PACIFIC

PACIFIC
SCHOOl
SCHOOl
OF
OF
ENGINEERING
ENGINEERING
Subject :ENGINEERING

Ch .1. :

ECONOMICS & MANAGEMENT

Introduction to economics: Defination,Nature, Scope,

Difference between micro-economics & macro-economics
Theory of Demand & Supply

Prepared by :

From
:

KHAN WAJID
DIVYESH VEGAD
CHODHRY VIVEK
ANKLESHWARIYA KAUSHAL
PANDAV MAYANK

ELECTRICAL DEPARTMENT

Guided by : Miss

Difference between Macro & Microeconomics

Microeconomic
s

Macroeconomi
cs

Microeconomics is the study

of economics at a smaller
scale.
It is the study of economics at
an individual, group or
company level.
It focus on issues that effect
individuals and companies
such as supply and demand for
a specific product, the
production that an individual
or business is capable of, or
the effects of regulation on
business.

Macroeconomics is the study

of large scale economic issue.
It is the study of a national
economy as a whole.
It focuses on issues that affect
the economy as a whole. For
example, it include
unemployement raes, the gross
domestic product of an
economy, and the effcts of
exports and imports.

THEORY OF
DEMAND & SUPPLY
Basics

Supply and demand is perhaps one of the most

fundamental concepts of economics and it is the
backbone of a market economy.

Demandrefers to how much (quantity) of a product or

service is desired by buyers. The quantity demanded is
the amount of a product people are willing to buy at a
certain price; the relationship between price and quantity
demanded is known as the demand relationship.

Supplyrepresents how much the market can offer.

The quantity supplied refers to the amount of a
certain good producers are willing to supply when
receiving a certain price. The correlation between
price and how much of a good or service is
supplied to the market is known as the supply
relationship. Price, therefore, is a reflection of
supply and demand

DEFINATION

DEMAND
It is aneconomicprinciple that describes a
consumer's desire and willingness to pay a
price for a specific good or service. Holding
all other factors constant, the price of a good
or service increases as
itsdemandincreases and vice versa.

LAW OF
DEMAND
Claiming other things equal,
the quantity demanded of
goods falls when the price
of the goods increases.

EXPLANATION
The law of demand states that, if all other factors remain
equal, the higher the price of a good, the less people will demand
that good.

In other words, the higher the price, the lower the

quantity demanded. 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. The chart below shows that the curve is
a downward slope.

LAW OF DEMAND USING

DEMAND CURVE

Price

P1

P2

DEMAND
RELATIONSHIP
B

P3

DEMAN
D
(D)

Q1
Q2
Quantit
y

Q3

What are the Determinants of

DEMAND
The five determinants of demand are:
1. Price of the good or service.
2. Prices of related goods or services. These are either
complementary, which are things that are usually bought
along with the product in demand. They could also be
substitutes for the product in demand.
3. Income of those with the demand.
4. Tastes or preferences of those with the demand.
5. Expectations. These are usually about whether the price will
go up. For aggregate demand, the number of buyers in the
market is a sixth determinant.

SUPPLY
Supplyisdefinedas the quantity of a
product that a producer is willing and
able tosupplyonto the market at a
given price in a given time period.

LAW OF SUPPLY

Like the law of demand, the law of

supply
demonstrates the quantities that
will be sold at a certain price.

But unlike the law of demand, the

supply relationship shows an upward slope.
This means that the higher the price, the
higher the quantity supplied.

Producers supply more at a higher

price because selling a higher quantity at a
higher price increases revenue.

SUPPLY CURVE

Relation between DEMAND &

SUPPLY
SUPPLY and DEMANDis aneconomic
modelof price determinationin amarket.

It concludes that in acompetitive

market, theunit pricefor a
particulargoodwill vary until it settles at a
point where the quantity demanded by
consumers (at current price) will equal the
quantity supplied by producers (at current
price), resulting in an economic

MARKET EQUILIBRIUM
What is Equilibrium ?
When supply and demand are equal (i.e. when
the supply function and demand function
intersect) the economy is said to be atequilibrium
. 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.
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

PRICE

EQUILIBIUM CHART

EQUILIBRIU
M

SUPPLY
(S)

DEMAND
(D)
QUANTITY

DEMAND
ELASTICITY

Demand elasticity is a measure of how much the quantity

demanded will change if another factor changes. One example is
the price elasticity of demand; this measures how the quantity
demanded changes with price. This is important for setting prices
so as to maximize profit.

Demand elasticity are of three types:

A. Price elasticity,
B.
Income elasticity,
C.
Cross elasticity.

PRICE ELASTICITY
Definition
It is defined as the ratio of percentage change in
the quantity demanded to the percentage change in the
price.
Price elasticity =

% Change in the Quantity

Demanded
% Change in the price of the
Product

For example, 15 % decrement in the price of the product

increases the quantity demand by 25 %. So, the price elasticity
of demand is,
25

Price elasticity =

15

= 5/3

INCOME ELASTICITY
Definition
It is defined as the ratio of percentage change in the
quantity demanded to the percentage change in the income of
buyer.
Income elasticity =

% Change in the Quantity

Demanded
% Change in the Income of buyer

For example, 10% increase in the income of buyer increases

the quantity demand by 20 %. So, the income elasticity of
demand is,
Income elasticity =

20
10

= 2

CROSS ELASTICITY
Definition
It is defined as the ratio of percentage change in the
quantity demanded to the percentage change in price of another
good.
Cross elasticity =

% Change in the Quantity Demanded of

good1
% Change in the Price of good 2

THE END
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