Unit 1: Introduction to Economics 3/4/2025

UNIT 1
Economics: Introduction

Economics: Definition
• The branch of knowledge concerned with the production, consumption, and transfer of

wealth
• Economics is the social science that analyzes the production, distribution, and consumption

of goods and services.

• The term economics comes from the Ancient Greek word oikonomia, which means

"management of a household, administration“

• Economics as a science of wealth (By Adam Smith)

• Economics as a science of material well-being (By Prof. Alfred Marshall)

• Economics as a science of choice making (By Lionel Robbins)

• Economics as a science of dynamic growth and development (By Paul .A. Samuelson).

• Fundamental Premise of Economics: - Individuals are capable of establishing goals and

acting in a manner consistent with achievement of those goals

Anjan Ghosh 1
Unit 1: Introduction to Economics 3/4/2025

Microeconomics and Macroeconomics

• The economic theory is divided under two heads i.e. Microeconomics and Macroeconomics

• These terms were first used by Prof. Ragnar Frisch of Oslo University.

• Micro Economics: -
• Microeconomics deals with a small part or a small component of the national economy of a country.

• Microeconomics may be defined as that branch of economic analysis which studies the economic

behavior of the individual unit, may be a person, a particular household, or a particular firm.

• It is a study of one particular unit rather than all the units combined together.

• Scope of Microeconomics: -
• heory of product with its two constituents, namely, the theory of consumer’s behavior and the theory of

production and costs.

• Theory of factor pricing with its four constituent, namely, the theories of wages, rent, interest and profit.

• Theory of Economic Welfare. Microeconomics is sometimes referred to as Price Theory, the r.eason

being that prices are the main part of microeconomics

Macroeconomics
• Macroeconomics is concerned with the economic activity in the large.

• Macroeconomics may be defined as that branch of economic analysis which studies

the behavior of not one particular unit, but of all the units combined together.
• Macroeconomics is the study of aggregates; hence, it is also called Aggregative
Economics.
• It is the study of the overall conditions of an economy, say, total production, total
consumption, total savings, and total investment.

• Scope of Macroeconomics: -
• Theory of Income, Output and Employment with its two constituents, namely, the
theory of consumption function and the theory of investment function.
• Theory of Prices with its constituents of theory of inflation, deflation and reflation.

• Theory of economic growth.

Anjan Ghosh 2
Unit 1: Introduction to Economics 3/4/2025

Microeconomics vs. Macroeconomics

Engineering Economics
• Engineering economics is the application of economic principles to engineering problems.

• Importance of Engineering Economics:

• 1. Engineering economics is concerned with the monetary consequences (or) financial analysis of the

projects, products and processes that engineers design.

• 2. Engineers are required to use economic concepts in the major fields such as increasing production,

improving productivity, reducing human efforts, increasing wealth by maximizing profit, controlling and
reducing cost.

• 3. Engineering economics provides has very important role to play in all engineering decisions.

• 4. Engineering economics provides a number of tools and techniques to solve engineering problems

related to product-mix, output level, pricing the product, investment, quantum of advertisement, etc.

• 5. Engineering economics helps in understanding the market conditions, general economic

environment in which the firm is working.

• 6. Engineering economics provide basis for resource allocation problem.

• 7. Engineering economics deals with identification of economic choices, and is concerned with the

decision making of engineering problems of economic nature.

Anjan Ghosh 3
Unit 1: Introduction to Economics 3/4/2025

Applications of Engineering Economics

• 1. Selection of location and site for a new plant-It is concerned with comparing the cost of

establishment and operation of various locations and sites.

• 2. Production Planning and Control.

• 3. Selection of equipment and their replacement analysis.

• 4. Selection of a material handling system.

• 5. Determination of plant capacity. It is associated with investment of funds such as initial

outlay and operating expenses which determines the capacity of a plant.

• 6. Determination of wage structure of the workers.

• 7. Selection of choice between a concrete structure and a steel structure, between various

insulation thickness, and between prices at which to sell a product.

• 8. It can be applied by a major corporation to analyze plans for a new manufacturing facility

or a new research and development (R&D) thrust.

Advantages of Engineering Economics

• 1. Better decision making on the part of engineers.

• 2. Efficient use of resources results in better output and economic advancement.

• 3. Cost of production can be reduced.

• 4. Alternative courses of action using economic principles may result in reduction

of prices of goods and services.
• 5. Elimination of waste can result in application of engineering economics.

• 6. Competitive strength on the part of the firm in adopting engineering economics.

• 7. More capital will be made available for investment and growth.

• 8. Improves the standard of living with the result of better products, more wages
and salaries, more output, etc.

Anjan Ghosh 4
Unit 1: Introduction to Economics 3/4/2025

Applications of Engineering Economics

in IT sector
• 1. Cost-Benefit Analysis for IT Projects: Helps assess if the benefits of an IT
project (like software development or infrastructure upgrades) justify the costs.

• 2. Optimization of Resources: Guides decisions on the cost-effective combination

of hardware and software for meeting project goals.

• 3. Life Cycle Costing (LCC): Analyzes the total cost of ownership of IT systems
(including maintenance, upgrades, and disposal) over their entire life.

• 4. Decision Analysis for IT Investment: Evaluates alternatives (e.g., in-house

software vs. off-the-shelf) using tools like NPV (Net Present Value) and IRR
(Internal Rate of Return).

• 5. Budgeting for IT Projects: Helps create and manage detailed budgets, ensuring
resources are allocated effectively and projects stay within financial limits.

• 6. Technology Adoption Evaluation : Assesses the cost and benefits of adopting new

technologies (e.g., cloud computing, AI), factoring in long-term savings and efficiencies.

• 7. Risk Management: Quantifies and mitigates risks associated with IT projects, such as

delays or cost overruns, through economic analysis.

• 8. Network Design Optimization: Helps design cost-efficient and high-performance

network systems by evaluating various infrastructure options.

• 9. Energy Efficiency in IT Systems: Evaluates energy-efficient hardware and systems to

reduce operating costs over time, like energy-saving data centers.

• 10. Software Development Cost Estimation: Uses economic techniques to estimate the

total cost of software development, including coding, testing, and maintenance.

• 11. Scalability and Future Growth: Analyzes the trade-off between initial costs and the

ability to scale IT systems for future growth and demands.

Anjan Ghosh 5
Unit 1: Introduction to Economics 3/4/2025

Market
• A market can be characterised as where a
couple of parties can meet, which will
expedite the trading of products and
services.
• The parties involved in the market activities
are the sellers and the buyers.
• A market is an actual structure like a retail
outlet, where the dealers and purchasers
can meet eye to eye, or in a virtual
structure like an internet-based market,
where there is the truancy of direct, actual
contact between the purchasers and
vendors.

• https://byjus.com/commerce/forms-of-market/

Types of the market:

• Monopoly:
• A monopolistic market is a market formation with the qualities of a pure market.

• A pure monopoly can only exist when one provider gives a specific service or a product to
numerous customers.
• In a monopolistic market, the imposing business organisation, or the controlling organisation,
has the overall control of the entire market, so it sets the supply and price of its goods and
services.
• Example: the Indian Railway, Google, Microsoft, and Facebook.

• Oligopoly:
• An oligopoly is a market form with a few firms, none of which can hold the others back from
having a critical impact.
• The fixation or concentration proportion estimates the piece of the market share of the biggest
firms.
• Example: commercial air travel, auto industries, cable television, etc.

Anjan Ghosh 6
Unit 1: Introduction to Economics 3/4/2025

Types of the market:

• Perfect competition:

• Perfect competition is an absolute sort of market form wherein all end consumers and producers have

complete and balanced data and no exchange costs.

• There is an enormous number of makers and customers rivaling each other in this sort of environment.

• Example: Agricultural products like carrots, potatoes, and various grain products, the securities market,

foreign exchange markets, and even online shopping websites, etc.

• Monopolistic competition:

• Monopolistic competition portrays an industry where many firms offer their services and products that

are comparative (however somewhat flawed) substitutes.

• Obstructions or barriers to exit and entry in monopolistic competitive industries are low, and the choices

made of any firm don’t explicitly influence those of its rivals.

• The monopolistic competition is firmly identified with the business technique of brand separation and

differentiation.

• Example: hairdressers, restaurant businesses, hotels, and pubs.

• Source: https://www.1investing.in/perfect-competition-and-monopolistic-competition/

Anjan Ghosh 7
Unit 1: Introduction to Economics 3/4/2025

Suggested Reading
• JoydebSarkhel, Micro Economics Theory, Kolkata Book
Syndicate
• JoydebSarkhel, Macro Economics Theory, Kolkata Book
Syndicate
• A. Koutsoyiannis: Modern Economics Theory, Palgrave
Macmillan

Anjan Ghosh 8