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Economics assignment help

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Economics assignment help

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  1. economics assignment

  2. ECONOMICS: Microeconomics and macroeconomics

  3. ECONOMICS • MICROECONOMICS: it is that part of the economics that deals with the individual units of the society. Example: individual demand, individual supply • MACROECONOMICS: it is that part of the economics that deals society as a whole. example: aggregate demand, aggregate supply.

  4. MICROECONOMICS

  5. Consumer behavior and demand

  6. SOME IMPORTANT CONCEPTS: • UTILITY: utility is the power or capacity of a commodity to satisfy human needs. • MARGINAL UTILITY : it is the additional utility derived from consumption of an additional unit of a commodity. • TOTAL UTILITY: it is the sum of all the utilities derived from consumption of certain number of units of a particular commodity.

  7. Relationship between total utility and marginal utility TU increases as long as MU is more than zero. TU is maximum when MU is zero. TU starts declining when MU becomes negative.

  8. DIMINISHING MARGINAL UTILITY The law states ‘ as more and more of a commodity are consumed, marginal utility derived from each successive unit goes on falling.

  9. INDIFFERENCE CURVE An indifference curve is a curve which shows all those combinations of two goods that give equal satisfaction to the consumer.

  10. MARGINAL RATE OF SUBSTITUTION MRS tells the rate at which the consumer is willing to give up good 2 to get an additional unit of good 1 without affecting total utility. TO CALCULATE MRS: A(1,2) B(2,1) MRS= 1/1 =1

  11. Budget line • The budget line represents all the bundles which a consumer can buy with his entire income and prices of two goods.

  12. Consumer’s equilibrium • It is a point at which budget line is tangent to indifference curve. slope of budget line: p1/ p2 where p1: price of good 1 p2: price of good 2 slope of indifference curve: MRS where MRS= GOOD 2/ GOOD 1 SO, at equilibrium, both slopes are equal.

  13. Qx,Qy is the optimum bundle.

  14. Demand function The demand function relates price and quantity. It tells how many units of a good will be purchased at different prices. In general, at higher prices, less will be purchased. Thus, the graphical representation of the demand function (often referred to as the demand curve) has a negative slope. The market demand function is calculated by adding up all of the individual consumers' demand functions.

  15. Factors determining individual demand for a commodity 1. Income of the consumer: A consumer’s demand is influenced by the size of his income. With increase in the level of income, there is increase in the demand for goods and services. A rise in income causes a rise in consumption. As a result, a consumer buys more. For most of the goods, the income effect is positive. But for the inferior goods, the income effect is negative. That means with a rise in income, demand for inferior goods may fall. 2. Price of the commodity: Price is a very important factor, which influences demand for the commodity. Generally, demand for the commodity expands when its price falls, in the same way if the price increases, demand for the commodity contracts. It should be noted that it might not happen, if other things do not remain constant.

  16. 3. Changes in the prices of related goods: Sometimes, the demand for a good might be influenced by prices changes of other goods. There are two types of related goods. They are substitutes and complements. Tea and Coffee are good substitutes. A rise in the price of coffee will increase the demand for tea and vice versa. Bread and butter are complements. A fall in the price of bread will increase the demand for butter and vice versa. 4. Tastes and preferences of the consumers: Demand depends on people’s tastes, preferences, habits and social customs. A change in any of these must bring about a change in demand. For example, if people develop a taste for tea in place of coffee, the demand for tea will increase and that for coffee will decrease.

  17. Why demand curve slope downward to the right? • Law of Diminishing Marginal Utility :For every successive amount you consume your satisfaction will at first increase and then increase at an decreasing rate and finally decrease. Hence the negative nature of the slope. • Income effect: As the price of a commodity falls, the consumer has to buy the same amount of the commodity at less amount of money. After buying his required quantity he is left with some amount of money. This constitutes his rise in his real income. This rise in real income is known as income effect. This increase in real income induces the consumer to buy more of that commodity. Thus income effect is one of the reasons why a consumer buys more at falling prices.

  18. Substitution effect: When the price of a commodity falls, it becomes relatively cheaper than other commodities. The consumer substitutes the commodity whose price has fallen for other commodities which becomes relatively dearer. For example :with the fall in price of tea, coffees. Price being constant, tea will be substituted for coffee. Therefore the demand for tea will go up.

  19. Change in demand

  20. Movement along a demand curve(expansion and contraction of demand)

  21. Shift in demand curve(increase and decrease in demand)

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