JAWAHARLAL NEHRU TECHNOLOGICAL UNIVERSITY HYDERABAD B.Tech III Year ENGINEERING ECONOMICS AND ACCOUNTANCY Previous Question Paper (February - 2022 - R18)

Elasticity of demand is a measure of the responsiveness of the quantity demanded of a good or service to a change in one of its determinants, such as price, income, or the price of related goods. It is mathematically expressed as the percentage change in quantity demanded divided by the percentage change in the determinant.

The primary methods for measuring price elasticity of demand include:

1. Percentage Method: Calculated using the formula: E = (ΔQ / ΔP) × (P / Q), where ΔQ is the change in quantity, ΔP is the change in price, P is the initial price, and Q is the initial quantity.
2. Total Outlay Method: Analyzes the relationship between price changes and total expenditure. If total expenditure remains constant, elasticity is unitary; if it moves in the same direction as price, it is inelastic; if it moves in the opposite direction, it is elastic.
3. Point Method (Geometric Method): Measures elasticity at a specific point on a demand curve by taking the ratio of the lower segment to the upper segment at that point.
4. Arc Method: Used to measure elasticity over a range or arc of the demand curve when the change in price is significant, using the average of the initial and final prices and quantities.

Engineering economics applies economic principles to technical problems, focusing on the systematic evaluation of the costs and benefits of proposed technical projects. Its basic principles include:

1. Time Value of Money: Recognizing that a dollar today is worth more than a dollar in the future due to its earning potential (interest).
2. Alternatives Analysis: Evaluating multiple mutually exclusive options to select the most economically viable solution.
3. Perspective: Focusing on cash flows rather than accounting profits, considering only those costs and benefits that differ between alternatives.
4. Standardized Decision Criteria: Using metrics such as Net Present Value (NPV), Internal Rate of Return (IRR), and Benefit-Cost Ratio (BCR) to ensure objective comparisons.

The methodology typically follows a structured process: defining the problem, identifying feasible alternatives, developing cash flow estimates for each alternative, selecting an appropriate interest rate (MARR), applying an evaluation technique, and performing sensitivity analysis to account for uncertainty.