HS 305: INDUSTRIAL ECONOMICS AND MANAGEMENT

Teaching Scheme Credits Marks Duration of

End Semester
L T P/D C Sessional End Semester Total Examination
Exam
3 0 0 3 40 60 100 3 hrs

COURSE CONTENT:
UNIT CONTENT No. of
Hrs.
I Introduction to Engineering Economics - Technical efficiency, economic efficiency - cost 8
concepts:elements of costs, opportunity cost, sunk cost, private and social cost,
marginal cost, marginal revenue and profit maximization.

Supply and Demand:Determinants of demand, law of demand, determinants of supply,

law of supply,market equilibrium - elasticity of demand - types of elasticity, factors
affecting the price elasticity of demand

National Income Concepts: GDP and GNP, per capita income, methods of measuring
national income. Inflation and deflation:

II Value Analysis - Time value of money - interest formulae and their applications: single- 8
payment compound amount factor, single-payment present worth factor, equal-
payment series compound amount factor, equal-payment series sinking fund factor,
equal-payment series present worth factor,equal-payment series capital recovery
factor, effective interest rate.

Investment Analysis: Payback period—average annual rate of return, net present value;
Internal rate of return criteria,price changes, risk and uncertainty.
 3 Principles of Management: Evolution of management theory and functions of 8
management organizational structure - principle and types - decision making - strategic,
tactical &operational decisions, decision making under certainty, risk & uncertainty and
multistage decisions & decision tree.

Human Resource Management: Basic concepts of job analysis, job evaluation, merit
rating, wages,incentives, recruitment, training and industrial relations.

4 Financial Management: Time value of money and comparison of alternative methods; 8

costing – elements& components of cost, allocation of overheads, preparation of cost
sheet,break even analysis - basics of accounting - principles of accounting, basic concepts
of journal, ledger, trade, profit&loss account and balance sheet.

Marketing Management:Basic concepts of marketing environment, marketing mix,

advertising and sales promotion.

Project Management: Phases,organization, planning, estimating, planning using PERT &

CPM.

Text Books:
1. PanneerSelvam, R, “Engineering Economics‖, Prentice Hall of India Ltd, New Delhi.
2. Dwivedi, D.N., “Managerial Economics, 7/E”, Vikas Publishing House.
Reference Books:

1. Sullivan, W.G, Wicks, M.W., and Koelling. C.P., “Engg. Economy 15/E”,Prentice Hall, New York,
2011.
2. Chan S. Park, “Contemporary Engineering Economics‖, Prentice Hall of India, 2002.
3. F. Mazda, Engg.Management, Addison Wesley, Longman Ltd., 1998.
4. O. P. Khanna, Industrial Engg.and Management,DhanpatRai and Sons, Delhi, 2003.
5. P. Kotler, Marketing Management, Analysis, Planning, Implementation and Control,Prentice
Hall, New Jersey, 2001.
6. VenkataRatnam C.S &Srivastva B.K,Personnel Management and Human Resources, Tata McGraw
Hill.
7. Prasanna Chandra, Financial Management: Theory and Practice, Tata McGraw Hill. 8.
Bhattacharya A.K., Principles and Practice of Cost Accounting, Wheeler Publishing.
9. Weist and Levy, A Management guide to PERT and CPM, Prantice Hall of India.
10. Koontz H.,O‘Donnel C.,&Weihrich H, Essentials of Management, McGraw Hill
 Lecture -1
Law of Demand: Schedule, Curve, Function,
Assumptions and Exception
LAW OF DEMAND
By
Dr. Marshall

 The law of demand describes the relationship between the quantity demanded
and the price of a product.

P Increase D Decrease

P Decrease D Increase

Table:-

Price Quantity

1 5

10 1

Therefore, there is an inverse relationship between the price and quantity

demanded of a product.

Some of the definitions of law of demand given by different authors are as

follows:
 According to Robertson, “Other things being equal, the lower the price at
which a thing is offered, the more a man will be prepared to buy it.”
 Marshall:-“The greater the amount to be sold the smaller must be the
price”
  Demand Schedule:
Demand schedule refers to a tabular representation of the relationship between
price and quantity demanded. It demonstrates the quantity of a product demanded
by an individual or a group of individuals at specified price and time.

Demand schedule can be categorized into two types, which are shown below

 Individual Demand Schedule:

 Refers to a tabular representation of quantity of products demanded by an
individual at different prices and time.

Table-1 shows the individual demand schedule of product a purchased by Mr.

Ram:

Price Demand
1 5

2 4
3 3
4 2
5 1

 Market Demand Schedule

Shows a tabular representation of quantity demanded in aggregate by individuals at
different prices and time. The market demand schedule can be derived by
aggregating the individual demand schedules.
Table-2 represents the market demand schedule prepared through the
individual demand schedule of three individuals:

Market demand schedule also demonstrates an inverse relation between the

quantity demanded and price of a product

 DEMAND CURVE (GRAPHICAL PRESENTATION)

 Individual Demand Curve (ONE CONSUMER)

 Market Demand Curve (MORE THAN ONE CONSUMER)

Individual Demand Curve:

Individual demand curve refers to a graphical representation of individual demand
schedule.

With the help of Table the individual demand curve can be drawn
The demand curve ‘DD’ slopes downwards due to inverse relationship between
price and quantity demanded.

Market Demand Curve:

Demand Function:
It is a relationship between two or more variables containing cause and effect
relationship. (DEPEND & EFFECT)

D(x)is the function of (Px,Pr,Y,T,E)

Px= price of x (Comodity)

Pr=price of relative goods (Substitute & complimentary goods)

Y= income p/ y/d purchasing power
T =Taste
E= Expectations
EX . Tea & Coffe
Car & petrol
Movement in the demand curve
1. EXTENSION & CONTRACTION IN DEMAND

a. EXTENSION:- due to change in price

b. CONTRACTION:- due to change in price

2. INCREASE & DECREASE

a. INCREASE :- due to change in other factors

b. DECREASE:_due to change in other factors

7 Factors which Determine the

Demand for Goods
 Price of the Product

There is an inverse (negative) relationship between the price of a product and the amount of that product consumers are willing and
able to buy. Consumers want to buy more of a product at a low price and less of a product at a high price. This inverse relationship
between price and the amount consumers are willing and able to buy is often referred to as The Law of Demand.

The Consumer's Income

The effect that income has on the amount of a product that consumers are willing and able to buy depends on the type of good
we're talking about. For most goods, there is a positive (direct) relationship between a consumer's income and the amount of the
good that one is willing and able to buy. In other words, for these goods when income rises the demand for the product will increase;
when income falls, the demand for the product will decrease. We call these types of goods normal goods.

However, for some goods the effect of a change in income is the reverse. For example, think about a low-quality (high fat-content)
ground beef. You might buy this while you are a student, because it is inexpensive relative to other types of meat. But if your income
increases enough, you might decide to stop buying this type of meat and instead buy leaner cuts of ground beef, or even give up
ground beef entirely in favor of beef tenderloin. If this were the case (that as your income went up, you were willing to buy less high-
fat ground beef), there would be an inverse relationship between your income and your demand for this type of meat. We call this
type of good an inferior good. There are two important things to keep in mind about inferior goods. They are not necessarily low-
quality goods. The term inferior (as we use it in economics) just means that there is an inverse relationship between one's income
and the demand for that good. Also, whether a good is normal or inferior may be different from person to person. A product may be
a normal good for you, but an inferior good for another person.

The Price of Related Goods

As with income, the effect that this has on the amount that one is willing and able to buy depends on the type of good we're talking
about. Think about two goods that are typically consumed together. For example, bagels and cream cheese. We call these types of
goods compliments. If the price of a bagel goes up, the Law of Demand tells us that we will be willing/able to buy fewer bagels. But
if we want fewer bagels, we will also want to use less cream cheese (since we typically use them together). Therefore, an increase
in the price of bagels means we want to purchase less cream cheese. We can summarize this by saying that when two goods are
complements, there is an inverse relationship between the price of one good and the demand for the other good.

On the other hand, some goods are considered to be substitutes for one another: you don't consume both of them together, but
instead choose to consume one or the other. For example, for some people Coke and Pepsi are substitutes (as with inferior goods,
what is a substitute good for one person may not be a substitute for another person). If the price of Coke increases, this may make
Pepsi relatively more attractive. The Law of Demand tells us that fewer people will buy Coke; some of these people may decide to
switch to Pepsi instead, therefore increasing the amount of Pepsi that people are willing and able to buy. We summarize this by
saying that when two goods are substitutes, there is a positive relationship between the price of one good and the demand for the
other good.

The Tastes and Preferences of Consumers

This is a less tangible item that still can have a big impact on demand. There are all kinds of things that can change one's tastes or
preferences that cause people to want to buy more or less of a product. For example, if a celebrity endorses a new product, this
may increase the demand for a product. On the other hand, if a new health study comes out saying something is bad for your
health, this may decrease the demand for the product. Another example is that a person may have a higher demand for an umbrella
on a rainy day than on a sunny day.

The Consumer's Expectations

It doesn't just matter what is currently going

on - one's expectations for the future can also affect how much of a product one is willing and able to buy. For example, if you hear
that Apple will soon introduce a new iPod that has more memory and longer battery life, you (and other consumers) may decide to
wait to buy an iPod until the new product comes out. When people decide to wait, they are decreasing the current demand for iPods
because of what they expect to happen in the future. Similarly, if you expect the price of gasoline to go up tomorrow, you may fill up
your car with gas now. So your demand for gas today increased because of what you expect to happen tomorrow. This is similar to
what happened after Huricane Katrina hit in the fall of 2005. Rumors started that gas stations would run out of gas. As a result,
many consumers decided to fill up their cars (and gas cans), leading to long lines and a big increase in the demand for gas. This
was all based on the expectation of what would happen.
 The Number of Consumers in the Market

As more or fewer consumers enter the market this has a direct effect on the amount of a product that consumers (in general) are
willing and able to buy. For example, a pizza shop located near a University will have more demand and thus higher sales during the
fall and spring semesters. In the summers, when less students are taking classes, the demand for their product will decrease
because the number of consumers in the area has significantly decreased.

Exceptional cases

In this picture when price is Op1 Demand is Ox1

&

When price increase Op1 to Op2 then demand is also increasing Ox1 to
Ox2 that shows a (Positive retationship)

1) Snob Appeal or Veblen Good:

People sometimes buy certain commodities like diamonds at high prices not
due to their intrinsic worth but for a different reason. The basic object is to
display their riches to the other members of the community to which they
themselves belong.

This is known as ‘snob appeal’, which induces people to purchase items of

conspicuous consumption. Such a commodity is also known as Veblen good
(named after the economist Thorstein Veblen) whose demand rises (fails)
when its price rises (falls).
This is a genuine exception to the law of demand. The demand curve for such
an item will be upward sloping (Fig. 2.3). Thus if, the price of diamond falls,
people will buy less of it. In a word, purchasers value diamonds and other
costly items because of their prices and because of the psychic satisfaction that
they derive from

2) Using Price as an Index of Quality (Ignorance)

Most consumers do not have the capacity or technical knowledge to examine
the physical properties of a product (such as, reliability, durability, economy,
etc.,) as in the case of an item such as a motor car or a VCR. So, in the absence
of other information, price is taken as an index of quality. Thus, a high-priced
car is more valued than a low-priced one.

A costly book is often considered to be more useful by a student than a

cheaper title. In such cases, the demand curve may be upward sloping. This
argument is not a new one. This applies to our previous case where we
referred to commodities having snob appeal. So this point really reinforces the
previous one.

3) Giffen Good:
A ‘Giffen good’ is a special variety of inferior good. Sir Robert Giffen of
Scotland observed in the 19th century (1840s) that poor people spent the
major portion of their income on a staple item, viz., potato. If the price of this
good rises they will become so poor that they will be found to spend less on
other items and buy more potatoes in order to get a minimum diet and keep
themselves alive.
For such goods, the demand curve will be upward sloping. It will look like the
supply curve of a commodity .This is a very exceptional case and potatoes that
we consume today should be considered as ‘normal good’ rather than Giffen
good.

4) Possibility of Future Rise in Prices: (Expextation)

If a consumer anticipates that the price of a commodity will rise in future he
will purchase more of that commodity now. The consumer will purchase more
even if current price is high

5) Highly Essential Good:

Finally, in case of certain highly essential items such as life- saving drugs,
people buy a fixed quantity at all possible price. Heart patients will buy the
same quantity of ‘Sorbitrate’ whether price is high or low. Their response to
price change is almost nil.

In cases of such commodities, the demand curve is likely to be a vertical

straight line (Fig. 2.4). At a price OP1, the heart patient consumer demands OD
amount of ‘Sorbitrate’. In spite of its price rise to OP2, the consumer buys the
same quantity of it.

6) In case of war & Emergencies:- Explain it yourself