1 The demand for a good or service is determined by household income, the prices of other goods and services, tastes and preferences, and expectations. Justify this statement!

so they play the major part in the study of microeconomics. It is concerned with the demand and supply of particular goods and services and resources: cars. His wants would be to satisfy his need comfortably but the choice fulfilment will depend upon the price of food or the money he want to spend on satisfaction of his want. 2. Presumably we consume goods and services because they give us utility. education. different choices and tastes which is affected by their cultural. computers and food items etc. As we consume more of a product within a given period of time. medication. The concepts of scarcity and choice give a definition of economics as the study of how people make choices to cope with scarcity 2. households and firms and other organizations that make up the economy. there is scarcity. Microeconomics It is concerned with the individual parts of economy.1 Factors Affecting Microeconomics There are several important factors which affect the microeconomics.2 Needs and wants of people vs. in large part. A person would need to satisfy his hunger. The study of the world demography shows that people have different level of income. the study of how people make choices. Consumers will demand more of a product at a lower price and less of it at a higher price. The human beings have limited resources but unlimited wants.3 Demand and supply of goods and services .1. cost People make choices according to their needs and wants and the scarce limited resources available to them.1 People or households As economics is the study of people and societies who are free to make their choices according to their household income and choice and tastes. we face costs. it is likely that each additional unit consumed will yield successively less satisfaction 2. clothes.1. shoes. Microeconomics studies the product. focusing on the behaviour of individual.1.1. 2. these are mentioned as below: 2. social and economic environment. for this purpose he can go to a restaurant or cook his food himself. labour and capital market. Economics is a behavioural science. diversify needs and wants. In making choices. Introduction Economics is the study of how individuals and societies choose to use the scarce resources that nature and previous generations have provided. When wants exceeds the resources available to satisfy them.

. rate of employment. in abundance with less cost of production then its price would be low if not than the price would be high. households make many decisions at the same time. or cannot. the demand for some of these products may rise while the demand for others may fall. A household's decision about what quantity of a particular output. and prices Quantity demanded is the amount (number of units) of a product that a household would buy in a given period if it could buy all it wanted at the current market price. 2. If a family begins earning a higher income.4 Income and wealth of people The economic condition of people largely affects their choices. or limited. all households are ultimately constrained. we say that the goods are substitutes.5 Prices of Other Goods and Services When an increase in the price of one good causes demand for another good to increase. Because any one good may have many potential substitutes and complements at the same time. 2.The choices or demands of people for particular goods and services and their availability or scarcity again affects the cost and supply of these goods and services. If the goods and services are locally produced.1. A fall in the price of a good causes a decline in demand for its substitutes. In real life. to demand depends on a number of factors including: • • • • • • The price of the product in question The income available to the household The household's amount of accumulated wealth The prices of other products available to the household The household's tastes and preferences The household's expectations about future income. The amount of a product that households finally purchases depends on the amount of product actually available in the market. Even if the good or service is very important. by income and wealth. or product.1. pay. per capita income of individuals is the few factors that make up the overall economy of the society. wealth. it might buy more of a good at every possible price. For any commodity. The literacy rate. there is always a price above which a household will not. a single price change may affect a household's demands for many goods simultaneously.

now we are justified to conclude that “The demand for a good or service is determined by household income.7 Expectations Expectations about future changes in prices. Within the constraints of prices and incomes. income. preference shapes the demand 2. prices. the prices of other goods and services.2. . tastes and preferences. wealth. Conclusion Keeping in view the above points of debate. Demand for goods and services depend on more than just current incomes. and prices of goods available are the three factors that determine the combinations of things that a household is able to buy final choice depends on your individual tastes and preferences. and expectations”. Changes in preferences can and do manifest themselves in market behaviour.1.1.6 Tastes and Preferences Income. 3. and state of health may affect the consumer decisions today. and tastes but also on expected future conditions and environment.

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