Question Bank for CET - Sub: Principles of Economics and Management Suib. Code: 3140709re nek Hote tut a price decease, demand ineeses ule of demand and suppl ; T Notice that at &25 the si 7 1.6 CONCEPTOF ELAS sty ia tala Tes deed a5 te e For each pice theschndle above indicates te qua week) of clothing demanded and spies, are The marit wl eich equlibrm when the quan tuaities supple ar eau AERIS soy anc denn re eqn ot 3 of eothing pet week. To better understand the aave 1.3.5 Capital Management On Among the various types of F Nd Relatively large sums are involved and t ing to a firm's capital investments ing solution requires considerable time and laboor oan 8 £0 Complex that thei Pa eater ceactey the top mania Often decisions involving apital less implies planning and control of capital exeminreg capital management ain are: Cost of Capital, Rate of Return and ee a m i fsplea taser: rojec and 1.4 DIFFERENCES BETWEEN MICROECONOMICS & MACROECONOM cs Stemming from Adam Smith's seminal book, The Wealth of CONOMICS and macroeconomics both focus on the allocation of scaqe econ mis disciplines study how the demand for certain resources aie re site 30 fas to supply that good to determine how to best distribute and allocate t the Tesource among many consumers. Both disciplines are about maximizatior i microeconomics is about maximizing profit for firms and surplus for consumers iv aa while macroeconomics is about maximizing national ; The main difference between microeconomics and macroeconomics is scale. Microeconomics studies the behaviour of individual households an making decisions on the allocation of limited re: this is to say that microeconomics is the st In contrast macroeconomics involve Wealing with the issues such as gro’ Macroeconomics is the study of economies o scale. This key difference alters how the Microeconomics does consider how macroeconomic forces impact the but it focuses on how those forces impact individual firms and industries. MWhile macro economists study the economy as a whole, micro economist "Concerned with specific firms or industries Many economic events are of great interest to both micro e ‘Macro economists, though they differ in how they analyze those tax policy would interest economists in both disciplines. A mic focus on how the tax might shift supply ir ‘decision making, while the macro econo! fanslate into an improved standard of living for al jurces. Another w of markets he sum total of economic activity, th, inflation, and unemploy the national, regional or global ations. © approach economic si nts. A shift ‘0 economis narket or influence na specific er whether the mist will conside explains the difference betwee h wers questions suc gy illustrated in Figure 1.3 fies and macroeconomics. Microeconomics ans29es se will households supply mare o es labour?" Macoeconomies cress questions ite, “What happens to employment when overall product Consider the chart shown in Figure 1.6 This chart shows the players i the ay households, businesses, goverment. and net exports andthe Way which they are studied in microeconomics and macroecovomich, ‘icrogconemics focuses on how decisions are made by individuals and fms ans the consequences of those decisions. It is a study of the behaviour ot "vidual households and firms in making decisions on the allocation of lnited ‘sources. Microeconomics isthe study of decisions that people and businesses ‘rote regarding the allocation of resources and pices of goods and service, Ths regulations created by governments, Wand other forces that determine ‘example, microeconomics would look ze its p and capacity soit allege to offer a new the instructor’ salary, on, Having determined the er OF not to offer the course entire industries a s ™ Such a Goss Nao Ps COP» ‘unemployment, national income, at ae ‘macroeconomics woul lok a how 2° . atfect.a nation’s capital account rho» . ate, Example: Overall level of pies inthe om are relative to prices lst yea) rather 9 Macroeconomics is concerned with + Monetary/fiscal policy. ws whale economy? 4 + Reasons for iflation, and unesloyrent exports would or how ow they * fconomic growth * Internationa trade and glbalston8 Engineering Economics and Management tandards Sand economic gro wth betweena 2 = ie usually war uch of a goods Acquiring ad6itional Increments short-term increase in supp aes ms tthe demane fora product a ow prices is Limited by taste and is _prodcton. A similar eet ex iw even when the price equa ata. As the pice ieenes the same Seo) has approximated Hs compli of money wil purchase fever produts. When the pie fora paduct The stpaly cure shom in Fg 36H ithe demand wil decease becase, wie consumes may waite | Unt sued DBA © ae 8 product very och, they ar iit by thei ability to By. fore, and therefore eques higher rc 1 cuve in Figure 1.5 shows a generalized relationship between the price 2 300 and the quantity which consumers are willing to purchase ina given ime period. This is known asa simple demand cue | at and by ena se aie of Phase ae 7ig18. Denend curve— tions produc . factors Of P eo , three f2 pccurring go > are Q Deore ar ~. naturally n the creat includes used iF are { fauna that 4 ed by a la » received income he inc water, air, a of products Owner is rent ve and t The pa es.technica » which also include / juction Seagal someor a a wages. Labour can alsc Pte employee + tion of an employee Labour Human effort used in prod Ise’s labour and|marketing expertisd The payme income Teceived from one’s own labou € classified as the physical and mental contr) the production of the good(s). The Capital Stock Man-made goods which «ad buildings Of other goods. These includalmachinery, tools, and t e used in the product 2.2 CONCEPT oF COsTS 2.2.1 Definition of Cost Cost can be defined as an has to be paid or given up in order to get Something.. In business, cost is usually a Monetary valuation of (1) effort, (2) material, (3) resources, (4) and utilities consumed, (5) risks red, and (6) Opportunity forgone | production and delivery of a good or ice. ll_ expenses costs, amount that but notnt nt Theory of Production and Cost 23 Oy, 4 fi ‘Ny -2.2.2 Short Run Cost & Long Run Cost at Re Short run cost All production in real time occurs in the b fi ni run is the conceptual time period in which itl ast i has i ett Sur (yy is fixed in amount and others are variable in i th ain ‘i ek a from existing plant size, have no impact on a firm’s short-run di only variable costs and revenues affect short-run profit Sith Weed vase the associated short-run average cost of an output longer th He ele | ihe amountiof the fixed factor is better suited for a different sagt late I the short nunyiayfirm can raise output by increasing the amount of the va factor(s), say labour through overtime. A generic firm alread an industry can make three changes in the short run as res ‘ott posited equilibrium: reach a ® Increase production * Decrease production * Shut down Long run cost In the long run, firms change production levels in ito (expected) economic profits or losses, and the land, labour, cap and entrepreneurship vary to reach associated long-run average cost. In the Simplified case of plant capacity as the only fixed factor, a generic fi ke these changes in the long run: Enter an industry in response to (expected) profits ‘Leave an industry in response to losses Increase its plant in response to profits Decrease its plant in response to losses Variable & Fixed Cost (ost Variable costs are costs that change in pro} Be'that a business produces. Variable costs are also the sum of marg ver all units produced. They can also be considered normal costs. Fixe Send variable costs make up the two components of total cost. D , are costs that can easily be associated with a partic er, not all variable costs are direct costs s, variable manufacturing ‘overhead costs are variable costs s, not direct costs. Variable co vary with the number of units prod ealled conversion cost, while direct yred to as prime cost. binies, fixed costs, indirect costs or overheads not dependent on the level of goods oF Services p sts are sometimes called un Juced. Direct labour and material and direct are business produced2.26 LavafYratlePopotons& Lam of Rts Seale Law of aril popeton Un Average costs maybe dependent onthe tne period considered (ncresin duction may be expensive a impossible in the sot term, fx eam Average costs afect the supply cune and ate» fundamental component Unde aw of tur ole 2.2.5 Marginal & Opportunity Cost on Be caw ci ee roi nd mc mal et he care ne, 2, wl grin hn ty ne ol cst that ares when the quantity pies basa ncesn iy ed magia odie up to a ea po er fat wl oe v eeoeteg RDA Oarrlt 3550 In gent ems 1% Tul roc nae pa apo tet at cen resin cet at each lel ef diction ines ayant egies tins ‘e produce the next uni law ofretun to sale shows the relationship Between inputs ant ott For sample if brodicing tonal voices eqns biog 2 ew x nt yc ts acto the marl east ofthe ex vehies incu: th cat te oe 1 cape eo Hf ‘acto. In patie this ana segregated lta shorn engvs oe 1 oat ee 10 that over the longest rin, al costs become maja, 3. Outpt is es than proportionate input.CHAPTER emi “yess § Aggregate jEConomic Introduction to Economics Peatning Objectives The objective of this chapter is to provide and enhanc * Definition, nature and scope of economics + Meaning of macro and micro economics + Theory of demand and supply + Types of elasticity 4.1 MEANING AND DEFINITION OF ECONOMICS Remein (to manage) which means ‘managing a house finds available, in the most satisfactory manner possib Economicsis the science that deals with product (GF various commodities in economic systems.[T (on scarcity of resources and how scarce 1 Used to increase wealth and human wel espurces, or inputs available to produce goods People to make choices from among available alternatives. ‘a Economics is used to compare the a ternat' an Choosing the best among them. Fo ‘ean grow paddy, sugarcane, banana, cotton et and. But he has to choose a crop depending ‘vailability of irrigation water and climatic conc 4_Two major factors are responsible for the eme economic problems. They are: (i) the existence of unlit rum human wants and (ii) the scarcity of availabl The limited are. in his farm pon the2 Engineering Economics and Managemer Cie numerous human wants are to be satisfied through the scarce resources available in nature. Economics deals with how the numerous human w to be Satisfied with limited resources. Thus, the science of economic On Want-effort-satisfaction. Satisfaction Effort Fig. 1.1 Basic economics n Economics not only covers the decision making behavi iso the macro variables of economies like national income ational trade and so on. Gpencer & Siegelman have defined managerial econom omics) as “the integration of economic theory with e ithe purpose of facilitating decision-making and forward pla agement.” ) According to McNair and Meriam, “Business economics consists of iconomic modes of thought to analyze business situations.” Figure economics helps to take effective and efficient busin ECONOMICS Hic mieory has developed along two lines; vi es on prescriptive statements. ecified goals of business. ete: ‘on description; it e er in which the M Operates without stating normative and helps to Positive, Business Management | Decision Problem | indersti °A3 sco uA As regards aeand what is true of the whole may not appl making units. By studying about a single small farm be made about all small farmers, say in Tamil Nadu nature of all small farmers in the state need not be true in case o small farmer. Hence, the study of both micro- and macroeco! to understand the whole system of economic activities. © A3 SCOPE OF ECONOMICS As regards the scope of business economics, no uniformity of views exists among various authors. However, the following aspects are said to generally fall under > comprise the subject matter of13.1 Demand Analysis and Forecasting A ‘business frm fs an economic erganization mhich tan Tesouces into goods ta be making depends on accurate 25a gudeto management old in the make. A major part of buries es estimates of demand. A dead forecast an formitaning ad strengthening matet postonans te eects Donan ana hls ety ne russ arn ‘he edit demand and thus provides audetines for manipulating see Demand analysis and forecasting provide Costs and the ability to measure th oft planing, cast control and sound pricing pretons Production analysis is narrower in scope than cost éalyss, Production analysis frequently proceeds in physical terms while cost arabs grees Imontary tems, The main topics coveted under cst and posucton selasn are: Cost concepts and classification, Cost-utputReatonshipn, Economia so Yseconomies of scale, Production function and Cost conte. 13.3 Pricing Decisions, Police and Practices 13.4 Profit Management Business fms are generally organised for purpose of making profts and inthe {ong run profits earned ar taken as an important measure of te Rims succes 1 knowledge about the future were perfect, profit snaysis would hae bows wer easy task, However, in a word of uncertainty, expectation: ae not svays realised so that profit planning and measurement constitute + dificult aes of ‘business economics: The important aspects covered under ths area are: Nature and Measurement of Profit, Profit Policies and Techniques of Profit Panning ike Break-Even Analysis. 13.5 Copal Management ‘Among the varios yes bie pot ‘mle planing an ont of cape ons fron dest veh ae: Cost of Capa Rate of Retin and Scaton of ea ee scale, © of PRR OSIRIS tax wil translate into an improved standard of ving for al of he economy's — ence betweenverall_economi ciency, problem of full utiliza eat etecircriii-tatetth aristits chapter: trea dents discussed in s 4.1 POVERTY. Food, clothes and shelter are three basic needs of any person, Even today many people are not getting these basic necessities. Such kind of condition is termed as ‘poverty. ‘As per the United Nations, “poverty is fundamentally a denial of choices and opportunities, and a violation of human dignity. It means tack of Basis capacity to participate effectively in society. It means not having en feed and clothe a family, not having a school or clinic to go, not hav land on which to grow one's food or a job to earn one's Living. net access to credit. It means susceptibility to violence, and it often imngineering Economics and Management or fragile environment without access to clean water or sanitation.”ic Econom lems 47 t could still be said to be in Poverty when compared tot f even though you have everything you need People around you t 4.1.3 Causes of povert y There are many causes Which increase the Poverty in tre aa wverty in a country; following are few of the causes which are responsible PHY g a for poverty, 1, Unemployment Unemployment Occurs actively seeking work. The unemployme nt rate of unemployment and it is Calculated as Percentage f of unemployed individuals by all individuals Currently During periods of Tecession, an econom unemployment rate, According to International Labor Organization re; than 197 million People Globally are out of work or six Per cen} workforce was without @ job in 2012 2. Corruption Corruption in India is a economy. A study Conducted by Transpa that more than: 62 per cent of Indi bribes or influence Padding to get jobs Conducted in year 2003 Transp; t of Indians had firsthand experience of 8 in public office. In 20 parency International’s co Glombia, Djibouti, Greece mM growth Fast growing population has reduced the pe H country. Hence the standard of living has also fa jaunty is overpopulated a large part of the income feand very little is saved for development activities in the y usually experiences a “Jor issue that adversely aff International in year 200 firsthand experience of p Public offices successfull ational reports abo: ng bribes or using contact ia has ranked 94th out of 1 is index (CPT y fficient to buy 1 people is insu’ ) Beet ven to meal 2 ay. vet&: hesletog the poor Narvactrng sector can teal provide hundred f millon of fobs to warts coming fom the Pula, Bor people ohne itis a lt faethe problem of poverty. In ot cout el aes ha been left devlp on thei own. So, the por ones am bean pam Poverty than manufacturing. So its Lacking the causes of poverty in Inds gp solve the problem of ts gigantic ams, 410, Market liberalization and ercatribted to the ces of poverty in In, Thy hove eat Freee acs thin the population and rece the le of the rete cen, 4. Esublishment of small sae ‘tage, handles an ete of our court. Meroe thi to the def and sale the pobie 5. Reduce ifation Infant Fehr, There sou be stabi Sections shoud be chaged 0 oer peopl gt the bse nee 6. ck open goth 7. Proper unten of eau93. BREAK-EVEN ANALYSIS even point (BEP) reF eee fearing The break-even evel DEO es quired mepunt. neither unit of reve oe aia both Fixed and V sa paints 20% é Mp he neve PST pine than Vara break-even is only posible 2 TTT product sold will conteibution” toward covering TR | com) | | seaten rome overue | . : TR=Te ve E Fixed Loss = cuantiy s For example, if a business sells fewer than 200 tables each month, make a loss; if it sells more, it will make a profit. With this informatit business managers will then need to see if they expect to be able to make an ‘sell 200 tables per month. If they think they cannot sell that many, to en: viability they could: (77 Tito reduce the fixed costs (by renegotiating rent for exe keeping better control of telephone bills or other costs) (* Try to reduce variable costs (the price it pays for the tables b i ‘a new supplier) % Increase the selling price of their tables, Any of these would reduce the break-even point. In other words, the business would not need to sell 50 many tables to make sure it could pay its fixed costs more tt Exampleof the nation in te Jncome is the result of all economic activities It is the most important macroeconomic variable which Gilevel of aggregate demand for goods and sersrc%* The tr Gentes the trends in aggregate demand. Therefore, busine on aspects of the national income. Th s need to keep an eye for those having long-run implications. at Current Price pods and services produced by norma estimated at current prices; it is ca | residents of cou! (led national income a! ‘Income at Constant Price and services produced by normal re: ued at fixed prices, i.e. prices of the base year, it is constant prices. sidents of a coun related to National Income ic Product (GDP) tional Product (GNP) is the income which individuals have left ment obligations. beec the sat 1S yet Nationa Product (NP) sstorali®cOPe fhe county. Here pecan sheep on changin, of equipments and structures withthe + National Income at Constant Price Wher Np = cor - al residents of & country during 9 year are Wl + Net Domestic Praduct (NOP) The» cee the ase year. ts led vara com re °° measures national income both at current prices and constant pres Ut P= GoP 0 the later which indicate real change in national incomes + personal Income Personal incone from mages, Investinets, and othe Terminology related to National income (ually received by all the i + Gross Domestic Product (GDP) Te Gross Domestic Fersonal fcome f tha nce 48 the market value of all final goods and sence ee" economy during a period of one year, plis Personal Income = NN? foreigners minus incomes earned abroad by Beery Market value of all final goods and i Sp Kay Toker Meaning of Mak reverse incomes earned» Of domestically produce GGHP is the most important and w Te is the most comprehensive es ‘activites. The GNP is defined as the vu produced during a specific period, usa