Conceptual Understanding of Law of Demand, Law of Diminishing Marginal Utility, Consumer & Producer Surplus, & Budget Line.

• Law of Demand: - States that if the price of good increases the quantity demanded decreases and vice-versa.

Example: - 1. Suppose we went tom purchase Air Conditioner on off season (winter season) we can see that the price of air conditioner is much higher because the demand of the AC is less, the price of the product increases, demand and price is interrelated whereas in on season(summer) we can see that the price declines due to more product sold basically the demand increases the more product sold the price decreases.

2. Suppose I went to purchase a vehicle costing around Rs. 150000 but I went in the time of Diwali(Dhanteras) where I can see that the same vehicle is costing me 120000, so if I have gone other than this time the same vehicle will cost me 150000, now it costed me 120000. Here, we can see that there is more demand due to Dhanteras festival so the price decreases or the products are more sold out, so the price of the product decreases.

• ·         Law of Diminishing Marginal Utility: - States that as the consumption of per unit of product increases, the amount of satisfactions decreases.

Example: - 1. I went tom purchase a T-Shirt, the 1^st day I wore the T-shirt, I am fully satisfied, I started wearing it for around a week, the moment the day’s increases, I am feeling some sort of less satisfaction by it, or the consumption of a product increases the amount of satisfaction decreases, and at last we consume that product less and search for another product which gives us more satisfaction.

2. Suppose we ride a motorbike, the 1^st day we ride we get satisfaction to its fullest as the best bike anybody have, the moment it started occurring some problems the satisfaction level from the bike decreases, we started disliking because it is not giving that amount of satisfaction as it has given on the 1^st ride.

• ·         Consumer Surplus: -It came into force when the consumer is willing to pay more for a product than its actual price.

Example: - 1. Suppose we consume a burger from a shop costing Rs. 100, it tastes amazing, the next time we visit we feel that the taste increases more, then again when we visit we are willing to pay more for the same burger suppose Rs.200, we are willing to pay for the same burger more than the actual price because the level of satisfaction increases as we consume more amount of it.

2. Let’s take an example of telecom provider, where it started providing its data service at Rs. 50/- per Gigabytes of data we start to consume it & as the day passes on, we can see that we got addicted with the service and the price increases to around Rs.80/-, we have no issues for giving Rs.30/- extra for the same amount of data, so no matter how much the amount will raise we are willing to pay for the same amount of data due to which we are getting satisfaction to the fullest.

• ·         Producer Surplus: - It is the price in which the producer is willing to sell on a higher price as compared to the original price of the product.

Example: - 1. Suppose we went to have coffee, we have two option either to go on a local hotel where the coffee will cost Rs. 20/- per cup or to go on like CCD, StarBucks where it is costing Rs. 150/- per cup, due to a slight change in the product the price of the product rises or the product demands more price due to some kind of addition in the product or service, brand value etc.

2. There are 2 car companies providing the same features but due to one of the brand image is higher as compared to the other it will charge more price than the other, so we can see that the producer is asking for more price due to its brand value as compared to the other company.

• ·         Budget Line/ Price Line: - Represents the various combination of two goods with a limited income and assumed prices of goods.

Example: - 1. Suppose if a customer income is Rs. 100/- & he is willing to pay those 100 Rs. On two products such as apple (Rs. 20) and banana (Rs. 20), so different combination are -

Banana	Apple
5	0
4	1
3	2
2	3
1	4
0	5

                            Income=Rs.100/-
So it can be seen that if one unit of banana is consumed more the decrease in amount the unit consumed of apple is there & vice- versa due to limited income.

2. Assume that we have Rs.20, &we go to a shop & there is two option one is tea which cost is Rs. 5 & coffee which cost Rs. 10, so there are two option, either two cup of coffee consume or 4 cup of tea to be consumed such as different combinations are made as follows: -

Tea	Coffee
4	0
2	1
0	2

Income=Rs. 20/-

So we can see that if we need to consume more amount of a commodity then we  need to sacrifice the commodity in order to consume more amount of other commodity in limited income.