SRI KRISHNA COLLEGE OF ENGINEERING AND TECHNOLOGY

SCHOOL OF MANAGEMENT

MANAGERIAL ECONOMICS
(ME) : 22PNC102
 MANAGERIAL ECONOMICS
(ME) : 22PNC102
• Class Presentation – PPT (GCR)

• Sample Case study Analysis – Per Module

• Resource Person – 2 topics per head

• Class Activity – Quiz Summary of Module

• - Dr.Gowrishankkar.V
MODULE 1 INTRODUCTION 15

Meaning, Scope of Managerial Economics, Role and Responsibility of Managerial

Economists, Managerial Economics - Importance, Demand Analysis - Demand:
Law of demand, Determinants, Elasticity of Demand and their types- Demand
forecasting techniques. Shifts in Demand curve, Law of Supply & Elasticity of
Supply - Factors affecting supply & shifts in supply curve.
MANAGERIAL ECONOMICS (ME)

Guess What?
 1.INTRODUCTION
•Economics is the study of mankind in the ordinary
business of life. - Alfred Marshall.

•Managerial Economics ,therefore, focuses on those tools and

techniques, which are useful in decision-making.
 INTRODUCTION

Economics:
• It is a social concerned chiefly with description & analysis of
the production, distribution and consumption of goods and services.

• Economics focuses on the behaviour and interaction of economics

agents & how economics work.

• According to J.B. “ Economics is the science which deals with

wealth”
 1.1 MANAGERIAL ECONOMICS
(MEANING)
• Branch of Economics.

• ‘Managerial Economics is the study of Economic Theories, Principles and

Concepts which is used in Managerial Decision Making.’

• ‘Managerial Economics is the Application of various Theories, Concepts and

Principles of Economics in the Business Decisions.’

• It also Includes ‘The Application of Mathematical and Statistical tools in

Management decisions.’
 1.2 SCOPE
Five types of resource decisions made by all types of business
organizations.
1.The selection of product or service to be produced.
2.The choice of production methods and resource combinations.
3.The determination of the best price and quantity combination.
4.Promotional strategy and activities.
5. The selection of the location from which to produce and sell goods or
services to consumer.
 1.3 Role and Responsibility
• Studies Business Environment
• Analysis Operations of Business
• Demand Forecasting and Estimation
• Production Planning
• Economic Intelligence
• Performing Investment Analysis
• Focuses on Earning Reasonable Profit
• Maintaining Better Relations with Internal and External
 1.4 Important of Managerial Economics

• Managerial Economics assists the managers of a firm in a rational

solution of obstacles faced in the firm's activities. It makes use of
economic theory and concepts.

• Helps in formulating logical managerial decisions.

• Key of Managerial Economics is the microeconomic theory of the

firm.
 1.5 DEMAND ANALYSIS

• Demand in common practice / ordinary language means the desire for

an object. Suppose a person desires to have a car. It is called demand
in ordinary usage.
• But in economics demand has a separate meaning which is quite
distinct from the above meaning.
• A mere desire cannot become demand in Economics.
 Example:

• A beggar ,for instance, may desire food , but due to lack of means to
purchase it , his demand is not effective.

• Thus, effective demand for a thing is depends on,

1. Desire

2. Ability to purchase

3. Willingness to purchase
1.6 LAW OF DEMAND

According to law of demand:

• If Prices of a commodity falls, the Quantity demanded of it will Rise.

• If the Prices of commodity Rises, its Quantity demanded will Decline.

• But other things (taste or preferences of customer, income of the

customer and prices of related goods) remaining the same.
1.6.1Law of Demand
Video Link:
https://youtu.be/Ht7W2ghvLXc
1.6.2Demand Schedule
Price (Rs) Quantity Demanded (Units)
5 2
4 4
3 6
2 8
1 10

The demand schedule for the commodity indicates that there is an inverse relationship between its price and
quantity demanded
1.7 DETERMINANTS OF DEMAND
• Its also called ‘Factors Influencing Demand’. They are
• Price of the commodity
• Income of the consumer
• Tastes and preferences of the consumers
• Number of buyers
• Expectation of the future
• Price of related goods
• Complementary goods
• Substitute or Competing goods
1.7.1 DEMAND FUNCTION
1.7.2TYPES OF DEMAND
Demand is classified into three major types
• Price Demand
• Relationship between price and quantity demanded of a commodity.
• Income Demand
• Relationship between income of the consumer and quantity demanded of a commodity.
• Cross Demand
• How the demand of the commodity is affected by the changes in the price of related
goods.
1.7.3 OTHER CLASSIFICATION OF
DEMAND
• Direct and indirect demand
• Demand for durable and non- durable goods
• Firm and Industry demand
• Short run and long run demand
• Total market and market segmentation demand
1.8 ELASTICITY OF DEMAND
• Responsiveness of a dependent variables to a given change in an
independent variables.

• According to Marshall, “ The elasticity of demand in a market is great

or small according as the amount demanded increases much or little
for a given fall in the price and diminishes much or little for a given
rise in price”
1.8 ELASTICITY OF DEMAND

• Thus , elasticity of demand is the degree to which demand for a good

or service varies with its one of the variables (price of the commodity,

income of the consumer, taste and preferences)

 1.8.1 Elastic Demand
• A small change in price leads to great change in quantity demanded ,
in this case demand is elastic.
Price (Rs) Quantity demanded of milk (litres)
12.00 1
11.00 2
13.00 0.75

Therefore, the demand is said to be more elastic

1.8.2 INELASTIC DEMAND
• If a big change in price is followed by small changes in demand then
demand is inelastic.
Price (Rs) Quantity demanded of Rice (Kg)
10.00 20
5.00 21
15.00 19

When the price of rice has changed to a vary great extent, the quantity demanded of rice has changed by a
very small amount. Thus, the demand is inelastic.
1.9 TYPES OF ELASTICITY OF
DEMAND
• Price elasticity of demand
• Income elasticity of demand
• Cross elasticity of demand
1.9.1 PRICE ELASTICITY OF DEMAND

• Marshall was the first economist to define price elasticity of demand.

• Price elasticity of demand measures changes in quantity demanded to

a change in Price.

• It is the ratio of percentage change in quantity demanded to a

percentage change in price.
1.9.1 PRICE ELASTICITY OF DEMAND

• Price elasticity = Percentage change in quantity demand

Percentage change in Price
1.9.1 PRICE ELASTICITY OF DEMAND
• There are five cases of price elasticity of demand.
• Perfectly (or) Infinitely elastic demand
• Perfectly inelastic demand
• Relatively elastic demand
• Relatively inelastic demand
• Unit elasticity of demand
1.9.1.1 PERFECTLY ELASTIC DEMAND
• When a small change in price leads to an infinitely large change in
quantity demanded.
1.9.1.2 PERFECTLY INELASTIC DEMAND
• In the case even a large change in price fails to bring about a change in
quantity demanded.
1.9.1.3 RELATIVELY ELASTIC DEMAND
• Demand changes more than proportionately to a change in Price.
• ie; Small change in price leads to a very big change in the quantity
demanded. E>1
1.9.1.4 RELATIVELY INELASTIC DEMAND
• Quantity demanded changes less than proportionately to a change in
price.
• A large change in price leads to small change in amount demanded.
E<1
1.9.1.5 UNIT ELASTICITY OF DEMAND
• The change in demand is exactly equal to the change in price , when
both are equal. E=1 and elasticity is said to be Unitary.
1.9.2 INCOME ELASTICITY OF
DEMAND
• It refers to the change in demand due to the change in the income of
the consumer.
• Income Elasticity Ei = % change in quantity demanded
% change in income
1.9.2 INCOME ELASTICITY OF
DEMAND
Classified into Three Types.
i) Income Elasticity is Unity.
ii) Income Elasticity is Greater
than Unity.
iii) Income Elasticity Less than
Unity
1.9.2.1 Income Elasticity is Unity
• When an increase in income brings about a proportionate increase in
quantity demanded, then income elasticity of demand is equal to one,
E = 1.
1.9.2.2 Income Elasticity is Greater than
unity
• An increase in income brings about a more than proportionate
increase in quantity demanded. E>1
1.9.2.3 INCOME ELASTICITY LESS
THAN UNITY
• When income increases quantity demanded also increase. But less
than proportionately. E<1
1.9.3 CROSS ELASTICITY OF DEMAND
• It refers to a change in the price of one commodity leads to a change in
the quantity demanded of another commodity.
• Cross Elasticity = % change in quantity demanded of X
% change in price of Y
1.9.3.1 CROSS ELASTICITY OF DEMAND
• Cross elasticity Positive ( Positive Slope)
• Cross elasticity Negative ( Negative Slope)

Positive Slope Negative Slope

1.10 SUPPLY ANALYSIS
• Supply refers to the commodity offered for sale at a given time.
• Prof.Mcconnel defines Supply :

“Supply may be defined as a schedule which shows the various amounts

of a product which a producer is willing to able to produce and make
available for sale in the market at each specific price in a set of possible
prices during some given period”.
1.10. LAW OF SUPPLY

• The quantity of goods produced and offered for sale will increase as
the price of goods rise and decreases as the price falls , other things
remaining the same.
1.10.1 SUPPLY SCHEDULE
• Supply schedule represents the functional relationship between
quantity supplied and price.
Price (Rs) Quantity Supplied (Units)
3 40
4 50
5 60
6 80
7 90

• Price of commodity rises, its supply extended, price falls its supply is
contracted
1.11 Factors Affecting Supply
• Number of Firms or Sellers.
• State of Technology
• Price of related goods
• Price expectations
• Nature Factors
• Labour Trouble
• Change in Government Policy
1.12 ELASTICITY OF SUPPLY
• Elasticity of Supply measures the adjustability of supply to price.

• Elasticity of Supply = % change in quantity supplied

% change in one of the variable
ELASTICITY OF SUPPLY
• Elastic Supply:
A small change in price leads to a great change in quantity
supplied.

Inelastic Supply :
Changes in price will not results a great change in quantity
supplied
1.13 Types of Supply Elasticity
• Perfectly or infinitely elastic supply
• Perfectly inelastic supply
• Relatively greater elastic supply
• Relatively less elastic supply
• Unit elastic supply
1.13.1 PERFECTLY ELASTIC SUPPLY
• Small change in Price leads to an infinitely large change in quantity
supplied. E = infinity
1.13.2 PERFECTLY INELASTIC SUPPLY
• Even a large change in price fails to bring about a change in quantity
supplied.
1.13.3 RELATIVELY GREATER ELASTIC SUPPLY
• Supply changes more than proportionately to a change in price.
• ie; Small change in price leads to a very big change in the quantity
supplied. E>1
1.13.4 RELATIVELY LESS ELASTIC
SUPPLY
• Quantity supplied changes less than proportionately to a change in
price .
• A Large change in price leads to small change in amount supplied.

• E<1
1.13.5 UNIT ELASTIC SUPPLY
• Change in supply is exactly equal to the change in price, where both
are equal.
• Elasticity is said to be Unitary.

• E=1
1.14 Determinants of Elasticity of Demand
• Nature of Commodity
• Availability of Substitutes
• Durability of the Commodity
• Share in Total Expenditure
• Inexpensive uses of the commodity
• Different uses of the commodity
• Consumer Behaviour
• Income Level
• Ranges of Price
• Purchase frequency of a product
• Urgency of demand
1.15 SIGNIFICANCE OF ELASTICITY OF DEMAND
• Determining pricing policy.
• Forward Planning.
• Achieving the Break Even.
• Importance to a monopolist.
• Importance for the government.
• Importance in International trade.
• Importance in the determination of factor pricing.
https://youtu.be/g_Q_agzFXi0
 0:03 / 1:54

Role and responsibilities of managerial economis

Video Links
• Basic concepts of Economics : https://youtu.be/DQq-zJPSf4U
• How can India be a $ 10 trillion economy by 2035 | Suresh Prabhu |
TEDx Gateway :https://youtu.be/DET8B2BxOnw
• History & General Indian Economy : https://youtu.be/JZc0GKjvNzE
• Factors Affecting Supply : https://youtu.be/Ozw1GmTQ6Uc
• Role and responsibilities of managerial economist :
https://www.youtube.com/watch?v=x49CXwk0fP8&t=0s
• https://youtu.be/DY6qdEHZrlo
Article : Case Study
• Demand & Supply :
https://onlinelibrary.wiley.com/doi/epdf/10.1111/ajae.12355

• Complementary goods :
• https://doi.org/10.1111/ajae.12289

• Analysis on Agri product : https://doi.org/10.1111/ajae.12288