Submitted by:

DHEERAJ MAHESHWARY
(BBA 1A)
BUS-22S-030

(BACHELOR OF BUSINESS ADMINISTRATION)

Submitted to:

SIR DANISH KAZMI

SINDH MADRESSATUL ISLAM UNIVERSITY KARACHI
 CHAPTER NO. 2

THINKING LIKE AN ECONOMIST

Economics trains you to,
 Think in terms of alternatives.
 Evaluate the cost of individual and social choices.
 Examine and understand how certain events and issues are related.
THE ECONOMIST IS A SCIENTIST.
The economic way of thinking.
 Involves thinking analytically and objectively.
 Makes use of the scientific method.
THE ROLE OF ASSUMPTIONS.
 Economists make assumptions to make the world easier to understand.
 The art of scientific thinking is deciding which assumptions to make.
 Economists use different assumptions to answer different questions.
ECONOMICS MODELS.
 Economics uses methods to simplify reality to improve our understanding of the world.
 Two of the most basic economic models include;
1. The Circular Flow Diagram.
2. The Production Possibilities Frontier.
First Model.
This diagram shows how money flows into the market as we know that the (Firms) motivation is
Profit And (Household) motivation is Utility. So, let’s assume that
There are two types of actors.
1. Household
2. Firm
And there are two types of markets.
1. The market for goods and services
2. The market for Factors of Production
There are 4 factors of Production
1. Land
2. Labor
3. Capital
 Circular flow diagram.

As we all know, household motivation is utility, whereas firm motivation is profit. The primary
needs of the household are land, labor, and capital. As a result, he will search the market for
production elements. He will labor and collect his pay at the end of the month. And to spend his
earnings. He will go to the market for goods and services to purchase some utility since utility is
a household motive. And the corporation will receive income from his utility money, and the
revenue will be used to pay his salaries and rent. The remainder will be the company's profit.

Second Model.
In this model, we Studied PPF (Production Possibility Frontier)
To Understand PPF we will take 2 goods and 1 Resource
 Economy has 50,000 labor hours per month available for production
 Producing one Computer Requires 100 labor hours
 Producing one Car Requires 10 labor hours.
 PPF

7000

6000

5000

4000 4000

3000

2000 2000

1000

0
0 100 200 300 400 500 600 700

Putting the computer into the x-axis

Putting the car into the y-axis

Employment Of Labor Production

Hours
Computer Car Computer Car
50,000 0 500 0
0 50,000 0 5,000
25,000 25,000 250 2,500
15000 35000 150 3500
35000 15000 350 1500

Explanation.
As you can see, there are two goods (computer and car) and one resource (labor hours). We
assume that if we use all of our labor hours on one product, such as a computer, we will produce
500 computers in a month, and if we use all of our labor hours on two products, such as cars, we
will produce 5,000 cars, and if we provide an equal amount of labor hours, we will produce 250
computers and 2,500 cars in one month. We will create a graph for these three
points/assumptions so that we can see them in the supplied graph. These three Points/assumption
knows as movement along the curve and the Above line in the graph know as the shift in the
curve (Increase In economy).
 Points on the PPF like given in the Table
Possible
Effectively All Resources are fully utilized
 The point on The PPF like (150, 2000)
Possible
Not efficient: - Some Resources are Underutilized
E.g. (unemployment/Factories idle)
 Point On the PPF like (350, 4000)
Not Possible

The Economist As a policy Advisor.

 As Scientists, economists make a positive statement can check.
 Positive statement is descriptive and they claim how the world is.
 As policy advisors economists make normative statements.
 Normative statements cannot be checked.

Positive Statement. (SCIENTIFIC)

A positive statement means that if there is a relation Between two products
so it will be a positive statement.
(Minimum wages, laws cause, unemployment).

Normative Statement. (Ethics, religion, political)

A normative statement means that if there is no relation between 2
products so it will be a Normative Statement.
(The Government should raise the minimum wages).
 CHAPTER NO. 4
THE MARKET FORCES OF SUPPLY AND DEMAND

 A Market is a group of buyers and sellers of a particular product.

 A Competitive market is one with many buyers and sellers each having a negligible effect
on price.
 In a Perfectly Competitive Markets
 All Goods are the same.
 Buyers and sellers so numerous that no one can affect market price-each is a (price taken)
In this chapter, we assume markets are perfectly competitive.

Supply and Demand,

In economics, supply and demand refer to the connection between the amount of a product that
producers want to sell at different prices and the quantity that consumers want to purchase. It is
the primary price determination model used in economic theory. The combination of supply and
demand in a market determines the price of a commodity. The resultant price is known as the
equilibrium price, and it symbolizes an agreement between the good's producers and customers.
When a good is in equilibrium, the amount supplied by producers equals the quantity sought by
consumers.

Demand:
The Good That Buyers are Willing and Able to Purchase is called Demand.
LAW OF DEMAND.
The Claim That the quantity demanded of a good falls when the price of the good rises, other
things equal.
 When price will increase then demand will decrease
 When Price will decrease then demand will increase
Example:
If the potato is expensive. So, I will less use potatoes. I will not buy more potatoes
Because if I will more potatoes so I have to quit other stuff so this will become a trade-off.
The Demand Schedule:
The following table will show the relationship Between the price of a good and the quantity of
demand
1. Helen’s Demand for Ice-cream cones.
2. Now suppose Helen and ken are the only two buyers in the Ice-creams cones market.
 Price Helen’s Quantity Ken Quantity Market Quantity
demanded demanded Demanded
0,00 16 + 8 = 24
1,00 14 + 7 = 21
2,00 12 + 6 = 18
3,00 10 + 5 = 15
4,00 8 + 4 = 12
5,00 6 + 3 = 9
6,00 4 + 2 = 6

Helenn demand for latte/Market Demanded Curve for

latte
7
6
Price of ice-creams cones

5
4
3
2
1
0
0 5 10 15 20 25 30
Deamand of ice-creams cones

Explanation:
As you can see that the orange line on the graph shows the latte demand for Helen and the Blue
line shows the market demand for Ice-creams cones.
 When variable changes then movement along the curve
 Same price but quantity changes -- Shift in the curve

There are Five demand curve shifters

1. Inferior Goods. (Demand curve will shift to the left)
Inferior goods are the goods whose demand decrease when consumer income increase. Its means
that the low-quality goods.
 2. Normal Goods. (Demand curve will shift to the right)
Normal Goods are goods whose Demand increase when the consumer income increase. Its
means that the good-quality goods.
3. Price of related goods.
Substitute.
Substitute means for example Coca-Cola and Pepsi. If the price of Coca-Cola increases so the
demand for Coca-Cola will decrease. So instead of buying Coca-Cola people will buy Pepsi
because Pepsi is the substitute for Coca-Cola so the Pepsi demand curve will shift to the right.
Complements
Complement means that one product price will decrease if another product price will increase for
example electricity and fan. If the price of the electricity bill per unit will increase so the price of
the f fan will be decreased if the electricity demand will decrease so the demand for the f fan will
also decrease and the curve will shift to the left.
4. Tastes.
Demand for a product increase as consumer desire, emotions, or preference shifts in favor of it.
Similar to how flavors that conflict with it lower the amount desired.
5. Expectation.
People expect that their income will increase so their demand for meals at the expensive
restaurant will increase now s the demand curve will shift to the right. And if the People expect
that their income will decrease so their demand for meals at the expensive restaurant will also
decrease now so the demand curve will shift to the left.

Supply:
The goods that sellers are willing and able to sell are called supply.
Law Of Supply
The claim is that the quantity supplied of goods rises when the price of the goods rises other
things are equal.

Ben supply of ice-cream cones.

 Ben Price of Ben ice-cream
ice-cream cones cones supplied
1 0

2 1

3 2

4 3

5 4

6 5

Let’s assume that Ben and Jerry are the only Suppliers in the market.
Price of cones ben jerry Market
1 0 + 0 = 0
2 1 + 0 = 1
3 2 + 2 = 4
4 3 + 4 = 7
5 4 + 6 = 10
6 5 + 8 = 13

7 SUPPLY PPF
6
Price of ice-creams cones

0
0 1 2 3 4 5 6
Quantity SUPPLY Of ice-cream cones
Explanation:
As you can see the orange line in the graph shows the quantity supply of the person and the blue
line in the graph shows the quantity supply of the market.

The Supply Curve Shifters

The supply curve shows how price affects quantity supplied, other things being equals
 These other things are non-price determinants to supply
 Changes in them Shift the Supply curve.

1. Prices:
If the price changes and supply remain the same so the movement along the curve.
2. Input Prices.
Example (wages and raw materials)

A fall in
Price decrease Supply Increase
Price Increase Supply decrease

Seller Motivation is profit so if the price will increase so the profit will decrease and
if the price will decrease so the profit will increase.

3. Technology:(Advancement)
Advancement in technology reduces the cost of the product. And this increases the
quality of the product and the supply curve shift to the right.

4. No of Sellers.
It means that if the Numbers of sellers will increase so the Supply will also increase and
the supply curve will shift to the right But the no of supply will decrease so the supply
will also decrease and the supply curve will shift to the left.

5. Expectation.
As a supplier, I will expect whatever I’m selling. In the future, that product price will
decrease. So, in the current time, I will increase the supply, and the Supply curve will
shift to the right. But In the future, I will decrease the supply, and the supply curve will
show the left.
 In short term, Supply will Increase.
In Long Term Supply Will Decrease.

Variables that influence sellers

Variables. A change in this variable

Price. Causes a Movement Along the

Supply Curve

Input Price. Shift In the Supply Curve

Technology. Shift In the Supply Curve

No of Sellers. Shift In the Supply Curve

Expectation. Shift In the Supply Curve

Supply And Demand Together

Price Quantity Quantity Supplied
Demanded
0 24 0

1 21 5

2 18 10

3 15 15

4 12 20

5 9 25

6 6 30
 PPF of Both Deamd And Supply
7

4
Price

0
0 5 10 15 20 25 30 35

Quantity Damand Supply

Explanation:
This graph shows the Quantity of Demand and Supply Both the Orange line shows the quantity
demanded and Blue Line shows the Quantity supplied And the Point when Both Lines are
crossing each other called
Equilibrium.
Its means that when prices equal the demand and supply. The point that tells us that quantity
demanded and quantity supply is equal. Price has reached the level where Qd equals Qs
Surplus.
It Means that when Supply excess Demand. It happens when the product price is increasing
because when prices increase the demand for the product decrease and in supply when prices
increase then supply also increases.
Shortage.
It Means that when Demand exceeds Supply. It happens when the product price is
Decreasing because when prices increase the demand of the product Increase and in supply when
prices increase then supply Of the Product decrease.