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Economics

   This blog intends to share topics on Micro and Macroeconomics that a
   college student requires while he is preparing him/herself for
   examination. Introduction to Microeconomics, Demand, Law of Demand,
   Elasticity of Demand, Supply, Cost and cost curves, Production, Market
   structures, Distribution, Classical Theory of Employment, Effective
   demand, National Income, Circular flow of income and expenditure,
   Fiscal and monetary policy, Income and employment determination etc can
   be found in this blog.

Economics

   This blog intends to share topics on Micro and Macroeconomics that a
   college student requires while he is preparing him/herself for
   examination. Introduction to Microeconomics, Demand, Law of Demand,
   Elasticity of Demand, Supply, Cost and cost curves, Production, Market
   structures, Distribution, Classical Theory of Employment, Effective
   demand, National Income, Circular flow of income and expenditure,
   Fiscal and monetary policy, Income and employment determination etc can
   be found in this blog.

[3]Meaning and Concept of Demand


   1-  Meaning & Concept of Demand

   Generally, demand refers to a desire or want of anything, but a mere
   desire or want of anything is not a demand. In economics, to be a
   demand for any goods or services three of the elements are required
   i.e. a strong desire for goods or services, ability to pay the prices
   and willingness to pay. So the demand can be defined as the desire for
   a good or service which is backed up by ability and willingness to pay.

   Demand always signifies price, time and place. The demand for a
   commodity can only be effective if it has a price and is demanded in a
   market during a certain point or period of time. For example, John's
   demand for sugar is 5 kg. It can be his demand for sugar but it is not
   his effective demand because it just contains quantity but not the
   price and time. Similarly, Hary's demand for sugar is 5 kg at $2 per kg
   for week. Hary's demand for sugar is an effective demand because it not
   only contains quantity but also price and time. Thus, demand can be
   defined as the desire for the quantity of a commodity that a consumer
   willing and able to buy at a price in a market at a specific time.

   2- Types of Demand

   There are various types of demand. They are as given below;

   1-      Price Demand

   2-     Income Demand

   3-     Cross Demand

   4-     Composite Demand

   5-     Direct Demand

   6-     Derived Demand

   7-     Joint Demand

   1- Price Demand

   Price demand refers to the various goods or services that a consumer
   demands at various prices in a market at a certain time, other things
   remaining the same. There is a negative relationship between the price
   and goods demanded.

   Symbolically,

   Qd = fP

   Where;

   Qd = Quantity demanded of a commodity,

    f = Function,

    P = Price of the commodity,

   2-Income demand

   Income demand refers to the various quantity of goods or services that
   a consumer demands at a various level of income in a market at a
   specific period of time, other things remaining the same. There is a
   positive relationship between income and quantity demanded but in case
   of inferior goods, there is an inverse relationship.

   Symbolically,

   Qd = fY

   Where;

   Qd = Quantity demanded of a commodity,

    f = Function,

    Y = Income of consumer,

    3-Cross Demand

               Cross demand refers to the quantity of a commodity that a
   consumer ready to purchase or demand due to change in the price of some
   related commodities.  The related commodities are of two types,
   substitutes and complements. There is direct relationship between
   substitute goods and inverse relationship between complementary goods.
   Cross demand can be expressed symbolically as;

   Qdx = fPx

   Where;

   Qdx = Quantity demanded of X commodity,

    f = Function,
    Px= Price of x good,

   4-Composite Demand

   Composite demand is the demand for a commodity which can be put to
   several uses, such as demand for electricity, coal, building, packed
   water etc.

   5- Direct Demand

   The demand for a commodity is said to be direct demand when it is
   demanded for a direct consumption. Demand for biscuits, chow-men etc.
   is the direct demand.

   6- Derived Demand

   The demand for a commodity or service is said to be derived demand when
   it is demanded for producing a final commodity. Demand for raw
   material, demand for labor etc are the examples of derived demand.

   7- Joint Demand

   The demand for several goods for a joint purpose is said to be joint
   demand. Demand for potatoes, salt, oil, chili for vegetable is the
   example of joint demand.

   3-    Determinants of Demand

   There are various factors which influence consumers demand. These
   factors or determinants are explained as below.

   3.1-Price of the same commodity

   One of the most important determinants of consumers' demand is the
   price of the commodity that the consumer demands. When the price of the
   commodity rises, the consumer purchases less and less quantity of that
   commodity and vice versa. So price is the one which determines how much
   quantity of a commodity is demanded.

   3.2-Income of the consumer

   A change in income of the consumer also affects the demand for a good.
   When income of the consumer increases, generally demand for normal
   goods increases but the demand for inferior commodity falls. On the
   other hand, demand for normal goods falls with a decrease in income but
   at the same time the demand for inferior goods like millet, coarse rice
   etc. increases. Hence income of the consumer is an important
   determinant of demand.

   3.3-Price of related goods

   Another determinant of consumers' demand is the price of related goods.
   The related goods are of two types, i.e. substitutes and complements.
   In case of substitute goods, quantity demanded of one commodity, say
   Fanta, increases due to rise in the price of another commodity, say
   Pepsi and vice-versa (positively sloping demand curve). Likewise, in
   case of complementary goods, the demand for one commodity, say torch
   falls due to rise in the price of another commodity, say batteries and
   vice-versa (negatively sloping demand curve).

   3.4-Taste, Habit and Fashion

   Taste, habit and fashion also play important role to determine the
   consumer's demand.  The demand for a particular commodity changes due
   to change in taste, habit and fashion of the consumer. When the
   consumer is habitual for any goods or the goods that are flavoring to
   him, demand for those goods increases. Similarly, when a particular
   commodity exists on fashion, its demand increases but demand for that
   commodity falls when it goes out of fashion.

   3.5-Advertisement

   Advertisement is a medium of motivating and attracting the consumers
   towards a commodity. When the advertisement of a commodity is
   repeatedly done, the consumers are naturally attracted towards the
   commodity and demand for it. Consequently demand for that commodity
   rises but reverse will be the case for the commodity without
   advertisement. So advertisement is one of the determinants of
   consumers' demand.

   3.6-Seasons

   The seasons also are determinants of consumers' demand for goods and
   services. In some particular seasons, demand for some certain goods get
   changed whereas in some other seasons demand for those good falls to
   the lowest level. For example, demand for cold drinks, cotton clothes
   etc. goes high in summer season but low in winter season. Likewise
   demand for woolen clothes, hot drinks etc. goes high in winter but low
   in summer. Similarly, there is an increase in demand for umbrellas and
   gumboots in rainy seasons but fall in other seasons. Thus, demand for a
   commodity is also influenced by seasons.

   3.7-Size of population

   Size of population is also an influencing factor for quantity demanded
   of a commodity. When the size of population is big, naturally demand
   for normal goods is high and vice-versa. Similarly increase or decrease
   the number of certain age groups determine the demand for particular
   commodity. For example, increase in the number of children causes
   demand for playing items like dolls, toys, swings etc.

   3.8-Expectation to change in price in future

   Expectation to change in price in future also affects demands for a
   commodity. Demand for a commodity increases when there in an
   expectation to rise in the price of that commodity in near future and
   vice-versa.

   3.9-Distribution of national income

   Distribution of national income also affects the quantity demanded of a
   commodity. When the distribution of national income is unequal, some
   people are rich but a majority of people are poor.  In such a situation
   demand for luxurious goods is high but at the same time demand for
   inferior goods is also high and demand for normal goods is low. When
   income is equally distributed, the purchasing power of all the people
   is similar to one another and in such a situation demand for luxurious
   goods declines, and demand for normal goods increases.

   3.9-Taxes
   Tax system is also one of the determinants of demand. Imposition of
   higher rate of direct and indirect taxes to the consumer reduces their
   purchasing power. Consequently, demand for goods falls whereas tax
   release increases the real income of the consumer and demand for goods
   goes up.
   at [4]January 14, 2021 [5]No comments:
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[11]Fundamental Principles of Economics


   6. Fundamental Principles of Economics

   There are ten fundamental principles of economics and these principles
   of economics have been divided under the three categories as given
   below.


   6.1-     How People Make Decisions

   6.2-     How People Interact

   6.3-     How the economy as a whole works

   6.1- How People make decision

   Under this category, there are four principles as given below.

   6.1.1-People face trade-offs

   Facing tradeoff means how to make a balance between two things that we
   need or want in exchange with our limited resources. These two things
   are opposite to each other. In our real life we always face trade off
   while making decision about something. It is because to get one thing
   that we like, we usually have to give up another thing that we like. So
   making decisions requires trading off one goal against another.

   6.1.2- Cost of something is what you give up to get something

   People face tradeoffs, so making   decisions requires comparing the
   costs and benefits of alternative courses of action. When you spend a
   year listening to lectures, reading textbooks, and writing papers, you
   cannot spend that time working at a job. For you, the wages given up to
   attend school are the cost of your education. The opportunity cost to
   attend school or having education are the wages given up. So the
   opportunity cost of an item is what you give up to get that item. When
   making any decision, decision makers should be aware of the opportunity
   costs.

   6.1.3- Rational people think at the margin

               In economics it is assumed that people are rational and
   rational people make the best decisions by thinking at the margin
   (edge) or comparing additional costs for extra benefits. Suppose you
   have been to the market for shopping from your house by bus by paying
   Rs.50 bus-fare. There is also a circus-show at one corner in the
   market. You like to watch it but whether to watch it today or come to
   the next day to watch it, to decide it, you compare the cost for coming
   in the next day, that is Rs.50 bus-fare + Rs.20 circus charge against
   benefit or utility from watching circus today or the next day. This is,
   individuals and firms can make better decisions by thinking at the
   margin. A rational decision maker takes an action if and only if the
   marginal benefit of the action exceeds the marginal cost.


   6.1.4-People respond to incentives

               Incentive means something that   encourages people to do
   something. People make decisions by comparing costs and benefits, their
   behavior may change when the costs or benefits change. That is, people
   respond to incentives. When the price of an apple rises, for instance,
   people decide to eat more pears and fewer apples, because the cost of
   buying an apple is higher. At the same time, apple orchards decide to
   hire more workers and harvest more apples, because the benefit of
   selling an apple is also higher. Thus people respond to incentives.

   6.2-How People interact

   Under this category, there are three principles as given below.

   6.2.1-Trade can make everyone   better off

               Either we talk about individuals, society or countries,
   trade can make everyone better off. If there were no trade, we would
   make everything that we need  by ourselves. Perhaps we would lack to
   get much that we require but it is trade that allows individuals, firms
   or countries to specialize in what they do best and enjoy a wider
   variety of goods. Therefore, trade is the one that can make everyone
   better off.

   6.2.2-Markets are usually a   good way to organize   economic activity

               Markets are usually a good way to organize economic
   activity. Today, most countries that once had centrally planned
   economies have abandoned this system and are trying to develop market
   economies. In a market economy, the decisions of a central planner are
   replaced by the decisions of millions of firms and households. Firms
   decide whom to hire and what to make. Households decide which firms to
   work for and what to buy with their incomes. These firms and households
   interact in the marketplace, where prices and self-interest guide their
   decisions of making economic activities. Thus markets are usually a
   good way to organize economic activities.

   6.2.3- Government can sometimes   improve market outcomes

               Markets are usually a good way to organize economic
   activity. It is true if only the government plays a crucial role to
   settle markets. Govt. provide legal safety to the economic agents i.e.
   producers, firms and consumers. Importantly, markets work only if
   property rights are enforced.  For example, a farmer won't grow food if
   he expects his crops to be stolen, a restaurant won't serve meals
   unless it is assured that customers will pay before they leave. We will
   rely on the government provided police & courts to enforce our rights
   over the things we produce.

               And sometimes markets fail to work due to some external
   effects. There is less efficiency, less equality, lack of efficient
   allocation of resources. In such a condition, the government can
   intervene and improve market outcomes by its public policy.

   6.3-How the economy as a whole works

   Under this category, there are three principles as given below.

   6.3.1- Country's standard of living depends on its ability to produce
   goods and services

               The living standard of a country or its people primarily
   depends on its ability to produce goods and services. The more the
   ability to produce goods and services, the more people can enjoy
   required goods and services and maintain a high standard of living.
   Conversely, where there is low productivity, most of the people are
   compelled to spend a miserly life.

   6.3.2- Prices rise when government prints too much money

               The variation in prices of goods and services also depends
   on the quantity of money supply in the economy. When the govt. creates
   large amounts of money and lets them go in circulation, the value of
   money goes down and the prices of goods and services rises. The
   continuous and sustained rise in price level is called inflation. If
   such a situation is not timely checked, it brings an adverse effect in
   the economy.

   6.3.3- Society faces a short-run tradeoff between inflation and
   unemployment,

               There is a short-run trade-off between inflation and
   unemployment. With the increase in the quantity of money supply, the
   demand for goods and services goes up. It is because there is more
   money in the hands of the buyers. Consequently, there is an increase in
   the price level (inflation) and in the meantime it also encourages
   producers to increase the quantity of goods and services they produce.
   So the producers employ more workers to produce more goods and services
   and supply them. It is, employing more workers means lower
   unemployment. Thus there is a short-run trade-off between inflation and
   unemployment.
   at [12]January 12, 2021 [13]No comments:
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   Labels: [19]Comparative and Dynamics, [20]Concept and Scope of
   Economics, [21]Concept of Normative and Positive Economics,
   [22]Importance of Microeconomics, [23]Types of Micro-economic Analysis
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Concept and Scope of Economics

[27]Meaning and Concept of Demand

     1-   Meaning & Concept of Demand Generally, demand refers to a desire
   or want of anything, but a mere desire or want of anything i...
     * [28]Types of Micro-economic Analysis
       1. Types of micro-economic analysis On the basis of time, the
       equilibrium between two variables in microeconomics is divided into
       three part...
     * [29]Fundamental Principles of Economics
         6. Fundamental Principles of Economics There are ten fundamental
       principles of economics and these principles of economics have been
       d...
     * [30]Concept and Scope of Economics
         1. Concept and Scope of Economics The basic economic problem that
       individuals, group of individuals and the entire societies face is
       t...

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