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ECONOMICS XII CLASS. CLASS XII : TOPICS. PRODUCTION POSSIBILITY CURVE. CONCEPT OF DEMAND. SHIFT IN DEMAND CURVE AND MOVEMENT ALONG THE DEMAND CURVE. CONCEPT OF SUPPLY. SHIFT IN SUPPLY CURVE AND MOVEMENT ALONG THE SUPPLY CURVE. EQUILIBRIUM PRICE. PRODUCTION POSSIBILITY CURVE. (PPC).

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slide1

ECONOMICS

XII CLASS

class xii topics
CLASS XII : TOPICS

PRODUCTION POSSIBILITY CURVE.

CONCEPT OF DEMAND.

SHIFT IN DEMAND CURVE AND MOVEMENT ALONG THE DEMAND CURVE.

CONCEPT OF SUPPLY.

SHIFT IN SUPPLY CURVE AND MOVEMENT ALONG THE SUPPLY CURVE.

EQUILIBRIUM PRICE.

cotents
COTENTS

DEFINITION OF PRODUCTION POSSIBILITY CURVE.

PRODUCTION POSSIBILITY SCHUDLE.

PRODUCTION POSSIBILITY CURVE.

SHIFT IN PRODUCTION POSSIBILITY CURVE.

CURVE SHOWING UNDER UTILIZATION OF RESOURCES AND FULL UTILIZATION OF RESOURCES.

objectives
Objectives
  • To understand meaning of PPC.
  • To understand PPC schedule.
  • To understand PPC.
  • To understand why it is concave to the origin.
  • To understand that any point inside it shows under utilization of resources , point on it shows full utilization of resources.
  • To understand central problems.
production possibility curve
PRODUCTION POSSIBILITY CURVE
  • Production possibility curve is that curve which represents the maximum amount of a pair of goods or services that can both be produced with an economy’s given resources and technique, assuming that all resources are fully employed.
slide7
Assumptions of PPC

(a) Fixed quantity of factor of production of production.

(b) Resources are fully and efficiently utilized.

(c) Technology of production remains constant.

(d) Assumption of two goods.

slide9

PRODUCTION POSSIBILITY CURVE

P

A1

A2

A3

A4

A GOOD

A5

O

B1 B2 B3 B4 B5

P

B GOOD

two basic properties of ppc
Two Basic Properties of PPC
  • (1)Production Possibility Curve Slopes Downwards: Production possibility curve slopes downwards from left to right. It is because in a situation of fuller utilization of the given resources, production of both the goods can not be increased. More of good-Can be produced only with less of good-Y.
  • (2) 1)Production Possibility Curve is concave to the point of origin; It is because to produce each additional unit of good-X, more and more unit of good-Y will have to be sacrificed than before. Opportunity cost of producing every additional unit of good –X tends to increase in terms of loss of production of good-Y.In other words, production will obey the Law of Increasing opportunity cost
slide11

P1

GROWTH OF RESOURCES

P

A GOOD

Initial Resources

P

o

P1

B GOOD

slide12

Full Utilization of resources

Unattainable combination of output

.

P

W

.

Y

.

S

.

.

.

.

A GOOD

Z

E

.

Under utilization of resources

P

O

B GOOD

opportunity cost
OPPORTUNITY COST
  • Opportunity Cost:- Opportunity Cost refers to value of a factor in its next best (or second best) alternative use.

Y

A

Use-1 value of output

Rs.6000

O

B

X

Use-2 value of output

Rs. 5000

Opportunity cost of employing resources in use -1=loss of out put in next best alternative use of the given resources which is Rs. 5000 in use -2

evaluation
Evaluation

Define P.P.C. ?

What does slope of P.P.C show ?

What does the point inside the P.P.C. show ?

What does the shifting of P.P.C show ?

Can you show the central problems through the P.P.C ?

demand

DEMAND

Meaning –the quantity of a commodity or service that a consumer would buy at a given price and at a given time .

contents of demand
Contents of demand

Desire for a commodity.

Ability to pay.

Readiness to spend.

Specific time.

Specific place.

Specific price.

factors affecting demand
FACTORS AFFECTING DEMAND

Price of the commodity.

Income of the consumer.

Price of related goods.

Tastes and preferences.

Future expectations.

law of demand

LAW OF DEMAND

If other things remaining the same, when the price of a commodity increases, its demand falls and when the price falls, its demand increases.

assumptions of law of demand
Assumptions of law of Demand

(1)Income of the consumer remains constant.

(2)There is no change in the taste and preference of the consumer.

(3)No change in price of the related good.

(4)The commodities are normal.

(5)There is no expectations of change in price in near future.

(6)No new substitute of the commodity are available.

(7)No change in the distribution of income and wealth.

(8)Other relevant factors like size and composition of population, seasonal and climate factors, economic condition of the country etc. remain unchanged.

relation of price with demand
RELATION OF PRICE WITH DEMAND

PRICES (Rs.) DEMAND (Qt.)

1 5

2 4

3 3

4 2

5 1

slide21

Y

D

5

Price

1

D

O

X

1

5

Quantity

difference
DIFFERENCE

Base of difference

Sr.no

Change in Quantity Demand

Change in Demand

Change in Quantity demanded refers to increase or decrease In quantity purchased of a commodity in response to change in other determinants of demand, other than price of the same commodity.

Shifting of the Demand curve

(1)Increase in Demand

(2)Decrease in Demand

Change in Quantity demanded refers to increase or decrease In quantity purchased of a commodity in response to decrease or increase in its price other than its determinants.

Movements along the Demand curve

(1)Extension of Demand

(2)Contraction of Demand

Definition

1

2

Alternative Name

difference between contraction and decrease in demand
This is caused only by change in the price of concerned commodity

Increase in price of the commodity is the only cause

This is caused by change in determinants, other than price of the concerned commodity

Several causes: Decrease in income, decrease in price of substitute good, increase in price of complementary good,

Price (x) Quantity (Units)

10 30

10 20

Difference between Contraction and Decrease in Demand

Price(Rs.)

Quantity (Units)

Description

1

5

p

Q.D.

D

contraction of demand
Contraction of demand

D

P1

N

Price

M

P

D

Q1

Q

O

Quantity

decrease in demand
Decrease in demand

D

Y

D1

E1

E

P

Price

D

D1

x

Q1

Q

O

Quantity

extension of demand
Extension of demand

P

Y

D

K

Price

P1

P1

P1

P1

P1

L

D

Q1

Q

O

Quantity

slide27

Increase in demand

D1

PRICE

D

Y

p

E1

E

D1

D

O

X

QUANTITY

Q

Q1

questions
VERY SHORT ANSWER TYPE Q .1 Define demand ? Q .2 Define supply ? Q .3 Define demand function ?

Q .4 Define supply function ? Q. 5 what do you understand by demand schedule ? Q.6 what do you understand by supply schedule ?

Q 7 Explain the law of demand ?

Q 8 what are the factors affecting demand ?

Q 9 what are the assumptions of law of demand ?

Q 10 what are the exceptions to the law of demand ?

Questions
slide31

DEFINITION OF SUPPLY

  • The supply of goods is the quantity offered for sale in a given market at a given time at various prices.
slide32

Law of Supply

  • The law of supply states that other things remaining constant, the higher the price the greater the quantity supplied or the lower the price the smaller the quantity supplied.
factors affecting supply
FACTORS AFFECTING SUPPLY

Price Of Commodity.*Price Of Factors Of Production.*Productivity Of Factors.*Technology.*Numbers Of Firms.*Policy Of Govt.*Aim Of Firms.

types of supply schedule
TYPES OF SUPPLY SCHEDULE
  • (1) Individual Supply Schedule.
  • (2) Market Supply Schedule.
slide36
Other things being are equal, when quantity supplied of a commodity increases due to rise in its price it is called extension.

EXTENSION OF SUPPLY

slide37

DIFFERENCE BETWEEN CHANGE IN QUANTITY SUPPLIED AND CHANGE IN SUPPLY.

Change in quantity

Supplied

Due to change in price.

Movement along the supply curve.

Change in supply

Due to change in other factors.

Shift in supply curve.

slide39

EXTENSION OF SUPPLY

EXTENSION OF SUPPLY

slide40
Other things being equal, when quantity supplied of a commodity decreases due to fall in its price, it is called contraction of supply.

CONTRACTION OF SUPPLY

increase in supply43
INCREASE IN SUPPLY
  • More supply at same price or same supply at less price is called increase in supply.
decrease in supply
DECREASE IN SUPPLY

Less supply at same price and same supply at more price is called decrease supply.

evaluation47
Evaluation

What do you mean by supply ?

Define the law of supply ?

Name any four factors effecting the supply of a commodity.

Define the expansion of supply.

What do you mean by contraction of supply ?

slide49
Equilibrium Price Will be Shown by the Diagram

Effect of Change in demand on Equilibrium Price- When supply is Constant ,Perfectly Elastic and Perfectly Inelastic

Effect of Change in Supply on Equilibrium Price- When Demand is Constant ,Perfectly Elastic and Perfectly Inelastic

Effect of Simultaneous Change in Demand and Supply

All the Effects Mentioned Above Will be Shown by the Diagrams

Index

these commodities have different prices
THESE COMMODITIES HAVE DIFFERENT PRICES.

LETS KNOW HOW THESE PRICES DETERMINED IN THE MARKET.

slide52
THE PRICE ON WHICH A COMMODITY IS SOLD AND PURCHASED IN MARKET IS CALLED EQUILIBIRIUM PRICE.

EQUILIBIRIUM PRICE IS THAT PRICE ON WHICH THE DEMAND AND SUPPLY OF A COMMODITY IS EQUAL TO EACH OTHER.

Equilibrium Price

schedule of equilibirium price
SCHEDULE OF EQUILIBIRIUM PRICE

PRICE(RS.) QT.SUPPLIED QT.DEMANDED

1 1 5

2 2 4

3 3 3

4 4 2

5 5 1

EQUILIBIRIUM PRICE

slide54
Equilibrium Price is that price at which its two determinants-demand and supply are in balance, or equal.

Equilibrium Price

Y

S

D

E

P

Price

D

S

O

Q

X

Quantity

slide55

EQUILIBIRIUM PRICE

S

PRICE

D

EXCESS SUPPLY

P1

p

E

EXCESS DEMAND

P2

D

S

O

X

Q

QUANTITY

slide56

Effect of

Change in Demand & Supply

slide57
When supply is constant

Effect of Increase In Demand

D1

Y

S

D

E1

P1

Price

E

P

D1

S

D

O

Q

Quantity

X

Q1

when supply is perfectly elastic
When Supply is Perfectly Elastic

D

Y

D1

Price

E1

E

S

S

P

D

D1

O

X

Q1

Q

Quantity

when supply is perfectly inelastic
When Supply is Perfectly Inelastic

D

Y

S

D1

E

P

Price

E1

P1

D

D1

S

O

Q

X

Quantity

when supply is perfectly inelastic64
When Supply is Perfectly Inelastic

D

Y

S

D1

Price

E

P

E1

P1

D

D1

S

O

Q

X

Quantity

when demand is perfectly elastic
When Demand is Perfectly Elastic

S

Y

S1

Price

D

D

E

E1

P

S

S1

O

Q

Q1

X

Quantity

when demand is perfectly inelastic
When Demand is Perfectly Inelastic

D

Y

S

S1

Price

E

P

P1

E1

S

S1

D

O

Q

X

Quantity

effect of decrease in supply and no change in demand
Effect of Decrease in Supply and no change in Demand

S1

D

S

Y

Price

E1

P1

E

P

S1

S

D

O

Q1

Q

X

QuantityDEMANDED AND SUPPLIED

when demand is perfectly inelastic68
When Demand is Perfectly Inelastic

S1

Price

D

Y

S

E1

P1

E

P

S1

S

D

O

Q

X

Quantity DEMANDED AND SUPPLIED

when demand is perfectly elastic69
When Demand is Perfectly Elastic

S1

S

Y

Price

D

E1

E

D

P

S1

S

O

Q1

Q

X

Quantity DEMANDED AND SUPPLIED

simultaneous change in demand and supply
Simultaneous Change in Demand and Supply

When Changes in Demand and Supply are Equal

D1

S

Y

D

S1

Price

E1

E

P

D1

S

D

S1

O

Q

Q1

X

Quantity

evaluation71
Evaluation

Define the equilibrium price ?

How does increase in demand effects equilibrium price when supply is constant?

What will be the change in equilibrium price, when demand is perfectly elastic and supply increases ?

What will be the change in equilibrium price, when supply is perfectly inelastic and demand decreases ?

slide72

AGGREGATE DEMAND AND

AGGREGATE SUPPLY

objectives73
OBJECTIVES

To know the meaning and components of AD and AS.

To understand the concepts of inflationary and deflationary gap through the diagrams

To understand the determination of income and employment through AD /AS and saving and investment.

slide74
Aggregate demand refers to the sum total of demand for all the goods and services in the economy as a whole. It is measured in terms of total expenditure on the goods and services in an economy.

AGGREGATE

DEMAND

components of aggregate demand
COMPONENTS OF AGGREGATE DEMAND

AD= C+I+G+(X-M).

  • C= Household consumption expenditure.
  • I=Investment expenditure.
  • G=Govt. Expenditure.
  • (X-M)=Net export (Export- import).
aggregate supply
AGGREGATE SUPPLY

Aggregate supply refers to the flow of goods and services in an economy.

Aggregate supply is the minimum sale proceeds which the producer must get so as to continue production at any given level of employment

slide77

COMPONONENTS

OF AGGREGATE SUPPLY

  • AS=C+S.
  • C=CONSUMPTION.
  • S=SAVING.
determination of output income and employment
DETERMINATION OF OUTPUT, INCOME AND EMPLOYMENT.

: AS/ AD approach Equilibrium level of output, income and employment id determined at the point where aggregate demand and aggregate supply are equal to each other.

Equilibrium : AD -=AS

Since , AD = C + I and AS = C + S

Equality between (C + I) and (C + S) simply implies the equality between saving and investment . so that equilibrium occurs where,

AS = AD or S = I

Accordingly determination of output, income and employment can be explained in two ways :

1.On the basis of equilibrium between aggregate demand and aggregate supply

2.On the basis of equilibrium saving and investment

slide79

AS

EQUILIBRIUM

THROUGH AD/AS,S/I.

.AD

AD

AND

AS

E

INCOME

AND EMPLOYMENT

O

Y

SAV.

AND

INV.

S

E

I

I

O

INCOME

AND EMPLOYMENT

Y

S

slide80

EQUILIBRIUM

AT FULL EMPLOYMENT

AS

AD

AND

AS

AD

E

FULL EMPLOYMENT LEVEL

o

Y

INCOME

AND EMPLOYMENT

equilibrium at underemployment
EQUILIBRIUM AT UNDEREMPLOYMENT

AS

UNDEREMPLOYMENT EQ..

E

AD

AD

AND

AS

AD1

E1

FULL EMPLOYMENT LEVEL

o

Y1

Y

INCOME

AND EMPLOYMENT

equilibrium at underemployment82
EQUILIBRIUM AT UNDEREMPLOYMENT

AS

UNDEREMPLOYMENT EQ..

E

AD

AD

AND

AS

AD1

E1

FULL EMPLOYMENT LEVEL

o

Y1

Y

INCOME

AND EMPLOYMENT

INCOME

AND EMPLOYMENT

slide83

EQUILIBRIUM AT OVEREMPLOYMENT

AS

AD1

OVER EMPLOYMENT EQ.

E1

AD

AD

AND

AS

E

FULL EMPLOYMENT LEVEL

INCOME

AND EMPLOYMENT

O

Y

slide84
FULLEMPLOYMENT LEVEL SHOWS ABSENCE OF UNVOULENTRY UNEMPLOYMENT.

UNDER EMPLOYMENT LEVEL SHOWS DEFICIENT DEMAND ,ALSO CALLED DEFLATIONARY GAP.

OVER EMPLOYMENT LEVEL SHOWS EXCESS DEMAND, ALSO CALLED INFLATIONARY GAP .

CONCLUSION

evaluation85
Evaluation

Define aggregate demand ?

What do you mean by aggregate supply ?

What are the components of aggregate demand?

Explain the full employment level equilibrium of out put, income and employment.

Explain the equilibrium of out put, income and employment through the help of AD/AS and Saving and investment.