LAW OF DEMAND
This law
states that if the price of a good increases, quantity demand decreases and the
price of a good decreases, quantity demand increases. In other words, price and
quantity demand are inversely proportional to each other.
Example
When the
price of vegetables increases, the quantity demanded by consumer decreases. It’s a normal human nature.
LAW OF SUPPLY
This law
states that if the price of a good increases, quantity supply increases and the
price of a good decreases, quantity supply decreases. In other words, price and
quantity supply are directly proportional to each other. It means that
supplier/producer are willing to offer more products for the sale in the market
at higher prices by increasing production as a way of increasing profits.
Example
If the price
of the dairy milk increases from Rs.20 to Rs.25, the quantity supplied of dairy
milk also increases.
OPPORTUNITY COST
Opportunity
Cost is also known as Alternative Cost. It is the cost of something is what we
give up to get it. While making a decision, person should be aware of the
opportunity costs that accompany each possible action. A choice need to be done
among best alternative options. We have to choose such type of alternative from
which we can get benefit.
Example
When I was
about to purchase the mobile phone, there were 2 companies in which I was
confused. 1st one is Motorola and another one is Samsung. But at
last I ended up buying Motorola. So my opportunity cost was Samsung.
TASTE & PREFERENCES
Demand of a
good depend on the tastes and preferences of a consumer. A change in taste and
preferences affects the quantity demand of different products. Because
different people have different taste. All are having different choices. Some
may like a product, but it doesn’t mean that the other person likes that
product. And the tastes and preferences of a consumer are not fixed always. May
be last year a person liked one product, but after one year that person doesn’t
like that product. Tastes and preferences of a consumer changes according to
time changes. This is called taste and preferences.
Example
My taste and
preferences from last year, last year my taste for shirts was more as compared
to t-shirts but now I tend to buy more t-shirts.
PRODUCTION FUNCTION
From the
given input/amount, the maximum output that can be produced is called
production function.
Q = K + L
Q is the
quantity output
K = Capital
L = Labor
In short
term, only labor changes. It refers to
a period of time in which one or more factors of production can’t be changed.
Factors that can’t be varied over this period are called fixed input.
In long
term, capital and labor both changes. It refers to the period where all inputs
are variable.
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