Some Basic Economic Concepts

▪ PRODUCER'S EQUILIBRIUM:

The producer's equilibrium is the point at which the producer can produce optimum level of output with the particular combination of factor inputs with the given outlay.
There are various factors which have an effect on the producer's equilibrium. Let us see this with the help of an example.

Suppose there is an ice-cream factory. The basic inputs of an ice-cream factory are milk and sugar. With a particular combination of these two factor inputs bought with a given outlay, the factory produces certain number of ice-cream cones. Now suppose the given outlay of the factory is increased while the cost price of the inputs remain unchanged now what happens? The factory can now buy more units of milk and sugar and can produce more units of ice-cream cones. What effect does this have on the producer's equilibrium curve? There is a parallel shift in the producer's equilibrium curve towards right as output has increased.
Now let us take another scenario where the outlay remains unchanged and the cost of factor inputs i.e., milk and sugar increases. Now with the same outlay the producer will be able to buy less number of units of milk and sugar and thus can produce less units of ice-creams. So in this situation there is a parallel shift in the producer's equilibrium towards left .

▪ THE LAW OF DIMINISHING MARGINAL UTILITY:

The law of diminishing marginal utility states that when a consumer goes on consuming more and more units of a commodity , the marginal utility derived from each additional unit consumed goes on decreasing.
Hotels offering buffet system meals make use of the same concept. Let us see how.
If a hotel prices a buffet for Rs. 500 and say a 100 people eat , only 2 people may eat more than that value i.e., Rs. 500 and rest will experience dimishing marginal utility, the satisfaction derived by them with each subsequent meal will go on decreasing and ultimately will become zero. The cost of each meal for the remaining 98 people will be a couple of hundreds. So on an average the restaurant rakes it in through buffets.

▪ UNSEASONAL FLUCTUATIONS IN THE PRICES OF VEGETABLES:

There are a lot of reasons behind unseasonal price fluctuations in the prices of vegetables. Some of them are discussed below:

1. Due to inflation:
Due to inflation the price of petrol/diesel will increase the cost of transportation of vegetables which in turn will increase the price of vegetables.

2. Emergencies:
During emergencies like drought,flood ,earthquake ,war etc. the prices of vegetables fluctuates.

3. Nature of good:
Vegetables being seasonal goods are produced in a particular season only and therefore unlike manufactured goods vegetables are in a limited supply and its supply cannot be instantly adjusted in accordance with its demand. Due to this phenomenon also there is a fluctuation in prices of vegetables is seen.

▪ MOBILITY OF INPUTS:

Mobility of inputs refers to the ability of the inputs to move from one place to another.
For e.g., there are many rajasthani artists who make sculptures from Plaster of Paris (POP). They move from one region to another, to different states and makes these sculptures and sell the same in a particular region until the demand in that particular region reaches saturation point. Once the demand in that region reaches saturation point ,the artists move to another region where there is a new demand and again the same cycle is repeated.
All this happens because of the mobility of inputs which is labour.