Basics Of Economics

DEMAND

It is the consumer's desire and ability to purchase a good or service.

Determinants Of Demand

·        Price of the goods and service

·        Price of the substitute

·        Income of the consumer

·        Taste and preferences of consumer

   Demand Curve

   

Source: www.google.co.in

Example: if the supply of apple increases the prices of apple decreases and the demand of apple increases.

Producer surplus

It is the difference between the price producer is willing to sell and the price that he actually sold.

Example: I wanted to sell my laptop at rs 25000 I was searching for a customer who can pay me 25000 for my laptop, but a customer is willing to pay Rs 28000 for the same laptop, so Rs 3000 is the producer surplus in this case.

Example : a servant who was searching for job was expecting Rs 1000 as the salary but he gets 1200 salary in the end, he receives Rs 200 as producer surplus.

Law Of Demand

It is the relationship between quantity demanded and the price.

It says if the price increases the quantity demanded will decrease

and vice vice versa

It holds only when the other determinants of demand don’t change.

Example: the cost of movie tickets on weekend is high and the demand for tickets is low, where as the cost is low in week days which makes demand high.

Example: demand for dominos pizza on Wednesday is high as the price for pizza is low.

Production Function  

Production function shows the maximum amount of output which can be obtained from a given amount of inputs

        Q=K+L

Q is the quantity of output

K is the amount of capital

L is the labour used in production

In short run which refers to a short period of time, only labour  inputs can be changed. If 100 units is to be produced and there is only 70 units of capital and 20 labours, capital cannot be changed whereas labour can be increased from 20 to 30.

In long run which refers to a long period, both capital and labour can be changed when 100 units is to be produced both capital and labour can be increased to meet 100 units.

Consumer surplus

It is the difference between the price consumer is willing to pay and the price he actually pays.

Example: I went to market to buy jeans and my budget was 1500 which means I was ready to spend Rs 1500 for the jeans, but I got the jeans for Rs 1200. So I saved Rs 300 which was consumer surplus.

Example: I went to buy a second hand bike for which seller kept a price of rs 70000 but I end up buying it at Rs 50000, so Rs 20000 is the consumer surplus in this case.