Know about -Principles of Economics.pptx

Principles of Economics.pptx

1. Principles of Economics

2. Introduction Meaning Economics is the social science that studies the production, distribution, and consumption of goods and services. Economics focuses on the behaviour and interactions of economic agents and how economies work. Definition “The study of how societies use scarce resources to provide valuable commodities and distribute them among different people”. - Prof.Samuelson .

3. Scope of Economics Micro Economics Macro Economics Positive Economics Normative Economics

4. Difference between Micro and Macro Economics Sl.No . Micro Economics Macro Economics 1 Individual household Aggregate Households of the economy 2 Partial economy Entire economy 3 S hort term problem Long term problem 4 Studies the features of a tree Studies the features of entire forest 5 A pure theory dealing with price and value A system dealing with savings , investment and employment 6 Concerned with open economy Concerned with closed economy 7 Termed as price theory Termed as income theory 8 Principles of Economics by Marshall General theory of employment, interest and money by Keynes 9 Neo- Classical economists are interested Keynes and modern economists are interested 10 Partial equilibrium General equilibrium 11 Static Dynamic 12 Worm’s Eye view Bird’s Eye view

5. Law of Demand Market Competition Utility Demand Quantity Demanded Factors determining demand

6. Law of Demand Law of demand: It express the relationship between price and quantity demanded. Other thing being equal, if price of the commodity falls, the quantity demanded of it will rise, and if the price of the commodity rises, its quantity demanded will decline. Demand Schedule: A tabular representation of the individual quantity demanded under different price levels. Demand Curve: A graphical portrayal of a good demanded by the consumer at various possible prices in a period of time.

7. Individual Demand Schedule and Curve Price(Rs) Quantity Demanded (Units) 10 1 8 2 6 3 4 4 2 5 10 8 6 4 2 1 2 3 4 5 Quantity Demanded Price L P O N M D D

8. Market Demand Schedule and Curve

9. Reasons for the downward sloping demand curve Law of diminishing marginal utility Price Effect Income Effect Substitution Effect Different income group Different uses of few goods and services Exceptions: War Depression Giffen Paradox Demonstration Effect Ignorance Effect Speculation

10. Law of Supply Supply The quantity of goods and services which the seller is willing and able to offer for sale at various prices during a given point of time. Quantity Supplied Higher the price greater will be the quantity of goods and services that will be supplied and lesser the price lower will be the quantity of goods and services that will be supplied. Factors determining Supply Technology, Price of factors of production, prices of other related goods, Number of sellers, Price expectation in future , Taxes and subsidies.

11. Law of Supply Law of Supply States that other things being equal, the quantity supplied varies directly with the price of the commodity. Supply Schedule A table which represents the various quantities of a given good offered by the seller for sale at different price. Supply Curve The graphical demonstration of the supply schedule.

12. Supply Schedule and Curve Price(Rs) Quantity Supplied (Units) 100 500 80 400 60 300 40 200 20 100

13. Reasons for the upward sloping supply curve Positive relation between Price and quantity supplied Profit motives of the sellers Substitution Effect Exceptions: In short run the seller will sell more if he expect the price to fall in future. In long run, the technology is used the cost will increase. Change in taste, preference, habits, fashion, weather, politics both at national and international levels. A increase in the price of the goods and services lead to fall in supply.

14. Law of Diminishing Marginal Utility Assumptions: Based on cardinal concept Measurable in terms of money Marginal utility of money is constant Consumer acts rationally Consumer has complete knowledge on availability of goods Consumer has perfect knowledge on the choices open to him and they are kept constant Consumer knows the price of the commodities No substitutes

15. Law of Diminishing Marginal Utility Utility The ability of a good to satisfy a want. Total Utility The total satisfaction received from consuming a good or service. Marginal Utility The extra utility received from consuming one additional unit of a good. Law of DMU Each additional unit of a good eventually gives less and less extra utility. “The additional benefit which a person derives from a given increase of his stock of a thing diminishes with every increase in the stock that he already has”.-Alfred Marshall

16. Law of Diminishing Marginal Utility

17. Lancaster’s Approach to Consumer Theory Old Approach- The consumer chooses and buys the commodity just because he wants and has the ability to pay for it. New Approach – The consumer chooses and buy the commodity because of its characteristic features. Crux- The commodity do not give utility to the consumer rather it is the character which gives utility. In actual, a commodity may have more than one character and many character will be shares by more than one commodity. Commodities when in combination may have different or variety of characters when compared single commodity.

18. BY Dr BINDHU KRISHNAN