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SREENIVASA INSTITUTE OF TECHNOLOGY AND MANAGEMENT STUDIES
Prepared by
Dr. V. MURALI KRISHNA & Ms.R.J.CHITRA
Submitted To
Mr. T.P.SARATHI
DEPARTMENT OF MANAGEMENT STUDIES
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Economics is a social science . Its basic function is to study howpeople
individual house holds, firms and nations maximizing
their gains from their limited resources and opportunities.
ECONOMICS
Definitions of Economics:
Wealth Definition- Adam Smith, J.B.Say, J.S.Mill(Classical Definition)
Welfare Definition-Marshall, A.C.Pigue.(Neoclassical Definition)
Scarcity definition- Robbins(Modern Definition)
Growth Definition- Paul A Samuelson
(Modern Definition)
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RAGNER FRISCH dividedEconomics into two major branches. As1. Micro Economics2. Macro EconomicsMicro means small, it study - A Firm /A Business / A Consumer .
where as
Macro means big. It studies the Society/ Industry
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Managerial economics can be broadly defined as the study of economic
theories, logic and tools of economic analysis that are used in the
process of decision making. Economic theories and techniques of economic
analysis are applied to analyze business problems, evaluate business options and
opportunities with a view to arriving at an appropriate business decision.
MANAGERIAL ECONOMICS
The origin of the subject could be traced from the works of the Greek philosopherAristotle, who confined the study of economics to household management and acquiring,guarding and making proper use of wealth.
The term economics is derived from Two Greek words OIKON &NORMSwhich means LAW OF HOUSE HOLDS.
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Spencer and Seigleman : It is the integration of economic theory
with business practice for the purpose of facilitating decision making
and forward planning by management
Mansfield : He defines that managerial economics is concerned with
the application of economic concepts and economic tools to the
problems of formulating rational decision making.
MANAGERIAL ECONOMICS - DEFINITION
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Law of Demand establishes a relationship between price and
quantity demanded for a product. It does not tell us exactly ashow strong or weak the relationship happens To be.
A manager needs an exact measure of this relationship forappropriate business decisions. From this point of the degree of
responsiveness of change in quantity demand as a result ofchange in Price or any other demand determinant is called
ELASTICITY OF DEMAND
ELASTICITYmeans CHANGE
This concept was introduced into the economic theory by
ALFRED MARSHALL.
ELASTICITY OF DEMAND
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ELASTICITY OF DEMAND - DEFINITION
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Demand
Price
PRICE ELASTICITY OF DEMAND
DETERMINANTS OF PRICE ELASTICITY
1.The number of close substitutes for a good / uniqueness of the product
2.The cost of switching between different products .3.The degree of necessity or whether the good is a luxury.
4.The % of a consumers income allocated to spending on the good .
5.Whether the good is subject to habitual consumption .
6.Peak and off-peak demand
The degree of responsiveness of quantity demanded as a
result of change in Price is called Price Elasticity of Demand
Pd =
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TYPES OF PRICE ELASTICY
1.PERFECTLY ELASTICITY OF DEMAND (Ed > 1)
2.PERFECTLY INELASTICITY OF DEMAND (Ed < 1)
3.UNITARY ELASTICITY OF DEMAND (Ed = 1)
4.RELETIVELY ELASTICITY OF DEMAND (Ed > 0)
5.RELETIVELY INELASTICITY OF DEMAND (Ed > )
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1. Anincreasein price . . .
Price
(a) Perfectly Inelastic Demand: Elasticity Equals 0
Demand
1000 Quantity
2. . . . leaves the quantity demanded unchanged.
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The Price Elasticity of Demand
(b) Inelastic Demand: Elasticity Is Less Than 1
Quantity0
5
90
Demand1. A 22%increasein price . . .
Price
2. . . . leads to an 11% decrease in quantity demanded.
4
100
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2. . . . leads to a 22% decrease in quantity demanded.
(c) Unit Elastic Demand: Elasticity Equals 1
Quantity
4
1000
Price
5
80
1. A 22%increasein price . . .
Demand
The Price Elasticity of Demand
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The Price Elasticity of Demand
(d) Elastic Demand: Elasticity Is Greater Than 1
Demand
Quantity
4
1000
Price
5
50
1. A 22%increasein price . . .
2. . . . leads to a 67% decrease in quantity demanded.
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The Price Elasticity of Demand
(e) Perfectly Elastic Demand: Elasticity Equals Infinity
Quantity0
Price
$4 Demand
2. At exactly Rs 4,consumers willbuy any quantity.
1. At any priceabove Rs 4, quantity
demanded is zero.
3. At a price below Rs 4,quantity demanded is infinite.
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