Note for Engineering Economics - EE By Joseph Noel

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UNIT 1: Syllabus: Utility, value, wealth, consumption, wants necessaries, comforts and luxuries. Laws of demand, elasticity of demand. Two Marks: 1. Characteristics of WANT. Human wants are numerous and different kinds a) Wants in general are unlimited b) Each particular want is capable of complete satisfaction c) Wants vary in intensity d) Wants are recurrent e) Wants are competitive f) Some wants are complimentary g) Present wants are more important than future wants h) Knowledge increases wants 2.  DEMAND. Demand may be defined as: a) The desire to possess a thing, coupled with b) The means of purchasing it and c) The willingness to use the means for the purpose. Or Demand means the amount of a commodity which people are willing to buy at that price 3. LAW OF DEMAND. The relation of price to quantity demanded / sales is known as the law of demand. Law of demand states that the higher the price is the lower the demand is and vice versa, holding other factors as constant. 1. The relationship between price and quantity demanded is inverse. 2. Price is the independent variable and demand is the dependent variable. 3. Law of demand assumes that except for price and demand, other factors remain constant. 4. Elasticity of DEMAND. Elasticity is an attribute of demand. The rate at which demand will change when the price changes is known as elasticity of demand 5. What is UTILITY? (value in use) The capability of a commodity to satisfy human want or wants is known as Utility E.g.: water in the ocean has no utility; water in the house has some utility while the same water in the desert has very great utility. 6. What are the Types of UTILITY? a) Form utility b) Place utility c) Time utility d) Procession utility e) Service utility f) knowledge utility 7. What are the Various Elasticity’s? a) Price elasticity of demand b) Income elasticity of demand c) Cross elasticity of demand d) Promotional elasticity e) Exportations elasticity of demand 8. What are the Types of price elasticity: a) Perfectly elastic demand b) Absolutely inelastic demand or perfectly inelastic demand c) Unit elasticity of demand d) Relatively elastic demand

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9.  Define VALUE. Value is the power of a commodity to command other commodities in its exchange. Value expresses the relationship or ratio between two commodities. An article possessing utility may or may not have value but no article can have value unless it possesses utility 10. 11. 12. 13. Consumption Engels Law of consumption. Dr. Engel divided the families at Saxony in three classes 1. the labor class 2. the middle class 3. the well to do class Comforts vs. Luxuries. Comforts: The articles which give appreciable pleasure and also increases consumers efficiency slightly; while their non-consumption will not cause much pain or decrease actual efficiency are known as comforts and are necessary for a decent living e.g., good shoes and woolen clothes etc. The main items of expenditure were classified into the following five groups Luxuries: Luxuries are those articles whose consumption affords very great pleasure, but does not contribute to our efficiency and whose non consumption neither causes any pain or decreases our efficiency e.g., costly cars etc. He summarized that as income of family increases Wealth Wealth is a synonym with economic goods. Wealth consists of commodities which are exchangeable. Three attributes of wealth a) Utility b) Scarcity c) Transferability Necessaries Necessaries are those wants which are of very primary importance and if they remain unsatisfied, acute pain is caused and satisfaction is necessary for the preservation of life, efficiency or social prestige. a. Necessaries of existence b. Necessaries for efficiency c. Conventional necessaries a) b) c) d) e) food clothing lodging heat, light, and fuel Education, health, servants and miscellaneous etc… i. The percentage of expenditure on food decreases ii. the percentage expenditure on clothing , heat, light, and fuel remains the same and iii. The percentage expenditure on education, health and servants etc., increases. 14. Economics Economics is defined as a “social, positive and normative science and art, which studies those activities of social, real and normal beings, which are related to the Consumption, Production, Exchange and Distribution of wealth” 14 Marks: 1.  What is ELASTICITY OF DEMAND? Explain its types and causes. (Tara Chand PgNo: 26) --------------------------------------------------

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ENGINEERING ECONOMICS UNIT 2: Syllabus: Production, agents of production, laws of returns. Forms of business organization. Single trader, partnership and public limited company. Two Marks: 1.  What do you mean by SINGLE TRADER? It is the oldest and the simplest form of business organization in which single entrepreneur after furnishing himself with his own or hired land, labour and capital according to his requirements works the raw materials and governs the general policy of the business, the entire responsibility of the business falls on his shoulders. Advantages: 1. Low cost of Production 2. Promptness in decision 3. Personal Contact 4. East to start and to wind up 5. Incentive for hard work 6. Business Secrecy 7. Flexibility in business 8. Independence Disadvantages: 1. 2. 3. 4. 5. 6. 7. 8. Unlimited Liability Limited means of production Limited skills No economies of large scale production No division of labour Small income Instability Keeps a country economically backward 2. Define BUSINESS. A business also known as an enterprise, agency or a firm is an entity involved in commercial, industrial or professional activities for provision of goods and/or services to consumers. Different forms of Business are 1. Sole proprietorship 2. Partnership 3. Joint stock companies a. Private Limited Company b. Public Limited Company c. Government Companies 4. Co operatives 3. Agents of Production. All productive operations are the result of the co– operation of several agents of production. The factors of production are four in number i.e., 1. Land 2. Labour 3. Capital 4. Organization Out of these Land and Labour are indispensable factors of production 4. Types of PARTNERSHIP. A partnership is a business owned by two or more people. In most forms of partnerships, each partner has unlimited liability for the debts incurred by the business i. General Partnership ii. Limited Partnership iii. Limited Liability Partnership

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14 Marks: 1. Distinguish between PUBLIC LIMITED and PRIVATE LIMITED types of companies. ENGINEERING ECONOMICS UNIT 3: (THIS CHAPTER IS VERY IMPORTANT) (Tara Chand PgNo: 99 ) 2. What is BUSINESS? Explain the salient features of PUBLIC LIMITED COMPANY. (Tara Chand PgNo: 98 ) Syllabus: Price determination in perfect competition, monopoly and imperfect competition. Rent, interest, money, cheques, bills of exchange. Two Marks: 3. What is BUSINESS? Explain the salient features of PARTNERSHIP. (Tara Chand PgNo: 89 ) 4. Explain the LAWS OF RETURN.(7marks) (Tara Chand PgNo: 36 ) (Refer modern Economic Therory text book also for this question) 5. Explain the law of Diminishing RETURN. (Tara Chand PgNo: 37 ) (Refer modern Economic Therory text book also for this question) -------------------------------------------------- What is meant by Perfect Competition There is said to be perfect competition when every purchaser and seller is so small relative to the entire market that he cannot influence the market price by increasing or decreasing his purchases or his output The conditions for perfect competition are i. Large number of buyers and sellers ii. Homogeneous product iii. Free entry or exit iv. Perfect knowledge v. Absence of Transport cost vi. Perfect mobility of the factors of production. Imperfect Competition Imperfect competition has three main forms a) Monopolistic competition b) Oligopoly c) Monopoly Under monopolistic completion the numbers of dealers are large and the product is not homogeneous I In oligopoly the numbers of dealers are not large. When in monopoly a single producer or seller controls the entire market. Monopoly Monopoly is a market form in which a single producer controls the whole supply of a single commodity which has no close substitutes