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Engineeri
ng andManagerialEconomics
July 1
201
0TopicMeaning, Nature and Scope of Economics,
Meaning of Science, Engineering and Technology.
Managerial Economics and its scope inengineering perspective.Question Bank
Shortescriptive
!lass Test "
Solution
#nit "
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"ntroduction to Economics
Economics is the science of choice in the face of unlimited ends and scarceresources that have alternative uses. The concepts and theories of economics help
us to economi$e i.e. to achieve ma%imum output &y using the minimum input.
'cc to ALFREDMARSHALL, economics is the study of man(s action in the ordinary
&usiness of life, it en)uires as ho* he gets his income, and ho* he utili$es it. Thus
on the one hand it is the study of *ealth+ on the other hand it is the study of man.
(WELFAREECONOMICS)
'cc to LIONELROBBINS, Economics studies human &ehavior as a relationship
&et*een unlimited ends and scares means, *hich have alternative uses. (SCIENCE
OFCHOICE)
E!NESdened economics as the study of administration scarce of scarce resources
and of the determinants of employment, income and gro*th.
Contents o" econo#icsT*o vie*s a&out the su&-ect matter of economics
T$a%itiona& 'ie
There are "ou$aspects of economics
I Consu#ptiono /elates to the study of the consumer, the nature of human *ants, their
satisfaction and the nature of demand.II *$o%uctiono The factor inputs are converted in to output. Lan%+ La,o$+ Capita& and
Mana-e#ent are the four agents of production. ierent com&inations
of these agents yield dierent outputs.III E.c/an-e
o /efers to transactions producers and consumers. "t e%amines the price
and output decisions under various maret conditions.I' Dist$i,ution
o Studies the respective shares, i.e. rent, *ages, interest and prot that goto the four agents of production.
Mo%e$n 'ie
Economics is composed of *RICETHEOR!+ INCOMEANDEM*LO!MENTTHEOR!and
0ROWTHTHEOR!. Microeconomics is concerned *ith the determination of price,
*hich is a function of demand and supply. 'll the four aspects of the traditional vie*
are covered in micro economics. n the other hand, macro economics is concerned
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*ith the economic system as a *hole. "t analyses the total income, e%penditure,
employment and gro*th of the entire economy.
T/e sta-es o" econo#ic e1o&ution
Economy refers to the condition under which goods are
produced in a country and the manner in which the peopleare gainfully employed. There are dierent ways of
classifying economies: Rich or Poor; Socialist, Capitalist or
i!ed; "e#eloped, $nderde#eloped or "e#eloping;
%gricultural or &ndustrial; Planned or unplanned and so on.
Essentia& p$ocesses o" an econo#2
*$o%uction, consu#ptionand in1est#entare three essential elements ofthe economy. 'ny economic activity directed to*ards the satisfaction of human
*ants is no*n as p$o%uction. The act of satisfying one(s *ants is calledconsu#ption. In1est#entis the addition made to the total stoc of capital.This addition can &e only made out of the remains of production. Such remains are
the e%cess of the production over consumption and are no*n as sa#ings.
Fun%a#enta& p$o,&e#s o" an econo#2 'hat to produce
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(ow to produce
)or whom to produce
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Econo#2
Ric/ Econo#2
3eople are very *ell employed
4igh standards of living
4igh per capita income
*oo$ Econo#2
3oor employment conditions
Misera&le living conditions
5o* per capita income
Socia&ist Econo#2
The state o*ns the means of production
Social *elfare orientation
6overnment(s participation for employment generation
Capita&ist Econo#2
/esources7 means7 factors of production o*ned &y Entrepreneurs
3rot ma%imi$ation orientation
3rivate sector o*ns employment policies7 prescriptions
De1e&ope% Econo#2
4igh productivity and standard of living
6enerally they have lo* population leading to high per capita income
"nputs are converted in to output in most e8cient *ay
3n%e$%e1e&ope% Econo#2
o not have a &alance &et*een agricultural and industrial productivity and predominantly relyon agriculture for sustenance
De1e&opin- Econo#2
They are in the stage of transition from under developed to developed stage
A-$icu&tu$a& Econo#2
3eople earn their livelihood in agricultural activities
In%ust$ia& Econo#2
"ndustrial activities are predominant
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*&anne% Econo#2
Ma-or economic decisions are taen &y a central &ody
The individual unit(s o&-ectives must &e in line *ith the o&-ectives of the nation al gro*th as a*hole
3np&anne% Econo#2
!haracteri$ed &y complete economic democracy
Economic decisions are guided &y the maret
Basic te$#s an% concepts
*oods
'nything that satises human *ants is called a good in economics. 9hile services
also satisfy human *ants, the dierence is that goods are tangi&le &ut services are
not. 6oods can &e of various types. They can &e free or economic, consumer or
producer, material or non material, transfera&le or non transfera&le, private or
pu&lic and so on.
$tility
The *ant satisfying )uality of a good is no*n as utility. #tility is su&-ective. Since it
does not lie in the good &ut is a function of the consumer(s mind. Though seemingly
similar utility is dierent from usefulness or pleasure
:or e%ample; !igarette and !rocin.
'lso, utility of a good changes *ith the change in conditions and circumstances.
'ccordingly, there are three main forms of utility;
:orm #tility
3lace #tility and
Time #tility
+alue
The value of a good denotes the goods7 services that *e can have in e%change for
it. 'lthough to layman, value may have the meaning as utility+ in economics the t*o
are )uite dierent. :or a good to have value, &esides possessing utility, it should
also &e scares and transfera&le. #nless all these three attri&utes are present in a
good, it cannot have value.
For example: Rotten egg/ Car
Price
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value. 4o*ever, it should &e noted that value is relative since it is e%pressed in
e%change. There can &e general rise and fall in prices &ut not in value.
'ealth
'nything that has value is called *ealth. "n economics, *ealth does not only refer to
money, &ut to all goods that have value. Since *ealth is lined to value, all thethree attri&utes of value are also applica&le to *ealth.
&ncome
The amount of money *hich *ealth yields is no*n as income is a =o*. Tae the
case of a man *ho o*ns a car and runs it as ta%i. The car is *orth /s. > lah and
man earns /s. 10000 per month from the ta%i operations. 4ere /s. > lah is the
*ealth and /s. 10000 per month is the income.
Euili-rium
E)uili&rium refers to a state of &alance. "t is an ideal situation *hen the forces
acting on an o&-ect in opposing directions are e%actly e)ual. "n such a case, the
o&-ect does not have any motive for change.
E)uili&rium may &e sta&le, unsta&le or neutral depending on the reaction of the
o&-ect to the distur&ing forces. "f the o&-ect comes &ac to its original position it is
said to &e in sta&le e)uili&rium, failing *hich it is a case of unsta&le e)uili&rium. "n
neutral e)uili&rium, it stays *here it is. Economic analysis most commonly uses
sta&le e)uili&rium.
Nature and Scope of ManagementEconomics ?Managerial Economics@Managerial economics refers to the application of E!!NM"! T4E/A ?the study
Micro and Macro Economics@ and the tools of analysis of E!"S"N S!"EN!E to
e%amine ho* an organi$ation can achieve its aims and o&-ectives more e8ciently
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ptimal solution to Managerial ecision Maing
%lthough the theory of rm/icro economics0 is the single
most important element of anagerial Economics, the
general conditions of the country li1e /le#el of aggregate
demand, rate of in2ation, and interest rate0 within which
the rm operates are also #ery important0
Natu$e o" Mana-e$ia& Econo#icsThis is dened &y factors such as it
1. "s essentially microeconomic in nature2. "s pragmaticB. Celong to normative economics, i.e. &esides &eing descriptive, it is also
prescriptive.>. "s conceptual in natureD. #tili$es some theories of macroeconomics
. "s pro&lem solving in nature
Scope o" Mana-e$ia& Econo#icsManagerial economics helps in the follo*ing;
1. Estimation of product demand2. 'nalysis of product demand
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B. 3lanning of production schedule>. eciding the input com&inationD. Estimation of cost product. 'nalysis of cost productF. 'chieving economies of scaleG. etermination of price of product
H. 'nalysis of price of product10.'nalysis of maret structures11.3rot estimation and planning12.3lanning and control of capital e%penditure
RELATIONSHI*TOECONOMICTHEOR!Economic Theory
Micro Economics
Macro Economics
Mic$o Econo#icsThe study of the economic &ehavior of individual decision maing units such as;
"ndividual consumers
/esource o*ners and
Cusiness rms in a free enterprise system.
Mac$o Econo#ics
The study of total or aggregate level of output, income, employment, consumption,investment, and prices of the economy #iewed as a whole.Economic Theories see to predict and e%plain economic &ehavior
The methodology of economics ?and science in general@ is to accept a theory ormodel if it predicts accurately and if the predictions follo* logically from the
assumption.
Meaning of Science, engineeringand technology
The distinction &et*een science, engineering and technology is not al*ays clear.
Scienceis the reasoned investigation or study of phenomena, aimed atdiscovering enduring principles among elements of the phenomenal *orld &y
employing formal techni)ues such as the scientic method. Technologies are not
usually e%clusively products of science, &ecause they have to satisfy re)uirements
such as utility, usa&ility and safety.
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H. Crie=y e%plain the role of engineering economics.10.9rite a note on Economic evelopment(.11.9hat is macro economics12.State the scope of macro economics.1B.9hat is the importance of micro economics for a rm1>.State the role of macro economics in the determination of general level of
prices.1D.6ive any three points of dierence &et*een micro economics and macro
economics.1.9hat is meant &y economic dynamics1F.State the meaning and nature of science.1G.E%plain the meaning of invention and innovation.1H.9hat is meant &y technology20.Crie=y e%plain types of technology.21.9hat is the role of technology in economic development22.4o* can science and technology &e used for national self reliance E%plain.2B.9rite a note on economic development(.
2>.OManagerial economics integrates economics *ith decision maing.P E%plainthis statement.2D.OManagerial economics facilitates decision maing in &usiness.P !omment.2.4o* does managerial economics facilitate demand analysis and forecasting2F.9hat is the relationship &et*een managerial economics and economic
theory E%plain.2G.Cring out the relationship &et*een economics and accounting.2H.4o* does statistic help managerial economistB0.4o* does managerial economics help in analysis of &usiness environmentB1.9hat are price output decisions E%plain.B2.9hat are investment decisions E%plain.BB.9hat are the roles of a managerial economist in a &usiness rm
B>.9hat is scarcity principleBD.E%plain opportunity cost principle.B.State the concept of marginalism or incremental principle.BF.9hat is the implication of principle of time perspectiveBG.E%plain discounting principle.BH.9hat is e)ui marginal principle
"escripti#e
1. OEconomics studies human &ehavior as a relationship &et*een unlimited
ends and scares means, *hich have alternative uses.P?/o&&ins@. o you
agree2. OEconomics is the study of man(s action in the ordinary &usiness of life.P
E%plain the statement.B. OEconomics is the science of *ealth.P "s this denition ade)uate 6ive
reasons for your ans*er.>. ierentiate &et*een positive economics and normative economics.D. iscuss the concept of economics and state as to ho* the study of economics
is helpful in &usiness decision maing. 9hat are economic la*s 9hat are their features
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F. iscuss the role of macro economics in the determination of income and
employment and determination of general level of prices.G. istinguish &et*een;
a@ Macro and micro economics&@ Static and dynamic economic
H. E%plain the concepts of science, engineering and technology.10.ene engineering. 9hat is the contri&ution of engineering to modern
civili$ation11.9hat is meant &y technology iscuss the relationship &et*een science and
technology.12.E%amine the role of science and technology in the economic development of
a nation.1B.iscuss the role of engineering and technology in economic development.1>.E%plain the nature and interrelationship &et*een science and engineering.1D.OThe development of science, engineering and technology is instrumental to
the economic development of a nation.P Ela&orate this statement in the
conte%t of "ndian economy.
1.!larify the meanings of science, engineering and technology. 'lso evaluatetheir impact on the economic development of a country.
1F.9hat is meant &y managerial economics 4o* is it helpful to a &usiness rm
in decision maing1G.OManagerial economics is concerned *ith analysis of &usiness situations and
taing suita&le &usiness decisions.P E%amine these statements and state the
concepts and techni)ues *hich are used in managerial decision maing.1H.9hat are the characteristics of managerial economist iscuss in &rief.20.9hich are the ma-or areas *hich are the concern of managerial economics
iscuss in &rief.21.ene managerial economics and e%plain its scope in the conte%t of present
day &usiness environment.22.4o* is managerial economics related to economics, accounting, operation
research, and statistics iscuss.2B.Cring out the dierence &et*een traditional economic theory and managerial
economics.2>.9rite an e%planatory note on the application of economic theory to &usiness
management.2D.iscuss the role of managerial economist in decision maing in &usiness.2.9rite an e%planatory note on the application of economic theory to &usiness
management.2F.9hat is the role of managerial economist in taing demand decisions and
price output decisions2G.9hat are product decisions "llustrate your ans*er.2H.9hy are investment decisions important for a &usiness 9hat is the role of
managerial economist in this regardB0.4o* is managerial economics concerned *ith investment decisions and
advertising decisions E%plain.B1.9hat is scarcity principle 9hat are its implicationsB2.9hat is the concept of opportunity cost 9hen is it useful
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BB.E%plain incremental principle *ith the help of an imaginary e%ample.B>.9hat does principle of time perspective convey to the &usiness economist
E%plain.BD.9rite an e%planatory note on discounting principle.B.E%plain in &rief the marginal and e)ui marginal principles.BF.iscuss in &rief the concept of ris and uncertainty *ith reference to a
&usiness rm.BG.E%plain any three principles *hich have *ide applications in the eld of
managerial economics.BH.9rite short notes on the follo*ing.
a@ pportunity cost principle&@ Scarcity principlec@ "ncremental principle.
>0.9hat is managerial economic, ho* does it dier from economics 'lso
discuss the nature and scope of managerial economics.>1.OManagerial economics is the integration of economic theory *ith &usiness
practice for the purpose of facilitating decision maing and for*ard planning
&y managementP. E%plain.>2.9e often use managerial and &usiness economics synonymously. 'rgue *ith
logic.>B.iscuss the principles of economics *hich help in eective decision maing in
the frame*or of uncertainty and scarcity of resources. iscuss the
statement and ela&orate *ith an e%ample.
C&ass test I4 AMANA0ERIALECONOMICSANDEN0INEERIN0EH34 567B TECH4 CS
SEMESTER'TIME8 55 MIN3TESMA9IM3MMARS8
6:
Section4 % /Short0 4 Try any two /5650
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1. ene economics as a science of material *elfare.
2. E%plain the concept of managerial economics.
B. 9rite a note on Economic evelopment(.
Section4 7 /"escripti#e0 4 Try any one /8690
1. OEconomics studies human &ehavior as a relationship &et*een unlimitedends and scares means, *hich have alternative uses.P?/o&&ins@. o youagree
2. ene the term economics. 6ive the vie*s of dierent thiners on the natureof the su&-ect.
C&ass test I4 BMANA0ERIALECONOMICSANDEN0INEERIN0EH34 567B TECH4 CS
SEMESTER'TIME8 55 MIN3TESMA9IM3MMARS8
6:
Section4 % /Short0 4 Try any two /5650
1. OManagerial economics integrates economics *ith decision maing.P E%plain
this statement.
2. 9hat are the roles of a managerial economist in a &usiness rm
B. 9rite a note on Economic evelopment(.
Section4 7 /"escripti#e0 4 Try any one /8690
1. OEconomics is the science of *ealth.P "s this denition ade)uate 6ive
reasons for your ans*er.
2. E%plain the concepts of science, engineering and technology.
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