Helpful in formulation of economic policies Helpful in controlling economic fluctuations Helpful in international comparisons National Income Helpful in Understanding the Functioning of the Economy Disadvantages / Limitations of Macroeconomics: 1. 2. 3. 4. 5. Dependence on the Individual Units Heterogeneous Units Misleading Aggregates The Aggregates which Compose a System may not be Significant Micro Changes Sometimes are More Important than Macro Changes DISTINCTION BETWEEN MICROECONOMICS AND MACROECONOMICS Engineering and Managerial Economics UNIT-1 By: Mayank Pandey 4

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September 2013 IENGINEERS- CONSULTANTS LECTURE NOTES SERIES ENGINEERING AND MANAGERIAL ECONOMICS V SEM BTECH UNIT1 Microeconomics Macroeconomics 1- Microeconomics is generally the study of 1- Macroeconomics looks at higher up individuals and business decisions. country and government decisions. 2- Microeconomics is the study of decisions 2- Macroeconomics, on the other hand, is that people and businesses make the field of economics that studies the regarding the allocation of resources and behavior of the economy as a whole and prices of goods and services. not just on specific companies, but entire 3- Microeconomics focuses industries and economies. on supply and demand and other forces 3- This looks at economy-wide phenomena, that determine the price levels seen in the such as Gross National Product (GDP) economy. For example, microeconomics and how it is affected by changes in would look at how a specific company unemployment, national income, rate of could maximize its production and growth, and price levels. For example, capacity so it could lower prices and macroeconomics would look at how an better compete in its industry. increase/decrease in net exports would affect a nation's capital account or how GDP would be affected by 4- The bottom line is that unemployment rate. microeconomics takes a bottoms4- Macroeconomics takes a topup approach to analyzing the economy down approach. MANAGERIAL ECONOMICS: Managerial economics helps in decision-making as it involves logical thinking. Moreover, by studying simple models, managers can deal with more complex and practical situations. CHARACTERISTICS OF MANAGERIAL ECONOMICS i. ii. iii. iv. Managerial Economics is micro-economic in character. Managerial Economics largely uses that body of economic concepts and principles, which is known as 'Theory of the firm' or 'Economics of the firm'. Managerial Economics is pragmatic. Managerial Economics belongs to normative economics rather than positive economics (also sometimes known as Descriptive Economics). MANAGERIAL ECONOMICS AND OTHER SUBJECTS Managerial Economics and Economics: A survey in the U.K has shown that business economists have found the following economic concepts quite useful and of frequent application:i. ii. iii. iv. v. Price elasticity of demand, Income elasticity of demand, Opportunity cost, The multiplier, Propensity to consume, vi. vii. viii. ix. x. Marginal revenue product, Speculative motive, Production function, Balanced growth, and Liquiditypreference. Business economics have also found the following main areas of economics as useful in their work:- Engineering and Managerial Economics UNIT-1 By: Mayank Pandey 5

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