Principles of Management

Module 4

Asif S
Assistant Professor
Division of Mechanical Engineering
School of Engineering, CUSAT

1
 Topics (Part 1)
 Economics
 Principles of Economics
 Problem of Scarcity
 Demand
 Supply
 Utility
 Time value of money
 Inflation and Deflation
 Determination of price
 Consumer Optimization
 Consumer Response
 Consumer Demand Curve

2
 Learning Objectives

 Principles of microeconomics
 Scarcity - the basic economic problem
 Demand and supply - Interaction
 Utility and utility of money
 Inflation and Deflation - Effect on economy and Society
 Economics - Definition
 “Economics is the study of the ALLOCATION of SCARCE
resources to meet unlimited human wants.”
 Economics is the study of how society manages its scarce resources.
 Economics is the study of economic problems of the people living in
a community.
 For the production and distribution of wealth
 Economics is the science which studies human behaviour which
aims at meeting maximum objectives of an individual with the help
of scarce means i.e., limited means (or scarce resources)
 Scarcity - The Basic Economic Problem
 “Scarcity refers to a gap between limited resources and theoretically
limitless wants.”
 Scarcity refers to resources being finite and limited.
 How and what to produce from these limited resources.
 There is a constant opportunity cost involved in making
economic decisions.
 The next best alternative that must be foregone as a
result of a particular decision
Examples: Land, Water scarcity, Labour shortages etc.
 Principles of Economics
 Economics is the study of how society manages its scarce resources
 Economists therefore study how people make decisions
 How much they work?
 What they buy?
 How much they save? and
 How they invest their savings ?
 and also, How people interact with one another?
 Principles of Economics
How People Make Decisions
 Principle 1 : People face Trade - Offs
 Making decisions requires trading off one goal against another. To get one
thing that we like, we usually have to give up another thing that we like.
 Getting the maximum benefits from its scarce resources
 Benefits are distributed uniformly among society's members
 Principle 2 : The Cost of Something is What you Give up

 The opportunity cost of an item is what you give up to get that item.
When making any decision, decision makers should be aware of the
opportunity costs that accompany each possible action.
 Principles of Economics
How People Make Decisions
 Principle 3 : Rational People Think at the Margin
 Rational people systematically and purposefully do the best they can to
achieve their objectives, given the available opportunities.
 Rational people often make decisions by comparing marginal benefits and
marginal costs.
 Marginal changes is the small incremental adjustments to an
existing plan of action
 Principle 4 : People Respond to Incentives
 An incentive is something that induces a person to act, such as the prospect
of a punishment or a reward. Because rational people make decisions by
comparing costs and benefits, they respond to incentives.
 Principles of Economics
How People Interact
 Principle 5 : Trade can Make Everyone Better Off
 By trading with others, people can buy a greater variety of goods and
services at lower cost.
 Trade allows to specialize in what they do best and to enjoy a greater
variety of goods and services.
 Principle 6 : Markets - Organizes Economic Activity.
 Firms decide whom to hire and what to make.
 Households decide which firms to work for and what to buy with their
incomes.
 These firms and households interact in the marketplace, where prices and
self-interest guide their decisions.
 Principles of Economics
How People Interact
 Principle 7 : Govt. can Improve Market Outcomes
 Enforce property rights so individuals can own and control scarce
resources.
 Promote efficiency
 Promote equality.
 Principles of Economics
How Economy as a Whole Works
 Principle 8 : Standard of Living Depends on Production
 Almost all variation in living standards is attributable to differences in
country’s productivity - that is, the amount of goods and services produced
from each unit of labor input.
 Principle 9 : Prices Rise When Too Much Money is Printed
 In almost all cases of large or persistent inflation, the culprit is growth in
the quantity of money. When a government creates large quantities of the
nation's money, the value of the money falls
 Principles of Economics
How Economy as a Whole Works
 Principle 10 : Inflation and Unemployment
 Increasing the amount of money in the economy stimulates the overall level
of spending and thus the demand for goods and services.
 Higher demand may over time cause firms to raise their prices, but in the
meantime, it also encourages them to hire more workers and produce a
larger quantity of goods and services.
 More hiring means lower unemployment.
 Demand
 Is the rate at which consumers want to buy a product.

 Economic theory holds that demand consists of two factors: taste

and ability to buy.

 Taste, which is the desire for a good, determines the

willingness to buy the good at a specific price.

 Ability to buy means that to buy a good at specific price, an

individual must possess sufficient wealth or income.

Demand
 Supply
 Willingness and ability to supply goods determine the seller's

actions.

 At higher prices, more of the commodity will be available to the

buyers.

 This is because the suppliers will be able to maintain a profit despite

the higher costs of production that may result from short-term

expansion of their capacity.

Supply
 Interaction Between Supply and Demand
 Buyers and sellers react in opposite ways to a change in price.

 When price increases, the willingness and ability of sellers to offer goods
will increase, while the willingness and ability of buyers to purchase goods
will decrease.
 Time Value of Money
 Refers to the idea that money available immediately is worth more

than the same amount worth some time in the future.

 This is because the money can earn interest, hence is worth more the

earlier that it is received.

 The future value (FV ) of Principal $PV earning interest rate i% for

n times periods is
 Time Value of Money
For example,

 If interest rates were 5%, then $100 that is invested today will

become $105 in a year.

 Conversely, $100 received in a year, is only worth $100 / 1.05 =

$95.24 today.

 Hence, it is better to receive $100 today, than it is to receive $100 in

a year
 Inflation and Deflation
 Inflation occurs when the prices of goods and services rise, while

deflation occurs when those prices decrease.

 Inflation

 Inflation is a quantitative measure of how quickly the price of goods

in an economy is increasing. Inflation is caused when goods and

services are in high demand, thus creating a drop-in availability.

 The most common measure of inflation is the Consumer Price Index

(CPI).
 Inflation and Deflation
 Deflation

 Deflation occurs when too many goods are available or when there

is not enough money circulating to purchase those goods. As a

result, the price of goods and services drops.

 Companies that find themselves stuck with too much inventory must

cut costs, which often leads to layoffs. Unemployed individuals do

not have enough money available to purchase items; to coax them

into buying, prices get lowered, which continues the trend.

 Utility Analysis

 The level of happiness or satisfaction that a person receives from his

or her circumstances.

 Utility is a measure of well-being and, according to utilitarians, is

the ultimate objective of all public and private actions.

 The proper goal of the government, they claim, is to maximize the

sum of utility achieved by everyone in society.

 Total and Marginal Utility

 Total utility (TU)

 The total satisfaction received from consuming a good or

service.

 Marginal utility (MU)

 The extra utility received from consuming one additional

unit of a good
Total and Marginal Utility
 Topics (Part 2)

 Intellectual Property Rights

 IPR
 Patents
 Licensing and Technology transfer
 Designs and Utility Models

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 Intellectual Property

“Intellectual property refers to creations of the mind: inventions;

literary and artistic works; and symbols, names and images”

 Intellectual Property Rights

“Intellectual Property Rights (IPR), very broadly, are rights granted

to creators and owners of works that are results of human

intellectual creativity. These works can be in the industrial,

scientific, literary and artistic domains, which can be in the form of

an invention, a manuscript, a suite of software, or a business name”

 Intellectual Property Rights
 Patents
 Copyrights and related rights
 Trade Marks
 Geographical Indications
 Industrial Designs
 Layout Designs of Integrated Circuits
 Protection of Undisclosed Information (Trade Secrets)
 Plant varieties
 Intellectual Property Rights

The importance of intellectual property was first recognized in the

Paris Convention for the Protection of Industrial Property (1883) and

the Berne Convention for the Protection of Literary and Artistic

Works (1886). Both treaties are administered by the World

Intellectual Property Organization (WIPO).

Why promote and protect Intellectual Property?

There are several compelling reasons.

1. The progress and well-being of humanity rest on its capacity to

create and invent new works in the areas of technology and
culture.

2. The legal protection of new creations encourages the commitment

of additional resources for further innovation.

3. The promotion and protection of intellectual property spurs

economic growth, creates new jobs and industries, and enhances
the quality and enjoyment of life.
 Patents

“A patent is a form of intellectual property that gives its owner the

legal right to exclude others from making, using, or selling

invention for a limited period of years in exchange for publishing an

enabling public disclosure of the inventions. A patent provides

patent owners with protection for their inventions. Protection is

granted for a limited period, generally 20 years.”

 Patents - Conditions to be satisfied
 Novelty
For an invention to be judged as novel, the disclosed information
should not be available in the 'prior art'.
 Inventiveness (Non-obviousness)
A patent application involves an inventive step if the proposed
invention is not obvious to a person skilled in the art i.e., skilled in the
subject matter of the patent application.
 Usefulness
An invention must possess utility for the grant of patent. The utility
requirement often has been interpreted to mean that an invention must
have a real use that can be demonstrated.
 Patents - Patentable Inventions under the
Patents Act, 1970
 Art, process, method or manner of manufacture.
 Machine, apparatus or other article, Substances produced by
manufacture, which include any new and useful improvements of any
of them and an alleged invention.
 However, inventions claiming substance intended for use, or capable of
being used, as food or as medicine or drug or relating to substances
prepared or produced by chemical processes (including alloys, optical
glass, semiconductors and inter-metallic compounds) are not
patentable.
 Patents - Types of Inventions which are not
Patentable in India
 Claims anything obviously contrary to well established natural laws
 Contrary to law or morality or injurious to public health
 Discovery of a scientific principle or formulation of an abstract theory
 Discovery of any new property or new use of known substance or the
mere use of a known process, machine or apparatus unless such a
known process results in a new product or employs at least one new
reactant
 Patents - Types of Inventions which are not
Patentable in India
 Arrangement or rearrangement or duplication of features of known
devices
 A method or process of testing applicable during the process of
manufacture
 A method of agriculture or horticulture
 Any process for medical, surgical, curative, prophylactic or other
treatment of human beings, or any process for a similar treatment of
animals or plants.
 Why are patents necessary?

Patents provide incentives to individuals by recognizing their

creativity and offering the possibility of material reward for their

marketable inventions. These incentives encourage innovation,

which in turn enhances the quality of human life.

 What rights do patent owners have?
 A patent owner has the right to decide who may – or may not – use
the patented invention for the period during which it is protected.
 Patent owners may give permission to, or license, other parties to
use their inventions on mutually agreed terms.
 Owners may also sell their invention rights to someone else, who
then becomes the new owner of the patent.
 Once a patent expires, protection ends and the invention enters the
public domain. This is also known as becoming off patent,
meaning the owner no longer holds exclusive rights to the
invention, and it becomes available for commercial exploitation by
others.
 Technology Transfer
“Technology transfer is defined as the process where
 Knowledge
 Skills and
 Equipment
are transferred. "
 Technology Transfer
 Technology Transfer (also called Transfer of Technology (TOT) and
Technology Commercialization) are the processes by which the information
or knowledge related to the technological aspects travel within the group or
between the organizations or entity.

 Taking this to the broader scenario, give rise to International technology

transfer in which the knowledge travels in between the countries, which is
not only limited to the Knowledge and information, rather includes skill
transferring, methods of manufacturing, physical assets, know-how, and
other technical aspects, and henceforth helps in further development of the
technology and innovation, by effectively utilizing the technology
transferred and finally incorporating it.
 Technology Transfer
The mechanisms of transfer can be categorized in two

 External (Formal)

Is the Result of conscious decisions (e.g. going to seminars, attending

conferences etc.) and can therefore be controlled and managed.

 Internal (Informal)

Certain aspects of internal transfer can also be controlled, but there are
aspects like informal discussions in the workplace or the obtaining of
information from experienced co-workers that cannot be controlled.
Technology Transfer
 Technology licenses & Technology Transfer
 Technology licenses allow an organization or person to make use of some
technology that might be protected by a variety of intellectual property,
including patents. It is primarily involved in the act of permitting a target
organization to do something with the permission of the grantor of the
license.

 Technology transfer is a broader concept that seeks to enable a target

organization to up-skill on a technology. It could involve a technology
license as well (including patents), but its primary focus is to educate a
target organization in a technology to either get a product to market or to
create an industry or an academic impetus.
 Utility Models

Utility models protect new technical inventions through granting a

limited exclusive right to prevent others from commercially exploiting

the protected inventions without consents of the right holders.

 Utility Models

Utility model protection means that the invention cannot be

commercially made, used, distributed, imported or sold by others

without the utility model owner's consent for a limited period, often 6 to

15 years from the filing date.

What are the main differences between utility
models and patents?
 The term of protection for utility models is shorter than for patents, and
varies from country to country (usually between 6 and 15 years).
 In most countries, patent offices do not examine utility model
applications as to substance prior to registration. This means that the
registration process is often simpler and faster, some times it takes six
months or less.
 Fees for obtaining and maintaining utility models are cheaper.
 In some countries, utility model protection can only be obtained for
certain fields of technology, such as mechanical devices and apparatus,
and only for products but not for processes.
 Industrial Designs and Utility models

Industrial Designs protect the external configuration or appearance of an

object, while Utility Model protects the technical function of an

invention