economics.docx

economics.docx

《economics.docx》由会员分享，可在线阅读，更多相关《economics.docx（42页珍藏版）》请在冰豆网上搜索。

economics

UNIT-1

Introduction

Whatismicroeconomics?

Centralproblemsofaneconomy,productionpossibilitycurveandopportunitycost.

Aneconomyisasystemthatprovidespeoplewiththemeanstoworkandearnalivingintheprocessofproduction.

MICROECONOMICS_Itisthatbranchofeconomicstheorywhichstudiesthebehaviorofindividualeconomicsunitsoftheeconomyi.e.household,individualfirmsetc.

MACROECONOMICS_Itisthatbranchofeconomicstheorywhichstudieseconomyasawholeandbehaviorofaggregatessuchastotaloutput,employmentlevel,andaggregatespricelevel.

ECONOMICSPROBLEM_itisbasicallytheproblemofchoicewhicharisesbecauseof

（1）Recoursesarescarce.

（2）Recourseshavealternativeuses.

CENTRALPROBLEM_Itisallocationofresourcesormakingchoicesamongalternativeusesofscarceresources.Allcentralproblemofaneconomyariseduetoscarcityofresourceshavingalternativeuses.Threefundamentalcentralproblemsare

（1）Whattoproduce

（2）Howtoproduce

（3）Forwhomtoproduce

Theseproblemsaresolvedthroughpricemechanisminacapitalisteconomyandthroughcentralplanninginasocialisteconomy.

PRODUCTIONPOSSIBILITYCURVE-Itisacurvewhichdepictsallpossiblecombinationsoftwogoodswhichaneconomycanproducewithavailabletechnologyandfullandefficientuseofrecourses.

OPPORTUNITYCOST–Itisequaltothevalueofnextbestalternativeforgone.

MARGINALOPPORTUNITYCOST–MOCofparticulargoodistheamountofothergoodwhichisscarficedtoproduceanadditionalunitofthatparticulargood.MOCisalsocalledMARGINALRATETRANSFORMATION.

PartA-IntroductoryMicroeconomics

Unit1:

Introduction

Q1Whytheproblemofchoicearisesinaneconomy?

Q2Whatarethetwofactorswhichdefinescarcity?

Q3Whythereisaneedforeconomisingofresources?

Q4Whatdoyoumeanbyaproductionpossibilitycurve?

Q5WhatrolePPChasinsolvingcentralproblemsofaneconomy?

Q6Giveatableshowingtheproductionoftwocommoditieswiththehelpofgivenresources?

Q7Drawaproductionpossibilitycurve.

Q8WhatdoesaPPCshow?

Q9IfwemovefromonepointtoanotheronPPC,whatdoesitmean?

Q10WhytheproductionatapointtowardslefthandsidefromPPCisnotdesirable?

Q11WhatdoyoumeanbyapointbelowPPC?

Q12Howisitpossibletoincreasetheproductionofonecommoditywithoutsacrificingthe

productionofothercommoditywhenalltheresourcesareutilisedfully?

Q13WhydogrowthofresourcesandtechnologicaladvancesshiftPPCtotheright?

Q14PPCshowsthefullerutilisationofresources,thenhowisitpossibletoproducemorewiththe

helpofsameresources?

Q15Whatisthemeaningofgrowthofresources?

Q16Whatistheroleofimprovedtechnologyonaproductionpossibilitycurve?

Q17Whatdoyoumeanbyunderutilisationofresources?

Q18Ifalltheresourcesarenotusedfullytoproducecommodities,whatisitcalled?

Q19ExplainthemeaningofshiftofPPCtowardsrighthandside.

Q20OnwhichsidePPCwillshiftduetogrowthofresources?

Q21Howaneconomydecidesthatwhatallshouldbeproducedwiththehelpofgivenresources?

Q22InwhichdirectionPPCwillshiftduetoamassiveunemploymentinthecountry?

Q23Ifsomeproducingunitsaredestroyedbecauseofearthquakeinthecountry,howwillitaffect

thePPC?

Q24Ifnumberofskilledlabourincreasesinthecountry,howwillitaffectPPC?

UNITII

CONSUMER’SEQUILIBRIUMWITHUTILITYAPPROACH

1.Utility.Itis‘want–satisfyingcapacity’ofacommodity.

2.TotalUtility.Itisthesumtotalofutilityderivedfromtheconsumptionofallunitsofacommodity.TU=∑MU

3.MarginalUtility.Itisadditionalutilitywhenonemoreunitofacommodityisconsumed.

MUn=TUn-TUn-1orMU=∆TU

∆Qx

4.LawofDiminishingMarginalUtility.Itstatesthatmarginalutilitytendstodiminishasmoreandmoreunitsofacommodityareconsumedbyaconsumer.

5.Consumer’sEquilibrium.Itisdefinedasasituationwhenaconsumermaximizeshissatisfactiongivenincomeandprices.

EquilibriumincaseofonecommodityXoccurswhere:

MUx=MUM

Px

EquilibriumincaseoftwocommoditiesXandYoccurswhere:

MUx=MUY=MUM

PxPY

Or

MUx=Px=MUY

MUYPY

subjecttoPX.X+PY.Y=M

6.PriceEffect.Priceeffect（PE）issplitintotwoeffectsSubstitutionEffect（SE）andIncomeEffect（IE）.Incaseofinferiorgoods,SEisstrongerthanIE,thusdemandcurveisdownwardsloping.Incaseofgiffengoods,IEisstrongerthanSE,thusdemandcurveisupwardsloping.

CONCEPTOFDEMAND

1.Thedemandforacommodityisthequantityofthecommoditywhichtheconsumeriswillingtobuyatacertainpriceduringanyparticularperiodoftme.

2.Ineconomics,demandmeanseffectivedemandwhichmeansthereshouldbedesiretoownthegood,sufficientmoneytobuyitandwillingnesstospendthemoney.

3.Thedeterminantsofanindividualhouseholddemandare:

（i）priceofthegood（PX）,（ii）priceofrelatedgoods（PZ）,（iii）incomeoftheconsumer（Y）,and（iv）tastesandpreferencesoftheconsumer（T）.

DEMANDANDPRICE

1.Thelawofdemandstatesthatthereisaninverserelationshipbetweenpriceandquantityboughtofacommodity,ceterisparibus.

2.TheconsumptionsofthelawofdemandarethatPZ,YandTareconstant.

3.Thedemandschedulegivesthedataonchangesinquantityboughtatdifferentpricesinaparticulartimeperiod.

4.Dataisplottedonaprice–quantitydemandedaxistoderivethedemandcurve.

Thedemandcurveslopesdownwardbecauseof:

i.lawofdiminishingmarginalutility（asgivenbyMarshall）,

ii.incomeeffect,

iii.substitutioneffect,and

iv.newconsumerscreatingdemand.

DEMANDANDPRICEOFOTHERGOODS

i.Anincreaseinthepriceofsubstitutewillincreasethedemandoftheothergoodorshiftthedemandcurverightwardandtheviceversa.

ii.Anincreaseinpriceofacomplementarygoodwillleadtodecreaseindemandoftheothergoodorshiftthedemandcurveleftwardandviceversa.

DEMANDANDINCOMEOFTHECONSUMER

i.Ifthegoodisanormalgood,thananincreaseinincomewillincreaseitsdemandandviceversa.

ii.Ifthegoodisinferior,anincreaseinincomewilldecreaseitsdemandandviceversa.

CHANGEINQUANTITYDEMANDED（MOVEMENT）VS.CHANGEINDEMAND（SHIFT）OFDEMANDCURVE

1.Movementalongademandcurveoccursduetochangesinthepriceofthegood（Px）itself.

Shiftofthedemandcurveoccursduetochangesin

i.priceofothergood（PZ）,

ii.incomeoftheconsumers（Y）

iii.Tastesoftheconsumers（T）.

2.Movementcanbeexpansionorcontractionofdemandwhereasshiftcanbeincreasesordecreaseindemand.

PRICEELASTICITYOFDEMAND

Priceelasticityofdemand（eD）measurespercentagechangeinthequantitydemandedofagoodduetoapercentagechangeinitsprice.Therefore,（eD）canbecalculatedas:

（ed）=Percentagechangeindemand

Percentagechangeinprice

Or（ed）=∆Q.P

∆PQ

FACTORSAFFECTINGEELASTICITYOFDEMAND-themajordeterminantsofpriceelasticityofdemandare:

i.Availabilityofsubstitutes

ii.Incomeoftheconsumers

iii.Luxuriesversusnecessities

iv.Proportionoftotalexpenditurespentontheproduct

v.Numberofusesofthecommodity

vi.Timeperiod.

MEASUREMENTOFPRICEELASTICITYOFDEMAND

Thethreemethodsofmeasuring（ed）are:

i.Outlayorexpendituremethod

ii.Percentageorproportionatemethod

iii.Geometricorpointmethod.

a.Intheoutlaymethod,the（ed）ismeasuredonthebasisofchangeintotalexpenditure（i.e.PxQ）duetochangeintheprice（i.e.P）ofthegood.Ifthepriceofagoodfallsand,asaresult,totaloutlayincreasesthen（Ed）>1;iftotaloutlayremainsunchanged,thened=1;andiftotaloutlayfalls,thened<1.

b.Inthepercentagemethod,Ediscalculatedbytheformula:

ed=∆Q.P

∆PQ

c.Inthegeometricmethod,eDatapointonalinear（straight）demandcurveiscalculatedas:

ELASTICITYOFDEMAND------

Lowersegmentofthedemandcurve

Uppersidesegmentofthedemandcurve

Or

Ed=Righthandsidesegment

Lefthandsidesegment

TherearefivedegreesofEd

i.Perfectlyinelasticdemand（Ed=0）

ii.Inelasticdemand（0

iii.Unitaryelasticdemand（Ed=1）

iv.Elasticdemand（1

v.Perfectlyelasticdemand（Ed=∞）.

Unit2:

ConsumerBehaviorandDemand

ConceptConsumer’sequilibrium-meaningandattainmentofequilibriumthroughutilityApproachOneortwoCommoditiescases

Demand,MarketdemanddeterminateofdemandScheduleDemandandmovementalongshiftdemandincurve,priorElasticityofdemand,percentage,tototalexpendituregeometrymethod

1.Differentiatebetween“desire”and“demand”foracommodity.

2.Whydoesanindividualdemand?

3.Defineutility

4.Whatismeantbytotalutility?

5.Whatismeantbymarginalutility?

6.StatethelawofDiminishingmarginalutility?

7.a）Howistotalutilityderivedfrommarginalutilities?

b）Whohasintroducedtheconceptof“utility”?

8.Whatdoesthewordequilibriummean?

9.Whatisconsumer’sequilibrium?

10.Statetheconditionofconsumer’sequilibrium?

11.Whatdoyouunderstandby“rationalconsumer”?

12.Whendoesconsumerbuymoreofcommodity?

13.Statetherelationshipbetweendemandforacommodityanditsprice?

14.Why“otherthingsbeingsame”phraseisassociatedtolawofdemand.

15.Howdoesindividualdemandrelatedtomarketdemand.

16.Whatarethefactorsthataffectonlymarketdemandforthegoods?

17.Whatismeantbyonegoodbeingsubstituteofanother?

18.Whatismeantbyonegoodbeingcomplementofanother?

19.IfthedemandforgoodYincreasesasthepriceofanothergoodXrises,howarethetwogoodsrelated