Name – Saurabh Poddar

Roll no. – (20-1022)

Reg. no.- (20-1022)
Specialization- Marketing
Batch- 2020-22
Institute- BIMHRD
Semester – 1st
Subject Name – Managerial Economics
Assignment No. – 1
Submission Date – 4th December, 2020
Total number of pages written – 5

1
Q1. Define law of demand. Distinguish between individual demand and market demand
for Hitachi air conditioners. List the determinants of demand for the same.
Ans) The law of demand states that other factors being constant, price and quantity demand of
any good and service are inversely related to each other. When the price of a product increases,
the demand for the same product will fall.
The individual demand is the demand of one individual or firm. It represents the quantity of
a good that a single consumer would buy at a specific price point at a specific point in time.
Thus, in case of Hitachi air conditioner the individual demand will be the demand of each
individual who purchases the Hitachi air conditioner.
The market demand refers to the total demand by all consumers for all good and services in
an economy across all the markets for individual goods. In other words, it is the sum of the
individual demand for a product from buyers in the market. Thus, for Hitachi air conditioner,
market demand will be the total demand of all the individuals who are purchasing the air
conditioner of Hitachi.
The determinants of the demand are as follows:

1. The price of the good or service.

2. The income of buyers.
3. The prices of related goods or services
4. The tastes or preferences of consumers will drive demand.
5. Consumer expectations.

2
Q2. Discuss the salient features and significance of managerial economics. Why do you
need to study managerial economics as a management student?

Ans)

1) Choice and Allocation - Managerial economics is concerned with decision-making of

economic nature. This implies that managerial economics deals with identification of
economic choices and allocation of scarce resources.
2) Goal Oriented - Managerial economics is goal-oriented and prescriptive. It deals with
how decisions should be formulated by managers to achieve the organizational goals.
3) Conceptual and Metrical - Managerial economics is both ‘Conceptual and Metrical’.
An intelligent application of quantitative techniques to business presupposes
considered judgment and hard and careful thinking about the nature of the particular
problem to be solved. Managerial economics provides necessary conceptual tools to
achieve this. Moreover, it helps the decision-maker by providing measurement of
various economic entities and their relationships. This metrical dimension of
managerial economics is complementary to its conceptual framework.
4) Pragmatic - Managerial economics is pragmatic. It is concerned with those analytical
tools, which are useful in improving decision-making. Economic theory appropriately
ignores the variety of backgrounds and training found in individual firms but
managerial economics considers the particular environment of decision making.
5) Multi-disciplinary - Managerial economics is related with different disciplines such as
Statistics, Mathematics, Management, Operational Research, Psychology etc.
Similarly, managerial economics provides a link between traditional economics and the
decision sciences for managerial decision-making.

Decision making is an integral part of the management. In order to take important decisions a
manager needs to have a clear idea about the management concept like managerial economics.
Managerial economics is very much important for a manager to understand. It mainly deals
with the development of economic theory of the firm and help the managers to take decision
smoothly with regard to sales and profits. It also enables to take decisions about production as
well as inventory policies for the future. In order to increase the efficiency of the production
process, this concept is important because it help the managers to analyse risk and production.
Through this concept one can understand how much fund is available and how much one can
invest in his business. It also enables to understand the demand as well as forecasts on sales.
Demand analysis is an important part of managerial economics. Apart from this it also assists
the managers to understand competition well as well as the strategies of competitors. Pricing
is also an integral part, managers need to understand which price to fix and in future what kind
of pricing strategies they can take to increase the profit of the organization. It helps to
understand the how much revenue a company is earning. Concepts of pricing, pricing
forecasting, product like pricing etc are covered in managerial economics. Managerial
economics also deals with cost estimates also.

3
Q3. Define elasticity of demand for Indian airline and discuss its determinants. Draw a
graph to explain.

Ans) In the airline industry, price elasticity of demand is separated into two segments of
consumers and is considered to be both elastic and inelastic. A good example of how elastic
demand is related to the airline industry is in relation to travel for pleasure. Pleasure travellers
will be affected by the amount of travel they do based on the demand increase or decrease,
affected by prices that lower with high demand or prices that rise with low demand; directly
attributed to competition in this market. Inversely, the business traveller would apply to an
inelastic demand for this market. This has shown by demand increases or decreases, as well
as the price distribution attributed, which has little effect on the buying power of the business
person. the airline industry is extremely price elastic. Small shifts in prices have dramatic
effects on the consumer base. Externalities, such as noise ordinances, can cause negative
effects, driving cost upward and threatening loss in demand due to a price sensitive customer
base.

The determinants for elasticity of demand for Indian airline are as follows:

1) Fall in Demand and Rises of Substitute Service

2) Airline’s Short Run Decision to Shutdown
3) Competitive Firms are Price Takers
4) Increase in the price of turbine fuel

Price elastic curve

As soon as there is any change in the prices of Indian airlines, the customers of India will
shift to the substitutes available in the market. As the people of India are price sensitive, they
will change their demand as according to the price of the airlines.

4
Q4. What is linear function? What factors determine a specific form of a linear
function? Show a linear function with a graph.

Ans) Linear functions are those whose graph is a straight line. A linear function has the
following form:

y = f(x) = a + bx

A linear function has one independent variable and one dependent variable. The independent
variable is x and the dependent variable is y.

‘a’ is the constant term or the y intercept. It is the value of the dependent variable when x = 0.
‘b’ is the coefficient of the independent variable. It is also known as the slope and gives the
rate of change of the dependent variable.

Example:

y = 25 + 5x

let x = 1
then y = 25 + 5(1) = 30,

let x = 3
then
y = 25 + 5(3) = 40

Linear Function

5
Q5. Distinguish between Movement along with demand curve and shift in demand
curve. Elaborate your answer with the examples from automobile sector.

Ans)

Movement in Demand curve Shift in Demand curve

Meaning Movement in the demand curve is
when the commodity experience
changes in both the quantity
demanded and price, causing the
curve to move in a specific
direction.
The shift in the demand curve is
when, the price of the commodity
remains constant, but there is a
change in quantity demanded due
to some other factors, causing the
curve to shift to a particular side.

Change Change along the curve. Change in the position of the

curve.

Indicates Change in Quantity Demanded Change in Demand

Result Demand Curve will move upward Demand Curve will shift rightward
or downward. or leftward.

For Example – If the price of a car increases, so its demand gets decrease and whenever the
price of car decreases, its demand get increase. This movement in the change of the price and
demand is known as Movement in the demand curve. (Refer to the graph)

If the price of that same car remains constant i.e. it doesn’t get change, but the demand is
changing a lot i.e. suddenly the demand gets increase or decrease a lot, without changing in
the price of the car. (Refer to the graph)