5 Concepts of Economics
1) SUBSTITUTION EFFECT
Substitution effect refers to the shifting of preference from one good to another as a result of change in relative price of goods.In other words consumer will replace more expensive items with cheaper substitutes assuming that income will remain same.
For Example:a) Usually it happens, when the price of my favourite shampoo goes up, I decide to try other cheaper brand. Similarly people do the same as everyone has its own budget constraints. So, they do accordingly.
b) If the price of given commodity say wheat falls with no change in price of its substitutes( say rice) then wheat will become relatively cheaper and will substitute for Rice i.e demand oIf wheat will increase as people will started buying thaT.
2) OPPORTUNITY COST
opportunity cost is the cost of next best alternatives i.e In order to get Benefit one alternative is selected over another. This concept is all about making a decision by looking at all other reasonable alternatives. It is basically an invisible cost.
For E.G- a) If I choose not to go to college today, my opportunity cost become my lost lectures.
b) My friends buys a pizza and with that same amount of money he could have bought a drink and a buyer. The oppotyunity cost for him is to drink and a burger.
3) MARKET SUPPLY V/S INDIVIDUAL SUPPLY
Market supply refers to the combination or sum of quantities of a specific good or service that the Seller is willing to sell. In this, we need to horizontally sum the individual supply curves of the two sellers.
For Instance: X and Y are the supliers selling protein products in the market, If we consider both of the suppliers together, then it will come in Market supply.
PRICE SupplierA SUPPLIERB MARKET SUPPLY
10 50 100 50+100 = 150
20 100 200 100+200= 300
30 150 250 150+250= 400
40 200 350 200+350= 550
50 250 400 250+400= 650
INDIVIDUAL SUPPLY
It refers to the individual who is willing to sell the speicific Quantity of a good or service to the market over a given period of time. It depends on a number of different factors such as Price of the product, Government policies, Price of substitutes and complementary goods, cost of production etc
For Instance: X and Y are the suppliers. If we consider these 2 seperately in the market then it is Individual supply.
PRICE QUANTITY
10 50
20 100
30 150
40 200
50 250
4) PEOPLE RESPOND TO INCENTIVES
An incentives is something that provoke the person to act. It basically modifies the buying behaviour of the consumer because Incentive attracts the rational consumer and help to analysis the market.
For Instance- a) Every year Reliance store provides vouchers on Rakshabhandan, as usual this year it is providing the same in order to attract more and more customers. I aso got one as I am a consumer so I feel that it is a benefit for me that's why more incentives lead to prosperous of Business also.
b) If a person wants to invest in mutual funds, he will wisely choose the comany in order to get more incentives. Where the consumer will find more benefits , he will invest in that company only.
5) NORMAL GOODS AND INFERIOR GOODS
NORMAL GOODS- Normal Goods are the one which are purchased with increase in the income of a consumer and falls with decrease in the income of consumer and price of goods remain constant.
For Example: If income of a consumer increases he will start purchasing branding clothes, Expensive car and so on but when his income decreases he will purchase goods whose price are not so high.
It has a direct relation with the income of the consumer.
Inferior Goods- Inferior goods are the one whose goods for which demand decreases with increase in income of consumer as consumer started shifting on other luxurious commodities and demand increases with fall in the inome of a consumer.
For Example- when the income of consumer is less then he'll go with cereal or breads but when his income rises he will shift to more of nutritious food.
It has indirect relation with the income of the consumer.
3) MARKET SUPPLY V/S INDIVIDUAL SUPPLY
Market supply refers to the combination or sum of quantities of a specific good or service that the Seller is willing to sell. In this, we need to horizontally sum the individual supply curves of the two sellers.
For Instance: X and Y are the supliers selling protein products in the market, If we consider both of the suppliers together, then it will come in Market supply.
PRICE SupplierA SUPPLIERB MARKET SUPPLY
10 50 100 50+100 = 150
20 100 200 100+200= 300
30 150 250 150+250= 400
40 200 350 200+350= 550
50 250 400 250+400= 650
INDIVIDUAL SUPPLY
It refers to the individual who is willing to sell the speicific Quantity of a good or service to the market over a given period of time. It depends on a number of different factors such as Price of the product, Government policies, Price of substitutes and complementary goods, cost of production etc
For Instance: X and Y are the suppliers. If we consider these 2 seperately in the market then it is Individual supply.
PRICE QUANTITY
10 50
20 100
30 150
40 200
50 250
4) PEOPLE RESPOND TO INCENTIVES
An incentives is something that provoke the person to act. It basically modifies the buying behaviour of the consumer because Incentive attracts the rational consumer and help to analysis the market.
For Instance- a) Every year Reliance store provides vouchers on Rakshabhandan, as usual this year it is providing the same in order to attract more and more customers. I aso got one as I am a consumer so I feel that it is a benefit for me that's why more incentives lead to prosperous of Business also.
b) If a person wants to invest in mutual funds, he will wisely choose the comany in order to get more incentives. Where the consumer will find more benefits , he will invest in that company only.
5) NORMAL GOODS AND INFERIOR GOODS
NORMAL GOODS- Normal Goods are the one which are purchased with increase in the income of a consumer and falls with decrease in the income of consumer and price of goods remain constant.
For Example: If income of a consumer increases he will start purchasing branding clothes, Expensive car and so on but when his income decreases he will purchase goods whose price are not so high.
It has a direct relation with the income of the consumer.
Inferior Goods- Inferior goods are the one whose goods for which demand decreases with increase in income of consumer as consumer started shifting on other luxurious commodities and demand increases with fall in the inome of a consumer.
For Example- when the income of consumer is less then he'll go with cereal or breads but when his income rises he will shift to more of nutritious food.
It has indirect relation with the income of the consumer.
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