Note for Engineering Economics - EE by Suman Kumar Acharya

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Text Books: 1. Riggs, Bedworth and Randhwa, “Engineering Economics”, McGraw Hill Education India. 2. M.D. Mithani, Principles of Economics. Reference Books : 1. Sasmita Mishra, “Engineering Economics & Costing “, PHI 2. Sullivan and Wicks, “ Engineering Economy”, Pearson 3. R.Paneer Seelvan, “ Engineering Economics”, PHI 4. Gupta, “ Managerial Economics”, TMH 5. Lal and Srivastav, “ Cost Accounting”, TMH MODULE – 1 DEMAND AND LAW OF DEMAND Meaning of Demand The demand for any commodity, at a given price, is the quantity of it which will be bought per unit, of time at the price. From this definition of demand two things are quite clear: Firstly, demand always refers to demand at a price. If demand is not related to price, it conveys no sense. To say that the demand for mangoes is 100 kgs. fails to convey any sense. It should be always related to price. Again in the words of Shearman, “To speak of the demand of a commodity in the sense of the mere amount that will be purchased without reference to any price will be meaningless.” Secondly, demand always means demand per unit of time. The time may be a day, a week or a month, etc.

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Therefore, “the demand for any commodity or service is the amount that will be bought at any given price per unit of time.” —G. L. Thirkettle. There is a difference between ‘desire’ ‘need’ and ‘demand’. A desire “will become demand only if a consumer has the means to buy a thing and also he is prepared to spend the money.. Suppose Ram has the desire of haying a fan. But this desire will become demand only if he has 350 rupees and he is prepared to spend this money. Thus by demand -we mean the various quantities of a given commodity or service which -consumers would buy in the market in a given period of time at various prices. According to Pension, “Demand implies, three things (a) desire to possess a thing, (b) mean of purchasing it and (c) willingness to use those means for purchasing it.” Meaning of Demand Schedule Demand schedule depicts the “various quantities of a commodity which will be demanded at different prices. Quantity demanded will be different at different prices because with an increase in price, demand falls and with a fall in prices demand extends. Demand schedule can be of the following two types :— (i) Individual Demand Schedule. (ii) Market Demand Schedule. Individual Demand Schedule : Individual Demand Schedule shows the various quantities demanded by one person at different prices, individual Demand Schedule can be shown as follows : Price Demand of Mangoes (In Rupees) in Kgs Rs.5 1 Kg.

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Rs.4 2 Kgs. Rs.3 3 Kgs. Rs.2 4 Kgs. Re.1 5 Kgs. As is clear from the above schedule, the demand for mangoes of a consumer is 1 kg. when the price is 5 rupees per kg. When price falls to; Rs. 4 demand for mangoes extends to 2 kgs. Again demand for mangoes extends to 5 kgs when price is 1 rupee per kg. Individual Demand Curve. We can show the individual demand schedule with the help of the following diagram. Fig. 4 On OX-axis we measure the quantity demand while on OY-axis we take the price of mangoes per kg. When price is Rs. 5 per kg. demand is 1 kg., likewise when the price is 4 rupees, per kg. demand is 2 kgs., etc. By combining the pts. A1, A2, A3, A4, A5, we get the demand curve DD. This is called the individual demand curves.

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Market Demand Schedule – If we add up the demand at various prices of all consumers in the market we will get the market demand schedule. Let us suppose there are 3 consumers, A, B & C in the market. If now we add the quantity demanded by A,B and C at different prices, we will get the market demand schedule, it can be shown as follows : Market Demand Schedule : Price (Rupees) 5 Rs. per kg. 4 Rs. per kg. 3 Rs. per kg. 2 Rs. per kg. 1 Rs. per kg. Demand of A 1 2 3 4 5 Demand of B 3 4 5 6 7 Demand of Total Demand in the C Market (KG) 2 6 3 9 4 12 5 15 6 18 When price is Rs.5/ kg total demand of all consumers is 6kg. When price is Rs.4/- total demand of the consumer is 9kg. Market Demand curve : Market demand curve ca be shown as follows : Fig. 5 On OX-axis we take the total quantity demanded of mangoes in the market. On Y-axis, we measure the prices. When price is Rs.5/- per kg. total quantity