Law of diminishing marginal utility :- When a consumer consumes more and more units
of a specific commodity , the utility of that commodity goes on diminishing .
Consumer surplus :- The difference between the price you pay for a product to the actual value of the product.
CARDINAL and
ORDINAL UTILITY :-
Indifference curve :- An indifference curve is a graph showing two goods which gives a consumes equal satisfaction and utility at a same time.
For
example :-
<1> If a person likes to consume a specific type
of chocolate, so the first time he will consume the chocolate it has a great
utility for him. If he decides to have another chocolate than the second
chocolate will have less utility as compared to the first one and so on.
<2> Suppose a boy wants to buy a pizza . The
first pizza he will buy will have the maximum utility because it will give him
higher satisfaction. The next pizza he will buy will have less utility then
earlier one and so on.
The
utility goes on diminishing with the consumption of every pizza and chocolate
till if become zero. This is the point of satiety.
Consumer surplus :- The difference between the price you pay for a product to the actual value of the product.
For example :- <1>
Suppose a customer wants to buy a dress . The seller wants to sell the dress
for 3000 but the customer wants to pay 2000 so he bargains . Finally he pays
2500 after negotiation . That 500 is the surplus for the customer.
<2> Imagine you went to the market to buy a pair
of shoes . The actual value the seller wants to sell is 4500/- but finally you
paid 4000/- . So 500 is the surplus for you.
Opportunity cost :-
The cost of something is what you give up to get it .
For example :-
<1> Suppose you decided to watch a movie with your friends for 3
hours. So keep in mind what else you can do in that 3 hours to earn some money.
You can work in some coffee shop for that 3hrs or make a painting which you can
sell or give some chargeable services to someone. It is called opportunity cost.
ELASTICITY of DEMAND :-
Elasticity of
demand is mathematically known as the percentage change in quantity of demand
of a commodity to a percentage change in any of the independent variables that
determine demand of a commodity.
Formula = % change in quantity demand
% change in price
For example :- Now
lets talk about petroleum industry, suppose price of the petroleum increases by
20% and quantity demand decreases by 10% then elasticity will be 10/20 .
Determinants of
Price Elasticity of demand depends across commodities - luxury to necessity to
neutral. Nature of commodity is all about necessity and luxury. Suppose mobile
is a necessity for person but iphone and Blackberry is a luxury. What may be
luxury for a person may be necessity for another person.
Alternative uses of
the commodity is another determinants of elasticity. It is also called
availability of substitute. Imagine price of a consumable item (sugar) rises
then itz substitute's (honey) demand will increase.
In today's era
mobile market is in boom. We have a entire huge collection of brands to choose.
So if some one wants to buy a new phone today he/she will definitely research a
bit before buying it , then the person will go through the ratings of the phone
as well as ranking of mobile brands, Here we are talking about Cardinal utility
and Ordinal Utility.
For example :- If we say BRAND A gives 4000 units of utility
then BRAND B would give 6000 unit of utility. We are talking about
cardinal utility. It is basically when a consumer talks about rating.
On the other hand
ordinal utility is about customer preferences . Suppose BRAND A has more
customer liking then BRAND B then here we are talking about ranking .
Indifference curve :- An indifference curve is a graph showing two goods which gives a consumes equal satisfaction and utility at a same time.
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