Sami Kakar, P.E.

Sami Kakar, P.E.

 BALOCHISTAN UNIVERSITY OF INFORMATION
TECHNOLGY ENGINEERING & MANAGEMENT SCIENCES

ENGINEERING
BY:
ECONOMICS
Sami Kakar, P.E.
LECTURER
DEPARTMENT OF CIVIL ENGINEERING

Sami Kakar, P.E.

Sami Kakar, P.E.
ECONOMIC ENVIRONMENT

Sami Kakar, P.E.

Consumer goods and services
• Those that are directly and finally used and consumed by the end users
to satisfy their needs and wants.
• Consumer goods can be classified as consumables and durables such
as juice pack is a consumables item while electronic items or a
refrigerator is considered as a durable item.
• Producer goods and services
Those goods and services which are used by the manufacturers and
producers in the process of producing consumer goods and services to be
finally used by end-users and consumers: machine tools, factory
buildings, buses and farm machinery are the examples of producer goods
and services.

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MARKET

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• Market is a point or place where buyers and seller interact
with each other for the purpose of exchanging and trade
of goods and services for their mutual benefits and
satisfaction.
• Market is any arena, however abstract or far-reaching, in
which buyers and sellers make transactions.
• Goods and services market, money and assets market,
factors of production market etc are major types and
categories market
Sami Kakar, P.E.
A market can be one to one, one - many, many - one,
physical or virtual or on-line market such as e-commerce
and e-business like e-bay and OLX.
MARKET FORCES
• In any market there are always two opposite directional
forces in action.
• These are the forces of aggregate demand and aggregate
supply and both fight for price.
• Whenever these two forces come into agreement with
each other the market becomes into equilibrium.

Sami Kakar, P.E.

LAW OF DEMAND

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• The amount of a good that buyers purchase
at a higher price is less because as the
price of a good goes up, so does the
opportunity cost of buying that good.
• As a result, people will naturally avoid
buying a product that will force them to
forgo the consumption of something else
they value more.
Sami Kakar, P.E.
Sami Kakar, P.E.
The relationship between price and demand can
be expressed as a linear function

Thus, m represents the amount by which demand

increases for each unit decrease in P,
Thus

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Sami Kakar, P.E.
Sami Kakar, P.E.
 ELASTICITY OF DEMAND
The degree to which demand is affected due to change in price
is referred to as elasticity of the demand or Price Elasticity of
demand
Or
Price elasticity of demand is a measure of the change in the
quantity demanded or purchased of a product in relation to its
price change
% 𝐶ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝐷𝑒𝑚𝑎𝑛𝑑
𝑃𝐸𝐷 =
% 𝐶ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑃𝑟𝑖𝑐𝑒
The value is termed as COEFFICIENT of PED
Sami Kakar, P.E.
 Relatively Inelastic Demand
If a change in selling price
produces little or no effect on
the demand, the demand is
said to be inelastic.
Demand is insensitive to Price
Mathematically PED < 1
e.g. Basic Commodities, Petrol.
No other options for the
consumers Sami Kakar, P.E.
 Relatively Elastic Demand
The demand for products
is said to be elastic when
decrease in selling price
results in considerable
increase in their demand.
Mathematically PED > 1
e.g. season end sale, luxury
items.
These products have substitutes
Sami Kakar, P.E.
 Perfectly Inelastic Demand
When change in selling
price has no effect on the
demand.
Consumers are willing and
able to pay any price for the
product
Mathematically PED = 0
e.g. Emergency situations.
Corona vaccine, insulin etc. Sami Kakar, P.E.
 Perfectly Elastic Demand
When change in demand has
no effect on the price.
Consumers are willing and
able to pay at only one price
for the product
Mathematically PED =∞
e.g. High competitive markets
where supplier has no selling
power Sami Kakar, P.E.
 Unitary Elastic Demand
When change in price has a
proportionate effect on the
demand.
The total spending by consumers
on the product will remain same
at each price level
Mathematically PED = 1
Change in price and change in
demand are same Sami Kakar, P.E.
Example: The price of digital cameras increases by 10%, the
quantity of digital cameras demanded decreases by 10%.
The price elasticity of demand is (unitary elastic demand)
% 𝐶ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝐷𝑒𝑚𝑎𝑛𝑑
𝑃𝐸𝐷 =
% 𝐶ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑃𝑟𝑖𝑐𝑒
10%
𝑃𝐸𝐷 = =1
10%

Sami Kakar, P.E.

PED 0 <1 1 >1 ∞
Sami Kakar, P.E.
 Why is ELASTICITY OF DEMAND
calculated?
It helps a producer to take more effective economic
decisions
Total Revenue is estimated using PED.

Sami Kakar, P.E.

REVENUE

INCOME
Sami Kakar, P.E.
 Revenue
• The revenue number, also known as sales is the income a company
generates before any expenses are taken out.
• Therefore, when a company has "top-line growth," the company is
experiencing an increase in gross sales or revenue
• Revenue only indicates how effective a company is at generating sales
Income
• Net income is calculated by taking revenues and subtracting the costs
of doing business, such as depreciation, interest, taxes, and other
expenses.
• The bottom line, or net income, describes how efficient a company is
with its spending and managing its operating costs.
Sami Kakar, P.E.
RELATIONSHIP BETWEEN TOTAL REVENUE AND DEMAND
The total revenue R that can be generated by selling a particular good
during a given period is obtained by multiplying the selling price per
unit P with the number of units sold D.
Thus
R = Selling price per unit × Number of units sold
If the relationship between price and demand is used, then,

Sami Kakar, P.E.

The relationship between total revenue and demand for the
condition may be depicted by the curve shown in the graph below.

Sami Kakar, P.E.

In order to determine the optimum demand D that would yield
maximum total revenue, we differentiate the last equation with
respect to D and equate it to zero as

Thus
The maximum total revenue can be obtained as

𝑑𝑅
It should be noted that the term is called the incremental or
𝑑𝐷
marginal revenue Sami Kakar, P.E.
Example A gear manufacturer estimates the
relationship between sales volume D and the unit
selling price P as
D= 50,000-0.02P
How many units of gear should the company
produce and sell to maximize the total revenue?
Sami Kakar, P.E.
Sami Kakar, P.E.
RELATIONSHIP BETWEEN TOTAL REVENUE AND DEMAND
Relatively Inelastic Demand

R
E
P V
R E
I N
C U
E E

Sami Kakar, P.E.

RELATIONSHIP BETWEEN TOTAL REVENUE AND DEMAND
Relatively Elastic Demand

R
E
P V
R E
I N
C U
E E

Sami Kakar, P.E.

Sami Kakar, P.E.
LAW OF SUPPLY

Sami Kakar, P.E.

 LAW OF SUPPLY
The law of supply says that as the price of an
item goes up, suppliers will attempt to
maximize their profits by increasing the
quantity offered for sale

Producers supply more at a higher price

because selling a higher quantity at higher
price increases revenue
Sami Kakar, P.E.
Supply in a market
can be depicted as an
upward sloping
supply curve that
shows how the
quantity supplied
will respond to
various prices over a
period of time.

Sami Kakar, P.E.

 EQUILIBRIUM
When supply and demand are equal (i.e. when
the supply function and demand function
intersect) the economy is said to be at
equilibrium.

Sami Kakar, P.E.

At this point, the allocation of goods is at its most efficient because
the amount of goods being supplied is exactly the same as the
amount of goods being demanded

Sami Kakar, P.E.

Thus,
everyone (individuals, firms, or countries) is
satisfied with the current economic condition.
At the given price, suppliers are selling all the
goods that they have produced and consumers
are getting all the goods that they are demanding

Sami Kakar, P.E.

• The equilibrium occurs at the intersection of the
demand and supply curve, which indicates no allocative
inefficiency.
• At this point, the price of the goods will be called as
Equilibrium Price P' and the quantity will be termed as
Equilibrium quantity Q'.
• In the real market place equilibrium can only ever be
reached in theory, so the prices of goods and services
are constantly changing in relation to fluctuations in
demand and supply.
Sami Kakar, P.E.
All the diagrams and figures displayed in this presentation are solely used for educational purposes Sami Kakar, P.E.