ECONOMICS AND MARKETING FOR

ENGINEERS
AGM4367
BACHELOR OF ENGINEERING TECHNOLOGY: LEVEL 4
DAY SCHOOL - 01

NAVODA D. EDIRISINGHE
MBA (UK), MA in Econ (Pera) and BA in Econ (Pera)
INTRODUCTION
SESSION 01
ECONOMICS AS A SCIENCE

• Two streams of Science

• Natural Science
• Social Science
• Economics is a Social Science which study phenomena related to humans’
behaviour
• Economics studies how humans in a society make decisions in meeting their
needs and wants when limited resource is available.
• Economics also can be consider as a interdisciplinary subject
BASIC ECONOMIC CONCEPTS

• Activities are done by economic agents

• Activities are done to get benefits
• Activities have Costs
• Resources are limited in availability.
• Resources have alternative uses
• Economic agents need to make a choice which will result opportunity cost
Opportunity cost is the benefit of next best alternative that you need
to give-up when selecting a choice
BASIS OF SOCIAL INTERACTIONS
USE OF ECONOMICS IN ENGINEERING

• There are two Branches of Economics

• Microeconomics
• Macroeconomics
• Microeconomics
• How economic units or agents make economic decision and how they interact in the
economy
• Macroeconomics
• Study the behavior of the economy as a whole
USE OF ECONOMICS IN ENGINEERING CONT.

• The theories and concepts of the above mentioned branches of

economics are combined with the analytical tools of other subjects to
understand the problems of the society
• These are known as flied of applied economics and Economics in
Engineering is one applied economics field.
• Applications:
• Resource Allocation
• Cost-Benefit Analysis:
• Supply and Demand
INTRODUCTION TO ECONOMIC SYSTEMS
SESSION 02
FUNCTIONS OF AN ECONOMIC SYSTEM

• Economic system consist with economic agents

• Resources relatively Scarce
• Fundamental questions in economics
• What to produce?
• How to produce?
• To whom to produce?
• When to produce?
WHY CONSUMERS VALUE THINGS?
• Consumers values goods and services based on the Utility that they are
gaining.
• Utility for a specific product differ from individual to individual
• Total Economic Value = sum of use values placed by all members of the
society
• Use value (economic value) refers to the benefit a user obtains, either directly
or indirectly, from participating in an activity.
PRODUCERS: WHAT FIRMS DO?
• Three main activities
a) Obtain inputs
b) Produce goods and services commonly known as outputs
c) Sell outputs

• Final Goods vs Intermediate Goods

• To produce they use Factors of Production
• Land – Rent
• Labour - Wages
• Capital – Interest
• Management (Entrepreneurship) - Profits
CIRCULAR FLOW OF INCOME
• Circular flow of income is a concept used to illustrate the interaction between
economic agents.
MARKETS

• Market can be defined as any place where buyer and seller meet
and interact with each other
• Markets can be classified in various ways
e.g. Physical and virtual market places
• There are four market Structure:
• Perfect competition
• Monopolistic competition
• Oligopoly
• Monopoly
CONDITIONS TO REALIZE THE BEST MARKET
OUTCOMES
• Well defined property rights and enforcement institutions
• Complete information
• freedom to operate based on self interest and market signals
GOVERNMENTS

• Government is an institution which has the legitimate power to control

resources and take decisions on behalf of a group of people.
• Basic forms of governments
a) Absolute monarchy
e.g. Saudi Arabia, Oman
b) Constitutional monarchy
e.g. United Kingdom, Netherlands, Belgium, etc.
c) Peoples’ governments
BASIC ECONOMIC SYSTEMS

• Market Economy (Laissez-faire)

Prices play a major role
• Command Economy
Government plays a major role
• Mixed Economy
combination of the above
DEMAND AND SUPPLY
SESSION 03
 DEMAND ANALYSIS
• Quantity demand refers to the amount of goods or services that an individual is willing to
buy and able to buy at a given price level and at a given period of time
• Law of Demand
“Assuming that all the other factors are not changing, quantity demand of a good
falls as the price of that good rises and vice versa”
Demand Equation – Qd = a – bP
a = Intercept in the Y axis (Qd when P = 0)
b = Slope of the demand curve (∆Qd /∆P)
DEMAND ANALYSIS CONT.

• Other demand determinants

• Consumer’s income
• price of related commodities
• tastes and preferences of consumers
• Etc.
DEMAND ANALYSIS CONT.
• Market Demand
DEMAND ANALYSIS CONT.
• Change in quantity demanded versus change in demand

Change in Quantity Demand Change in Demand

Occurs with the changes in price of a Occur due to the changes in other
particular product factors
 SUPPLY ANALYSIS
• Quantity supply is the amount of the good or services that the sellers are willing to sell and able to sell at a
given price level and at a given period of time
• Law of Supply
“ Assuming that all the other factors are not changing, quantity of a good supply by sellers increases
with the increase in price of that goods and vice versa”
Supply Equation – Qs = a +bP
a = Intercept in the Y axis (Qs when P = 0)
b = Slope of the supply curve (∆Qs /∆P)
Price of Ice cone Price of Ice cone
(LKR/Cone) (LKR/Cone)

0 0
20 10
40 20
60 30
80 40
100 50
SUPPLY ANALYSIS CONT.
• Market Supply
SUPPLY ANALYSIS CONT.
• Change in quantity Supply versus change in Supply

Change in Quantity Supply Change in Supply

Occurs with the changes in price of a Occur due to the changes in other
particular product factors
MARKET EQUILIBRIUM

• Market equilibrium is a state where quantity supplied in the market id equal

to quantity demanded in the market.
ROLE OF GOVERNMENT IN A MARKET
ECONOMY
SESSION 04
MARKET AND BASIC ECONOMIC PROBLEMS

• Key functions of government (According to Samuelson)

• Increasing of efficiency
• Provision of infrastructure
• Promoting equity
• Fostering stability
• Facilitating economic growth
• Market and command (centrally planned) are economic systems in
the two extremes
MARKET AND BASIC ECONOMIC PROBLEMS CONT.
• Governments and their Revenues
• All government need to find revenue to pay for their expenses
• How governments earn revenue?
• Taxes
• Profit from Government Owned Business
• Rental income from properties
• Rent from land and mineral resources
• Entry fees for national parks and heritage sites

• Budget Deficit = Total Revenue < Total Expenditure

• Budget Surplus = Total Revenue > Total Expenditure
ROLE OF GOVERNMENTS IN SOLVING ECONOMIC
PROBLEMS
• Evolution of the Economic Roles of Governments
• Self-sufficient states were there
• Started to invade other territories
• Negotiations and Mutual Corporation
• Economic roles of a government
I. Assuring food security
II. Stabilization Functions
III. Promoting and fostering international relations
IV. Involvement in Trading
V. Visionary leadership
VI. Government plays a role in global sustainability
PRODUCTION AND COST OF PRODUCTION
SESSION 05
ROLES OF A FIRM IN THE ECONOMY

• Supply goods and services

• Demand factors of production and make payments
• Firms differ in size; output; geographical area; composition of
ownership
e.g. own-account worker
ROLES OF A FIRM IN THE ECONOMY CONT.

• Why firms operate?

TO MAKE PROFIT

Profit (π) = TR - TC
THEORY OF THE FIRM
• Symbols
• Output – YA, YB, YC,……….
• Price of output – PA, PB, PC, ………..
• Inputs – X1A, X2A, X3A,…………….. XnA
• Price of input - w
• Cost function of output A

• Total Cost (TC) for multiple product

THEORY OF THE FIRM CONT.

• Revenue by selling the outputs of product A

RA = PAYA
• Total Revenue for multiple products

• Profit
PRODUCTION FUNCTION
• Production function is a mathematical relationship between amount of inputs
used and amount of output produced by the firm

𝑌 = 𝑓 (𝑋1 , 𝑋2 , 𝑋3 , … … … , 𝑋𝑛 )

• There are two types of inputs

• Variable inputs
• Fixed inputs
• Production process can be divided into two time periods
• Short-term production – Both variable and fixed inputs can be there
• Long-term production – All inputs are variable inputs
PRODUCT CURVES

• Total production (TP) - Total output that can be produce at given level of
inputs at a given period of time

• Average Production (AP) – Output per unit of input

• Marginal production (MP) – Changes in output as a result of one additional

unit of input
EXAMPLE
EXAMPLE CONT.
COST OF PRODUCTION

• There are two types of costs

• Fixed cost (FC)
• Variable cost (VC)
• Short-rum TC
TC = FC + VC
• Long-rum TC
TC = VC
 COST OF PRODUCTION CONT.
• Average Fixed Cost (AVC) – TFC per • Marginal Cost (MC) – Changes in TC due to
unit of output the changes in one additional unit of output

• Average Variable Cost (AVC) – TVC per

unit of output

• Average Total Cost (ATC) – TC per unit

of output
COST OF PRODUCTION CONT.
PROFIT MAXIMIZATION
• Profit maximization condition
PROFIT MAXIMIZATION CONT.
FIRM DECISIONS
THANK YOU