Concept of economics

DEMAND

Demand for any commodity refers to desire for that commodity which is backed by purchasing power.

LAW OF DEMAND

It is the relationship between quantity demanded and price.

Ceteris Paribus: If the price of the commodity increases, quantity demanded decreases and if the commodity decreases, then quantity demanded increases.

Example

1.I went to fruit shop and demanded 2kgs of mangoes and price was Rs.80. After 1 week I went to the same shop and asked for mangoes but this time the price was Rs.120 per kg , so I denied to buy and went back home.

2.There is a restaurant named as Barbeque Nation. I didn’t know that the cost of buffet plate there is higher in weekends. We friends decided to go there on Sunday. And when we reached there we came to know that the cost of each buffet plate is Rs.1200 instead of Rs.800, so we went back to hostel.

Diminishing Marginal Utility

It states that  with the consumption of extra one unit of product, the utility of products goes down.

Assumptions

1.     Consumer should be constant.

2.     All the features of the products should be constant.

3.     Consumption time-period should be constant ( continuous )

Example

1.     On one weekend, me with my friend circle went to bannerghatta national park. After roaming for 2 hrs, we were literally starving so we went to the nearby dhaba. There we had naan with chicken. In one plate we had 5 pieces of naan. As I consumed 1^st naan, amount of utility derived from 1^st naan was 5 units. Then I ate the 2^nd naan, amount derived was 4 units. Likewise it keep on decreasing.  Sometimes it may go to negative also.

2.     When I watched the Sanju movie 1^st time, the amount of utility derived from it for watching it was 10 units. 2^nd time it was 8 units. Likewise it keep on decreasing.  Sometimes it may go to negative also.

  

CONSUMER SURPLUS

It is the excess satisfaction that a consumer can enjoy from the purchase of a thing when the price that he/she actually pay is less than the price he has willing to pay for it.

Consumer Surplus :- The amount is consumer is willing to pay – The amount consumer actually pays

Example
1. I went for shopping for my birthday and my budget was Rs.10000, and when I went to mall, after selecting the products I went for billing, then he mentioned Rs.8000 as the total amount of the bill. So I saved Rs.2000 and it is my consumer surplus.

2. Three years ago, it was my sister’s marriage and I was suppose to buy a lehnga within Rs.6000. I went to buy lehnga and I got one which was Rs.4000. so here Rs.2000 is my consumer surplus.

UTILITY

It is the want satisfying power of a commodity. It is the satisfying action or benefit that an individual gains from consuming a given amount.

Example

1.     After coming to IBA, I always go outside to have fruit juice. I everyday drink fruit juice with consuming more and more my utility increased but after some days, my utility decreases due to more consumption of juice.

2.     I installed a game app called ludo in my cell phone. I used to play it everyday and my utility also increased. But after some point of time, utility decreases because of playing for more hours.

SUPPLY

Supply refers to any amount of the commodity which will be supplied at a given point of time.

Example

1.There are few dragon fruit available in India. People including me want dragon fruit than other fruits therefore, the price of dragon fruit increases dramatically. The cost of dragon fruit is around Rs.300-400 per kg.