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Part 1 Lesson - 1 Microeconomics

Part 1 Lesson - 1 Microeconomics

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Published by: ajithsubramanian on Jan 08, 2010
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09/29/2010

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PART 1 LESSON - 1MICROECONOMICS
LESSON 1MICROECONOMICS
Introduction:
Supply and Demand
1.Wants:
Human wants are unlimited. This is the fundamental fact of economic life of the people. If the wants are limited then no economic problem would have arisen. But in reallife, when one want is satisfied, another one grows up. The important thing is that allwants are not of equal intensity. Because of the different intensities of the wants, peopleare able to allocate the resources to satisfy some of their wants.2.
Utility:
Since the intensity of want differs, the people are able to allocate the scarceresources to satisfy their wants. The power of the commodity which satisfies wants iscalled utility. “The utility means levels of satisfaction which people get form consuminga commodity”. Different persons derive different amounts of utility from a given good. If a person derives more for that commodity, he expects greater utility from it. People knowutility of goods by their psychological feelings. Finally question of ethics or morality isnot unsolved in the use of word “utility” in economics.For example using alcohol may be considered as an activity by society, but nosuch meaning is conveyed in economics. So, alcohol possesses utility for some personswho use it.
Demand
As we have discussed earlier, the greater utility in a commodity attracts theconsumer whose wants they satisfy. The consumers desire for the commodity and theywill go for purchase. To purchase a good, he must have ability to pay. The demand for acommodity is consumer’s attitude and reaction towards commodity. It is that mere desireRukshiCA
 
PART 1 LESSON - 1MICROECONOMICSfor a commodity does not constitute demand for it, if it is not backed by the utility to pay.The word demand has precise meaning in economics. It refers to
o
The willingness and utility to purchase different qualities of a good.
o
At different prices.
o
During a specific time period ( per day, week and so on )Demand for a good or service is determined by many different factors other than price. Some of them are as follows:a)The taste and desire of the consumer for a commodity. b)Income of the consumer.c)Price of substitute goods.d)Price of complementary goods.When there is a change in any of these factors demand of the consumer for a goodchange. Individual demand for a commodity can be expressed in the following generalfunction form:Qd = f (Px
,
I, P
r,
I, T, A)Where:P
X =
Price of the commodity x.I = income of individual.P
r =
Price of released commodity.T = Total preference.A = Advertising expenses made by producer.Qd = Quantity demanded.We write the demand function of an individual in the following way, if alldetermining factors remain constant expected quantity demanded of a good and its own priceRukshiCA
 
PART 1 LESSON - 1MICROECONOMICSQ
d
= f ( P
x
).This is only general functional form. For the purpose of estimating demand of acommodity we need a specific form of demand functionQ
d
= a – b
 
P
x
The demand function considered to be of a linear form.
Demand curve
A demand schedule is presented in Table 1. In this schedule we see that aconsumer purchase 10 units if the prices at $15, when the price falls @ $ 10 then demandfalls to 15 units. If the price falls at $2 then the demand for unit will be 75 units. 
TABLE 1 DEMAND SCHEDULE 
PRICEQUALITY DEMANDED12100806041020304050RukshiCA

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