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Engineeri

ng and
Manageri
al
Economic
s

July 1

201
0

Topic

Meaning, Nature and Scope of Economics,


Meaning of Science, Engineering and Technology.
Managerial Economics and its scope in
engineering perspective.
Question Bank
Short
Descriptive
Class Test I
Solution

Unit I

10

Introduction to Economics
Economics is the science of choice in the face of unlimited ends and scarce
resources that have alternative uses. The concepts and theories of economics help
us to economize i.e. to achieve maximum output by using the minimum input.
Acc to ALFRED MARSHALL , economics is the study of mans action in the ordinary
business of life, it enquires as how he gets his income, and how he utilizes it. Thus
on the one hand it is the study of wealth; on the other hand it is the study of man.
(WELFARE ECONOMICS)
Acc to LIONEL ROBBINS, Economics studies human behavior as a relationship
between unlimited ends and scares means, which have alternative uses. (SCIENCE
OF CHOICE )
KEYNES defined economics as the study of administration scarce of scarce resources
and of the determinants of employment, income and growth.

Contents of economics
Two views about the subject- matter of economics

Traditional View

There are four aspects of economics


I.

Consumption
Relates to the study of the consumer, the nature of human wants, their
satisfaction and the nature of demand.
II.
Production
o The factor inputs are converted in to output. Land, Labor, Capital and
Management are the four agents of production. Different combinations
of these agents yield different outputs.
III.
Exchange
o Refers to transactions producers and consumers. It examines the price
and output decisions under various market conditions.
IV.
Distribution
o Studies the respective shares, i.e. rent, wages, interest and profit that go
to the four agents of production.
Modern View
o

Economics is composed of PRICE THEORY , INCOME AND EMPLOYMENT THEORY and


GROWTH THEORY. Microeconomics is concerned with the determination of price,
which is a function of demand and supply. All the four aspects of the traditional view
are covered in micro economics. On the other hand, macro economics is concerned
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with the economic system as a whole. It analyses the total income, expenditure,
employment and growth of the entire economy.

The stages of economic evolution

Economy refers to the condition under which goods are


produced in a country and the manner in which the people
are gainfully employed. There are different ways of
classifying economies: Rich or Poor; Socialist, Capitalist or
Mixed; Developed, Underdeveloped or Developing;
Agricultural or Industrial; Planned or unplanned and so on.

Essential processes of an economy


Production, consumption and investment are three essential elements of
the economy. Any economic activity directed towards the satisfaction of human
wants is known as production. The act of satisfying ones wants is called

consumption. Investment is the addition made to the total stock of capital.


This addition can be only made out of the remains of production. Such remains are
the excess of the production over consumption and are known as savings.

Fundamental problems of an economy


What to produce
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How to produce
For whom to produce

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Economy
Rich Economy

People are very well employed


High standards of living
High per- capita income

Poor Economy

Poor employment conditions


Miserable living conditions
Low per- capita income

Socialist Economy

The state owns the means of production


Social welfare orientation
Governments participation for employment generation

Capitalist Economy

Resources/ means/ factors of production owned by Entrepreneurs


Profit maximization orientation
Private sector owns employment policies/ prescriptions

Developed Economy

High productivity and standard of living


Generally they have low population leading to high per capita income
Inputs are converted in to output in most efficient way

Underdeveloped Economy

Do not have a balance between agricultural and industrial productivity and predominantly rely
on agriculture for sustenance

Developing Economy

They are in the stage of transition from under- developed to developed stage

Agricultural Economy

People earn their livelihood in agricultural activities

Industrial Economy

Industrial activities are predominant

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Planned Economy

Major economic decisions are taken by a central body


The individual units objectives must be in line with the objectives of the nation al growth as a
whole

Unplanned Economy

Characterized by complete economic democracy


Economic decisions are guided by the market

Basic terms and concepts


Goods
Anything that satisfies human wants is called a good in economics. While services
also satisfy human wants, the difference is that goods are tangible but services are
not. Goods can be of various types. They can be free or economic, consumer or
producer, material or non- material, transferable or non- transferable, private or
public and so on.
Utility
The want satisfying quality of a good is known as utility. Utility is subjective. Since it
does not lie in the good but is a function of the consumers mind. Though seemingly
similar utility is different from usefulness or pleasure
For example: Cigarette and Crocin.
Also, utility of a good changes with the change in conditions and circumstances.
Accordingly, there are three main forms of utility:

Form Utility
Place Utility and
Time Utility

Value
The value of a good denotes the goods/ services that we can have in exchange for
it. Although to layman, value may have the meaning as utility; in economics the two
are quite different. For a good to have value, besides possessing utility, it should
also be scares and transferable. Unless all these three attributes are present in a
good, it cannot have value.
For example: Rotten egg/ Car
Price
Value when expressed in terms of money is called. In the early stages of economic
evolution, when the barter system was prevalent, price was the same as value.
Now, since goods are exchangeable for money, the price of a good is its monetary
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value. However, it should be noted that value is relative since it is expressed in


exchange. There can be general rise and fall in prices but not in value.
Wealth
Anything that has value is called wealth. In economics, wealth does not only refer to
money, but to all goods that have value. Since wealth is linked to value, all the
three attributes of value are also applicable to wealth.
Income
The amount of money which wealth yields is known as income is a flow. Take the
case of a man who owns a car and runs it as taxi. The car is worth Rs. 4 lakh and
man earns Rs. 10000 per month from the taxi operations. Here Rs. 4 lakh is the
wealth and Rs. 10000 per month is the income.
Equilibrium
Equilibrium refers to a state of balance. It is an ideal situation when the forces
acting on an object in opposing directions are exactly equal. In such a case, the
object does not have any motive for change.
Equilibrium may be stable, unstable or neutral depending on the reaction of the
object to the disturbing forces. If the object comes back to its original position it is
said to be in stable equilibrium, failing which it is a case of unstable equilibrium. In
neutral equilibrium, it stays where it is. Economic analysis most commonly uses
stable equilibrium.

Nature and Scope of Management


Economics (Managerial Economics)
Managerial economics refers to the application of ECCONOMIC THEORY (the study
Micro and Macro Economics) and the tools of analysis of DECISION SCIENCE to
examine how an organization can achieve its aims and objectives more efficiently

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Optimal solution to Managerial Decision Making


Although the theory of firm(Micro economics) is the single
most important element of Managerial Economics, the
general conditions of the country like (level of aggregate
demand, rate of inflation, and interest rate) within which
the firm operates are also very important)

Nature of Managerial Economics


This is defined by factors such as it
1. Is essentially microeconomic in nature
2. Is pragmatic
3. Belong to normative economics, i.e. besides being descriptive, it is also
prescriptive.
4. Is conceptual in nature
5. Utilizes some theories of macroeconomics
6. Is problem solving in nature

Scope of Managerial Economics


Managerial economics helps in the following:
1. Estimation of product demand
2. Analysis of product demand
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3. Planning of production schedule


4. Deciding the input combination
5. Estimation of cost product
6. Analysis of cost product
7. Achieving economies of scale
8. Determination of price of product
9. Analysis of price of product
10.Analysis of market structures
11.Profit estimation and planning
12.Planning and control of capital expenditure

RELATIONSHIP TO ECONOMIC THEORY


Economic Theory

Micro Economics
Macro Economics

Micro Economics
The study of the economic behavior of individual decision making units such as:
Individual consumers
Resource owners and
Business firms in a free enterprise system.
Macro Economics
The study of total or aggregate level of output, income, employment, consumption,
investment, and prices of the economy viewed as a whole.
Economic Theories seek to predict and explain economic behavior
The methodology of economics (and science in- general) is to accept a theory or
model if it predicts accurately and if the predictions follow logically from the
assumption.

Meaning of Science, engineering


and technology
The distinction between science, engineering and technology is not always clear.

Science is the reasoned investigation or study of phenomena, aimed at


discovering enduring principles among elements of the phenomenal world by
employing formal techniques such as the scientific method. Technologies are not
usually exclusively products of science, because they have to satisfy requirements
such as utility, usability and safety.

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Engineering is the goal-oriented process of designing and making


tools and systems to exploit natural phenomena for practical human means, often
(but not always) using results and techniques from science. The development of
technology may draw upon many fields of knowledge, including scientific,
engineering, mathematical, linguistic, and historical knowledge, to achieve some
practical result.

Technology is often a consequence of science and engineering


although technology as a human activity precedes the two fields. For example,
science might study the flow of electrons in electrical conductors, by using alreadyexisting tools and knowledge. This new-found knowledge may then be used by
engineers to create new tools and machines, such as semiconductors, computers,
and other forms of advanced technology. In this sense, scientists and engineers may
both be considered technologists; the three fields are often considered as one for
the purposes of research and reference.
The exact relations between science and technology in particular have been
debated by scientists, historians, and policymakers in the late 20th century, in part
because the debate can inform the funding of basic and applied science. In
immediate wake of World War II, for example, in the United States it was widely
considered that technology was simply "applied science" and that to fund basic
science was to reap technological results in due time. An articulation of this
philosophy could be found explicitly in Vannevar Bush's treatise on postwar science
policy, ScienceThe Endless Frontier: "New products, new industries, and more jobs
require continuous additions to knowledge of the laws of nature... This essential new
knowledge can be obtained only through basic scientific research." In the late1960s, however, this view came under direct attack, leading towards initiatives to
fund science for specific tasks (initiatives resisted by the scientific community). The
issue remains contentiousthough most analysts resist the model that technology
simply is a result of scientific research.

Meaning and nature of science


Science is the systemized body of knowledge pertaining to a particular
field of enquiry. Such systemized body of knowledge pertaining to a field contains
concepts, theories and principles which are universal and true. Science has the
following features:
i.
ii.
iii.
iv.

Systemized body of knowledge.


Scientific methods of observation.
Tests validity and predictability.
Universal application of principles
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Whichever field of enquiry fulfills the above criteria is called a science. The
important examples of science are physics, chemistry, biology, zoology etc.

Fundamental Concepts
The interaction of individuals and firms in a market economy can be
described as a circular flow of money, goods and services and resources
through product and factor markets
Firms exist because the costs of production are lower and returns to the
owners of labor and capital are higher than if the firm did not exist.
Limits are imposed on the size of firms because the cost of organizing
transactions rises as the firm becomes larger and because managerial ability
is limited.
Economic profit refers to revenues minus all relevant costs, both explicit and
implicit.
Profit plays two roles in the market economy:
1. Changes in profit signals producers to change the rate of production,
and
2. Profit is a reward to entrepreneurs for taking risks, being especially
innovative in developing new products, and reducing production costs.
Firms can earn economic profits because they have monopoly power in a
market. In general, such profits are not socially useful.
The primary Decision- Making role of managerial economics is in determining
the optimal course of action where there are constraints imposed on the
decision.

Question Bank
Short
1. Define economics as a science of material welfare.
2. How will you argue for economics as a science of allocation of scarce
resources?
3. What is business economics?
4. Explain the concept of managerial economics.
5. What is the scope of macro economics?
6. Do you consider economics as science? Give reasons.
7. Explain as a positive science.
8. Why economics is called a normative science?
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9. Briefly explain the role of engineering economics.


10.Write a note on Economic Development.
11.What is macro economics?
12.State the scope of macro economics.
13.What is the importance of micro economics for a firm?
14.State the role of macro- economics in the determination of general level of
prices.
15.Give any three points of difference between micro- economics and macroeconomics.
16.What is meant by economic dynamics?
17.State the meaning and nature of science.
18.Explain the meaning of invention and innovation.
19.What is meant by technology?
20.Briefly explain types of technology.
21.What is the role of technology in economic development?
22.How can science and technology be used for national self reliance? Explain.
23.Write a note on economic development.
24.Managerial economics integrates economics with decision- making. Explain
this statement.
25.Managerial economics facilitates decision- making in business. Comment.
26.How does managerial economics facilitate demand analysis and forecasting?
27.What is the relationship between managerial economics and economic
theory? Explain.
28.Bring out the relationship between economics and accounting.
29.How does statistic help managerial economist?
30.How does managerial economics help in analysis of business environment?
31.What are price output decisions? Explain.
32.What are investment decisions? Explain.
33.What are the roles of a managerial economist in a business firm?
34.What is scarcity principle?
35.Explain opportunity cost principle.
36.State the concept of marginalism or incremental principle.
37.What is the implication of principle of time perspective?
38.Explain discounting principle.
39.What is equi- marginal principle?
Descriptive
1. Economics studies human behavior as a relationship between unlimited
ends and scares means, which have alternative uses.(Robbins). Do you
agree?
2. Economics is the study of mans action in the ordinary business of life.
Explain the statement.
3. Economics is the science of wealth. Is this definition adequate? Give
reasons for your answer.
4. Differentiate between positive economics and normative economics.
5. Discuss the concept of economics and state as to how the study of economics
is helpful in business decision- making?
6. What are economic laws? What are their features?
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7. Discuss the role of macro- economics in the determination of income and


employment and determination of general level of prices.
8. Distinguish between:
a) Macro and micro economics
b) Static and dynamic economic
9. Explain the concepts of science, engineering and technology.
10.Define engineering. What is the contribution of engineering to modern
civilization?
11.What is meant by technology? Discuss the relationship between science and
technology.
12.Examine the role of science and technology in the economic development of
a nation.
13.Discuss the role of engineering and technology in economic development.
14.Explain the nature and interrelationship between science and engineering.
15.The development of science, engineering and technology is instrumental to
the economic development of a nation. Elaborate this statement in the
context of Indian economy.
16.Clarify the meanings of science, engineering and technology. Also evaluate
their impact on the economic development of a country.
17.What is meant by managerial economics? How is it helpful to a business firm
in decision making?
18.Managerial economics is concerned with analysis of business situations and
taking suitable business decisions. Examine these statements and state the
concepts and techniques which are used in managerial decision making.
19.What are the characteristics of managerial economist? Discuss in brief.
20.Which are the major areas which are the concern of managerial economics?
Discuss in brief.
21.Define managerial economics and explain its scope in the context of present
day business environment.
22.How is managerial economics related to economics, accounting, operation
research, and statistics? Discuss.
23.Bring out the difference between traditional economic theory and managerial
economics.
24.Write an explanatory note on the application of economic theory to business
management.
25.Discuss the role of managerial economist in decision making in business.
26.Write an explanatory note on the application of economic theory to business
management.
27.What is the role of managerial economist in taking demand decisions and
price- output decisions?
28.What are product decisions? Illustrate your answer.
29.Why are investment decisions important for a business? What is the role of
managerial economist in this regard?
30.How is managerial economics concerned with investment decisions and
advertising decisions? Explain.
31.What is scarcity principle? What are its implications?
32.What is the concept of opportunity cost? When is it useful?
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33.Explain incremental principle with the help of an imaginary example.


34.What does principle of time perspective convey to the business economist?
Explain.
35.Write an explanatory note on discounting principle.
36.Explain in brief the marginal and equi- marginal principles.
37.Discuss in brief the concept of risk and uncertainty with reference to a
business firm.
38.Explain any three principles which have wide applications in the field of
managerial economics.
39.Write short notes on the following.
a) Opportunity cost principle
b) Scarcity principle
c) Incremental principle.
40.What is managerial economic, how does it differ from economics? Also
discuss the nature and scope of managerial economics.
41.Managerial economics is the integration of economic theory with business
practice for the purpose of facilitating decision making and forward planning
by management. Explain.
42.We often use managerial and business economics synonymously. Argue with
logic.
43.Discuss the principles of economics which help in effective decision making in
the framework of uncertainty and scarcity of resources. Discuss the
statement and elaborate with an example.

Class test I- A
MANAGERIAL ECONOMICS AND
ENGINEERING
EHU- 501
B. TECH- CS

SEMESTER V
TIME: 55 MINUTES
MAXIMUM MARKS:
08

Section- A (Short) - Try any two (2*2)

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KIT, Kanpur

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1. Define economics as a science of material welfare.


2. Explain the concept of managerial economics.
3. Write a note on Economic Development.
Section- B (Descriptive) - Try any one (1*4)
1. Economics studies human behavior as a relationship between unlimited
ends and scares means, which have alternative uses.(Robbins). Do you
agree?
2. Define the term economics. Give the views of different thinkers on the nature
of the subject.

Class test I- B
MANAGERIAL ECONOMICS AND
ENGINEERING
EHU- 501
B. TECH- CS

SEMESTER V
TIME: 55 MINUTES
MAXIMUM MARKS:
08

Section- A (Short) - Try any two (2*2)


1. Managerial economics integrates economics with decision- making. Explain
this statement.
2. What are the roles of a managerial economist in a business firm?
3. Write a note on Economic Development.
Section- B (Descriptive) - Try any one (1*4)
1. Economics is the science of wealth. Is this definition adequate? Give
reasons for your answer.
2. Explain the concepts of science, engineering and technology.

Deepak Srivastava
KIT, Kanpur