THEORIES

CONCEPT
APPLICATION OF
ECONOMICS TO
ENGINEERING
WHO IS THE FATHER
OF MODERN
ECONOMICS?
ECONOMICS
The study of how
individuals and societies
make decisions about ways
to use scarce resources to
fulfill wants and needs. In
addition, economics
explains how people interact
within markets to get what
they want or accomplish
certain goals.
 THEORIES
OF ECONOMICS
 Adam Smith - Classical Economics(1776)

• Individual need to fulfill self-interest results in societal

Training isbenefit.
a key element of a company’s organisational culture
Closely•tiedSmith rejected government interference in market
to motivation

activities.
• isHe
Training believed
a key element of athat a government's
company’s three functions should
organisational culture
A company thatbe invests
to protect national
in its people borders,
is not only more respectedenforce
by its civil law, and
employees, but also by outside talent
engage in public works (e.g., education).
Training is a key element of a company’s organisational culture
• He believed that governments should not restrict or
interfere
Motivate Employee in Makes
To Grow And marketsThem Feelbecause
More Valued they could regulate

themselves, and thereby produce wealth at maximum

Training isefficiency.
a key element of a company’s organisational culture
 Thomas Malthus – Theory of Population (1798)

• The theory states that the supply of food cannot keep

up with the growth of the human population, inevitably
resulting
Training in disease,
is a key element
Closely tied to motivation
famine,
of a company’s war,
organisational and
culturecalamity.

• Malthus predicted that natural population growth

Training is a key element of a company’s organisational culture
would inevitably outpace agricultural output, ultimately
A company that invests in its people is not only more respected by its
resulting
employees, in famine
but also by outside talent and other catastrophes until the
population was reduced below a sustainable
Training is a key element of a company’s organisational culture
level.
Motivate Employee To Grow And Makes Them Feel More Valued
• The cycle is endless, he believed: Relative abundance
causes an increase in fertility until the
Training is a key element of a company’s organisational culture
population again
grows to an unsustainable level and collapses.
David Ricardo – Ricardian Theory of Rent (1810)

• Rent of land arises due to the differences in the

fertility or situation of the different plots of land. It
Training is a key element of a company’s organisational culture
arises
Closely owing to the original and indestructible
tied to motivation
powers of the soil.
• Inis athe
Training Ricardian
key element theory
of a company’s it is culture
organisational assumed that land,
being
A company a gift
that invests in itsof nature,
people is not onlyhas no supply
more respected by its price and no
employees, but also by outside talent
cost of production. So rent is not a part of cost, and
Training is a key element of a company’s organisational culture
being so it does not and cannot enter into cost and
Motivate Employee To Grow And Makes Them Feel More Valued
price. This means that from society’s point of view
the entire return from land is a surplus earning.
Training is a key element of a company’s organisational culture
 Karl Marx – Capital Theory (1867)

• Capitalism is an economic system characterized

by private Training
ownership of the means of
is a key element of a company’s organisational culture
production, Closely
especially in the industrial sector,
tied to motivation

with labor paid only wages

Training is a key element of a company’s organisational culture
A company that invests in its people is not only more respected by its
• Capitalism is essentially an economic system
employees, but also by outside talent

whereby the Training

means ofelement
is a key production
of a company’s(i.e., factories,
organisational culture

tools, machines,
Motivate Employee raw materials,
To Grow And etc.)
Makes Them Feel More Valued are

organized by one or more business owners

Training is a key element of a company’s organisational culture
(capitalists).
 James Mill – Wage Fund Theory (1869)

• The sum destined to the payment of

wages is Training
distributed by competition
is a key element of a company’s organisational culture

among all the

Closely tied to motivation
applicants for
employment.
Training is a key element of a company’s organisational culture
A company that invests in its people is not only more respected by its
employees, but also by outside talent
• The wholeTraining
of isthat sum is distributed
a key element of a company’s organisational culture
without loss, . If Toone
Motivate Employee Grow And obtains more,
Makes Them Feel More Valued

another must, for that reason, receive

Training is a key element of a company’s organisational culture
less.
 Bohm-Bawerk – Time Preference Theory (1884)

• This theory argues that people prefer to spend

today and save for later, so that interest rates
will always Closely
be positive - meaning that a dollar
Training is a key element of a company’s organisational culture
tied to motivation
today is more valuable than one in the future.
Training is a key element of a company’s organisational culture

• The value Aemployees,

of goods
company decreases
that invests in its people isas
but also by outside talent
the
not only morelength of
respected by its

time needed Training

for their completion increases, even
is a key element of a company’s organisational culture
when theirMotivate
quantity, quality, and nature remain
Employee To Grow And Makes Them Feel More Valued
the same.
Training is a key element of a company’s organisational culture
 Frederick B. Hawley - Risk Theory of Profit (1893)

• That those who have the risk taking ability in the

dynamic production have a sound claim on the reward,
called as profit. Training is a key element of a company’s organisational culture
Closely tied to motivation
• Hawley believed that an entrepreneur must assume
risks to qualify for the additional rewards (profit)
Training is a key element of a company’s organisational culture
A company that invests in its people is not only more respected by its
• Hawley’s opinion that profit should be maintained over
employees, but also by outside talent
and above the actuarial risk is that the assumption of
Training is a key element of a company’s organisational culture
risk is annoying; it leads to trouble, anxiety, and
Motivate Employee To Grow And Makes Them Feel More Valued
disutility’s among the businessman of several kinds.
Training is a key element of a company’s organisational culture
 John Bates Clark – Dynamic theory of profit (1900)

States that profit is the difference between the

price and the cost of production of the
commodity. Profit is isthe
Training resultof aof
a key element progressive
company’s organisational culture
Closely tied to motivation
change in an organized society. The progressive
change is possible only in a dynamic state.
Training is a key element of a company’s organisational culture
A company that invests in its people is not only more respected by its
According to Clark the whole economic society
employees, but also by outside talent

is divided intoTrainingorganized and

is a key element unorganized
of a company’s organisational culture

society. The organized society

Motivate Employee To Growis further
And divided
Makes Them Feel More Valued

into static and dynamic state. Only in dynamic

state profit arises.
Training is a key element of a company’s organisational culture
Alfred Marshall – Neo-classical of economics (1900)

• Neo-classical economists argue that the

consumer’s perception of a product’s value
is the
Training is a key element
Closely tied to motivation
of a driving factor in
company’s organisational its price.
culture

• In other words, people make

Training is a key element of a company’s organisational culture
a logical choice
A company that invests between three
in its people is not only moreoptions based on their
respected by its
employees, but also by outside talent
perception of which one is better for them.
1. Rational
Training is a key element thinking
of a company’s organisational culture

2. Maximizing
Motivate Employee To Grow And Makes Them Feel More Valued

3. Information
Training is a key element of a company’s organisational culture
Irving Fisher - Fisher's Quantity Theory of Money (1911)

• The quantity theory of money is a

framework to understand price changes in
relation
Training is a key element to the
of a company’s supply
organisational of money in an
culture
Closely tied to motivation
economy.
• It argues that an increase in money supply
creates inflation and vice versa.
Training is a key element of a company’s organisational culture
A company that invests in its people is not only more respected by its
employees, but also•by The Fisher
outside talent equation is calculated as:

Training is a key element of a company’s organisational culture

Motivate Employee To Grow And Makes Them Feel More Valued

Training is a key element of a company’s organisational culture

Joseph Schumpeter – Innovation Theory of Trade Cycle (1927)

• With skills and thirst for new developments, an entrepreneur

can introduce something new to his existing business system.
• Five methods of innovation that will bring success for your
Training is a key element of a company’s organisational culture
organization:
Closely tied to motivation

1. The introduction of a new product.

Training2.is aImplementation
key element of a company’sof aorganisational
new method cultureof production.
A company3. The
that opening
invests upis not
in its people of only
a new
moremarket.
respected by its
employees, but also by outside talent
4. The expeditions for a new source of raw materials or
Trainingsemi-manufactured
is a key element of a company’s goods; and culture
organisational

5. Re-organization
Motivate Employee To Grow And Makes Themof production
Feel More Valuedprocesses within a firm.
Innovations are the commercial applications of
Traininginventions
is a key elementby of a an entrepreneur.
company’s organisational culture
 Joan Robinson – Modern theory of Rent (1933)

• Rent is a surplus which is not peculiar to land

alone. It can be a part of income of labour, capital,
Training is a key element of a company’s organisational culture
Closely tiedentrepreneur.
to motivation

• According to modern version rent is a surplus

which
Training is arises
a key element due organisational
of a company’s to difference culture between actual
earning and transfer earning.
A company that invests in its people is not only more respected by its
employees, but also by outside talent
• Rent can be a part of the income of all factors of
Training is a key element of a company’s organisational culture
production.
Motivate Employee To Grow And Makes Them Feel More Valued
• Amount of rent depends upon the difference
between actual earning and transfer earning.
Training is a key element of a company’s organisational culture
 Samuelson - Revealed Preference Theory (1938)

• States that the preferred option might change

depending
Training is a key element upon price
of a company’s organisational culture and budgetary
Closely tied to motivation
constraints.

• States that consumer behaviour, if their

Training is a key element of a company’s organisational culture
A company that invests in its people is not only more respected by its
income and the item's price are held constant,
employees, but also by outside talent
is the best indicator of their preferences.
Training is a key element of a company’s organisational culture

Motivate Employee To Grow And Makes Them Feel More Valued

• Revealed preference theory works on the
assumption that consumers are rational.
Training is a key element of a company’s organisational culture
 Don Patinkin – Real Balance Effect (1956)

• Real balance refers to the purchasing power of

the people, and the theory establishes the
Training is a key element of a company’s organisational culture
relationship between the real balance, demand
Closely tied to motivation

and supply, price levels, and employment.

Training is a key element of a company’s organisational culture
A company that invests in its people is not only more respected by its
• It states that an economy’s money supply is
employees, but also by outside talent

directly proportional toelement

Training is a key theofabsolute price level.
a company’s organisational culture

Hence, if the money

Motivate Employeesupply
To Grow And doubled
Makes Them Feelor
Moretripled,
Valued

the same would be the case with economic prices.

Training is a key element of a company’s organisational culture
 William Baumol – Sales Revenue Maximisation (1959)

• According to this theory, once profits reach

acceptable levels, the goal of the
Training is a key element of a company’s organisational culture
firms become
maximisation of sales revenue rather than
Closely tied to motivation

maximisation of profits.
Training is a key element of a company’s organisational culture
• Stressed that in competitive markets,
A company that invests in its people is not only more respected by its
firms
would
employees, but also byrather
outside talent aim at maximising revenue,
through
Training maximisation
is a key element of sales.
of a company’s organisational culture According to
him, sales volumes, and not profit volumes,
Motivate Employee To Grow And Makes Them Feel More Valued

determine market leadership in competition.

Training is a key element of a company’s organisational culture
 Robert Mundell – Optimum Currency Area (1960)

•States that regions that are not

bounded byTraining national borders and
is a key element of a company’s organisational culture

share certain traits should share a

Closely tied to motivation

common currency.
Training is a key element of a company’s organisational culture
•States thatAemployees,
implementing
company currencies
that invests in its people
but also by outside talent
is not only more respected by its

by geographic and geopolitical region,

Training is a key element of a company’s organisational culture
instead of by country,
Motivate Employee To Growleads toThem
And Makes greater
Feel More Valued

economic efficiency.
Training is a key element of a company’s organisational culture
 Walt Whitman Rostow – Rostow Development Model (1960)

The model asserted that all countries

exist somewhere on this linear
Training is a key element of a company’s organisational culture
spectrum, and climb
Closely upward through
tied to motivation
each stage in the development process:
Training is a key element of a company’s organisational culture
• Traditional Society
A company that invests in its people is not only more respected by its
• Preconditions
employees,tobutTake-off
also by outside talent

• Take-off Training is a key element of a company’s organisational culture

• Drive to Maturity
Motivate Employee To Grow And Makes Them Feel More Valued
• Age of High Mass Consumption
Training is a key element of a company’s organisational culture
 Franco Modigliani– Life Cycle Hypothesis (1963)

• That people plan their spending throughout their

lifetimes, factoring in their future income. One
implication is thatTraining
younger people
is a key have
element a greater
of a company’s capacity culture
organisational
Closely tied to motivation
to take investment risk than older individuals who need to
draw down accumulated savings.
Training is a key element of a company’s organisational culture
• The LCH assumes thatthat
A company individuals plan istheir
invests in its people spending
not only more respected by its
employees, but also by outside talent
over lifetimes, taking into account their future income.
• The theory also assumes
Training is athat peopleof aplan
key element ahead
company’s when it culture
organisational
comes to building wealth,
Motivate EmployeebutTomany
Grow And procrastinate
Makes Them Feelor lack
More Valued
of discipline to save.
Training is a key element of a company’s organisational culture
 James Tobin – Portfolio Approach (1969)

•Provides a monetary theory

of the interest rate.
Training is a key element of a company’s organisational culture
Closely tied to motivation

•It demand for financial

assets, and the interest rate
Training is a key element of a company’s organisational culture
A company that invests in its people is not only more respected by its
adjusts to equilibrate the
employees, but also by outside talent

supply and the demand for

Training is a key element of a company’s organisational culture

Motivate Employee To Grow And Makes Them Feel More Valued

financial assets.
Training is a key element of a company’s organisational culture
 George Akerlof, Michael Spence and Joseph E. Stiglitz –
Asymmetric Information (2001)

• The seller has more information than the buyer

regarding the quality of the product.
• The hypothetically,
Trainingthe information
is a key problem
element of a company’s can culture
organisational
Closely tied to motivation
either cause an entire market to collapse or
contract it into an adverse selection of low quality
Training is a key element of a company’s organisational culture
products.
A company that invests in its people is not only more respected by its
• informed individuals
employees, buton a outside
also by market talent can credibly
transmit, “signal”, their information to less
Training is a key element of a company’s organisational culture
informed individuals, so as to avoid some of the
Motivate Employee To Grow And Makes Them Feel More Valued
problems associated with the adverse selection.
Training is a key element of a company’s organisational culture
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