Chapter 1

BASIC PRINCIPALS OF ECONOMICS

Introduction
Chemical Engineer and Successful Chemical Engineer Knowledge of M&E Balance, CET, HT, MT, RK, RE, Computer Application to practical situation Recognization of environmental, ethical & economic implications involved Concerned with economics involved in the process Chemical Engineer as a Cost Engineer Detailed equipment specifications and definite plant facility information ----------- Cost estimation Pre-design cost estimate -------- Management decision Cost engineer------- Cost analysis (Cost for fixed, production, raw material, labor, maintainance, power, utilities, plant & administrative overhead, product distribution, miscellaneous) Cost estimation------ Economics of process should be known
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What is Economics? : According to different Economists

Human behavior relates need satisfaction---- Human efforts; hence Economics all about Need

Efforts Satisfaction
Economics - Deals with study of satisfying needs (of individual, group, society, nation) by

using scarce

resources
Economics Study of mankind in ordinary business

of life; examines that part of individual and social actions

which is most closely connected with the attainment &

use of Material------ Alfred Marshall

Economics Science studying human behavior as

relationship between ends & scarce means having alternative uses--------- Lionell Robbins
Economics Study of how people and society choose

,with or without the use of money, to employ scarce

productive resources which could have alternative uses, to

produce various commodities over time & distribute them for consumption, now and in future among the various peoples and groups of society--------- Paul
Samuelson
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Economic Problem: Problem of choosing the needs Main causes behind economic problem: 1. Unlimited human needs 2. Scarcity of resources to satisfy these needs 3. Deciding the priority between needs 4. Few urgent needs fully satisfied; All needs partially satisfied 5. All resources have alternative uses Affects individual, society and Nation ---- efforts ---deriving maximum satisfaction from limited resources Concept of Needs: Psychologist A. H. Maslows theory / concept of Hierarchy of Needs-----As per Importance and Priority of Human Needs---basic 5 types of Needs ---- Hierarchy comparable to Pyramid-------

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Assumptions: Needs ever growing; varied and diversified in nature; can be arranged lower to higher As lower level need --- satisfied--- next level will emerge--- influence behavior of people to work A satisfied need does not act as motivator One need satisfied --- another replaces it Hierarchy of Needs: 1. Physiological Needs Food, shelter, clothing and other basic things 2. Security / Safety Needs - Safety about job and physiological needs, life and accident insurance, pension 3. Social Needs Belonging, friendship, Love, affiliation to social group 4. Esteem Needs Status, prestige, Respect (self as well as by others) etc. 5. Self Actualization Needs Achieving the goal by maximum use of self potential
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Concept of Price Important in Economy No buying and selling without it No existence of market Fall down of economy How Price is Determined? Nature of Market influences the Price of product Market and Pricing Different forms of Market are: 1. Perfect Competition Market Characteristics Large number of buyers and sellers Homogenous product Freedom of entry and exit Perfect knowledge (to buyers and sellers) Absence of transport cost

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2. Market under Monopoly Characteristics A single firm Absence of close substitute Barriers to entry of new firms 3. Oligopoly Market Oligos Few; Pollen To Sell (Products like automobiles, cement, steel, electronic goods, etc.) Characteristics Few sellers Interdependence Indeterminate demand curve Price rigidity Conflicting behavior A monopoly element Lack of uniformity
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4. Market under Monopolistic Competition (Products of same commodity but of different variety like cosmetics, etc.) Characteristics Large number of sellers Product differentiation Selling cost Freedom of entry Independence Price Determination under Perfect Competition: Price ----- always depends upon both Demand as well Supply Under perfect competition market conditions---No. of sellers and buyers---individual buyer or supplier has insignificant role with respect to total demand or total supply
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toothpaste, soaps,

detergents,

 Price under perfect competitive conditions is result of total demand for & total supply of industry Finally that price rules the market at which a quantity demanded is equal to quantity supplied e.g. Equilibrium price of footwear Demand 1000 800 600 300 100 Price 100 200 300 400 500 Supply 100 300 600 800 1000

Hence price of Rs. 300 for footwear will uniformly exist in market. Every firm has to adjust the output at given price; cant fix the price on own; if firms cost
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cant be governed by given price, will suffer losses and forced out of market.

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