Law
of demand :
Demand
refers
to the quantity of a good or services the consumer is willing and able to pay
at a given point of time at a particular price.
According to law
of demand, other things remaining common if the price of the product
increases (↑), the quantity demanded decreases (↓) and vice versa.
Examples :
1.) Once
I went to vegetable market with my uncle who used to run a boys hostel in
Hyderabad. At that point of time one kg of onions got up to a price of Rs. 40
which is double to the usual price so we reduced our quantity purchased by 5
kgs from 15 kg. here I observed law of demand working.
2.) Recently
I visited D mart near college to buy some groceries. There at that time a
discount is running on biscuits like some with one plus one offer and some with
a discount of 30% off by seeing them I brought more of such biscuit packets.
Here also I observed law of demand working as the price of the goods decreased
I brought more goods.
Law
of supply :
Supply
refers
to the quantity of a good or services the producers are willing and able to
produce at a given point of time at a particular price.
According to law
of supply, other things remaining common if the price of the product
increases (↑), the quantity produced and offered to sale increases (↑) and if
the price falls (↓), the quantity also falls (↓).
Examples :
1.) My
father used to run a small ice factory in our village. He used to produce more
ices in summer as the price of ices go up at that time period. Later he used to
reduce the production as the price falls down after season.
2.) I
saw my father many times deciding what crop to plant in agricultural land we
have based on the price of a particular crop. If he finds that avg. price of
chillies increases over time he used to allocate much resources to that crop.
Elasticity
:
An elasticity is a measure of the sensitivity of one
variable to the other
It can be quantified as percentage (%) change that
will occur in one variable in response to a percentage (%) change in another.
Price
elasticity of demand refers to the percentage (%), change in
quantity demanded of a commodity as a result of a percentage (%), change in
price of that commodity.
cross
elasticity of demand is the percentage change in the quantity
demanded of commodity A as a result of a percentage change in the price of some
related commodity B. Products can be substitutes,
and their cross elasticity is then positive;
cross elasticity is negative for
products that are complements.
Elasticity
of supply means the responsiveness of supply to change in the
price of the commodity.
Examples :
1.) At
our home we used to get a daily newspaper eenadu which is a local newspaper.
Once when they increased the price by small amount we stopped purchasing that
paper and shifted to another local newspaper which is close to it. Here I
observe price elasticity of demand as a small increase in price led to a large
decrease in quantity demanded.
2.) As
my father is a farmer I came to know that a increase in price cotton cannot
lead to an immediate increase in production by farmers as the plants have to be
planted 3 months prior. Here I observe elasticity of supply.
Budget
line :
Generally, budget means an estimation of costs,
revenues and resources available to a person or organisation or a general body
over a specified period of time and planning accordingly.
Budget
line
is the representation of the combination of two products that a consumer can
afford with a given income using all the amount available to him.
Examples :
1.) During
last year diwali my father gave me 5000 rupees to bring fireworks and
decorating items like lamps and lights. Here I have different choices buy
fireworks for the total amount without buying any decors or buy decors with all
the amount and not any fireworks. Like this I have different combinations to
buy those two items with in the budget.
2.) When
I went to D mart last week I went with a budget of 1000 rupees to bring some
snacks and some stationary items which I need. After going there I looked all
the possible combinations of those two items. If I spend all the amount on
snacks I should suffer in class. If I spend all the amount on stationary items
I should suffer at nights when I am hungry. So looked up all the combinations
and choose the best fit for me.
Indifference
curve :
It is a curve which represents all those combinations
of two goods which give same satisfaction to the consumer. Since all the
combinations on an indifference curve give equal satisfaction, the consumer is indifferent
among them. In simple words, since all the combinations provide the same level
of satisfaction the consumer prefers them equally and does not mind which
combination he gets.
Example :
Once I went to buy some fruits near by and looked at
different combinations between apples and bananas which both I like equally so
I looked all the combinations which gives me maximum satisfaction the results
are as follows.
|
Apples
|
Bananas
|
|
30
|
10
|
|
24
|
14
|
|
18
|
22
|
|
12
|
35
|
|
6
|
52
|
 |
| source: my excel |
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