Economics & The Market

SOCIOLOGY & BUILDING ECONOMICS
Ar. Sri Lakshmi V
© 2020, Nitte School of Architecture, Planning & Design, Bengaluru. All rights reserved to NITTE SAPD.
CONTENT
• Consumption, wants and needs and their characteristics.

• Concepts of economics: Opportunity cost; Laws of supply and demand; Laws of
increasing, diminishing and constant returns; Standard of living.
Ar. Sri Lakshmi V
CONSUMPTION
• Consumption means using up of utilities. For According to Prof. Ely – “Consumption in its
example – when we take a glass of water to quench broadest sense means the use of economic
our thirst, we are said to consume water. goods and personnel services in the satisfaction
• Whenever we make use of any commodity or service
of human wants.”
for the satisfaction of our wants, the act is called Prof. A. L. Mayers has said – “Consumption is
consumption. the direct and final use of goods or services in
• Therefore, by consumption we mean the satisfaction
satisfying the wants of human beings.”
of our wants by the use of commodities and services.
• Economists have defined consumption as “the
destruction of utility”. When a man eats an apple, he
does not destroy the matter of which it is composed;
he has only changed its form. Man has destroyed its
utility in the act of eating it. Production is “Creation
of Utility” Marshall has called it Negative Production
and has defined as such—”Consumption may be
regarded as negative production.”
Ar. Sri Lakshmi V
CHARACTERISTICS OF CONSUMPTION
The important characteristics of consumption are as follows:

1. Destruction of Utility: Science has proved this fact that man is neither the creator of any article nor
he is destroyer of any article. By the use of the article the utility of the article is destroyed. The form of
the article is changed.
2. Satisfaction of Human Wants: By consumption we must have satisfaction of human wants. If
satisfaction is not achieved it cannot be called consumption.
3. Direct Satisfaction of Wants: By consumption of any article people must get satisfaction from the
article directly. For example: If one is thirsty—taking a glass of water to satisfy thirst is direct
consumption.
4. The Reduction of Utility can be Rapid or it can be Slow: The utility of an article diminishes slowly and
gradually. For example: Using of scooter; or use of television.
5. Consumption of Services: There is consumption not of goods only but also of services. Coaching to
students by teacher; to treat patients by doctors.
Ar. Sri Lakshmi V
NEEDS & WANTS
Ar. Sri Lakshmi V
NEEDS
• By the term needs, we mean those requirements which are extremely necessary for a human being to live a healthy life. They are
important for an organism to survive and may be
• personal,
• psychological,
• cultural,
• social, etc.
• In ancient times the three basic needs of the man were
• food,
• clothing and shelter
• For improvement of quality of life now additional important needs are
• education and
• healthcare
• They are a person’s first priority as they are the things, that they keep us
healthy and safe.
• Therefore, if needs are not satisfied in time, it may result in
• illness,
• inability in functioning properly or
• even death.
Ar. Sri Lakshmi V
WANTS
• In economics, wants are defined as something that a person would like to possess,
• either immediately or
• at a later time.
• Simply put, wants are the desires that cause business activities to produce such products and
services that are demanded by the economy.
• They are optional, i.e. an individual is going to survive, even if not satisfied. Further, wants may
vary from
• person to person and
• time to time.
• We all know that human wants are unlimited while the means to satisfy those wants are limited.
Hence, all the wants of an individual cannot be met and they must seek for alternatives.
Ar. Sri Lakshmi V
Ar. Sri Lakshmi V
UNDERSTANDING RELATION BETWEEN NEEDS & WANTS
• We all know that economics is a social science, which deals with

 production,
 distribution and
 consumption functions.
• It is all about making choices regarding the allocation of scarce resources, so as to make their best
possible use and satisfy human wants and needs.
• From economics point of view
– While needs point out the something you must have for survival,
– wants refers to something which is good to have, but not essential for survival
• For the purpose of spending and saving money wisely, every person must know the difference
between needs and wants.
Ar. Sri Lakshmi V
UNDERSTANDING RELATION BETWEEN NEEDS & WANTS
Ar. Sri Lakshmi V
KEY DIFFERENCE BETWEEN NEEDS & WANTS
• The term ‘needs’ is defined as an individual’s basic requirement that must be fulfilled, in order to survive.
• Wants are described as the goods and services, which an individual like to have, as a part of his caprices.
• An individual needs are limited while his wants are unlimited.
• Needs are something that you must have, in order to live.
• On the contrary, wants are something that you wish to have, so as to add comforts in your life.
• Needs represents the necessities while wants indicate desires. Needs are important for the human being to
survive.
• As against this, wants are not as important as needs, because a person can live without wants.
• Needs are those items, that are required for life and does not change with time.
• As opposed to, wants are those items, that are desired by an individual either right now or in future.
Therefore, wants might change over time.
• As needs are essential for life, non-fulfillment may lead to illness or even death.
• In contrast wants are not essential for living and so non-fulfillment, does not have a great impact on a
person’s life,
Ar. Sri Lakshmi V
CONCEPTS OF ECONOMICS
1) OPPORTUNITY COST
2) LAWS OF SUPPLY AND DEMAND
3) LAWS OF INCREASING, DIMINISHING & CONSTANT RETURNS
4) STANDARD OF LIVING
Ar. Sri Lakshmi V
OPPORTUNITY COST
Opportunity costs represent the benefits an

individual, investor or business misses out on when
choosing one alternative over another. While financial
reports do not show opportunity cost, business
owners can use it to make educated decisions when
they have multiple options before them.
Because by definition they are unseen, opportunity
costs can be easily overlooked if one is not careful.
Understanding the potential missed opportunities
foregone by choosing one investment over another
allows for better decision-making.
In a world of scarcity, choosing one thing means
giving up something else. The opportunity cost of a
decision is the value of the good or service forgone.
Ar. Sri Lakshmi V
LAWS OF SUPPLY & DEMAND
The law of supply and demand is a theory

that explains the interaction between the
sellers of a resource and the buyers for
that resource.
The theory defines how the relationship
between the availability of a particular
product and the desire (or demand) for that
product has on its price.
Generally, low supply and high
demand increase price and vice versa.
Ar. Sri Lakshmi V
• The law of demand says that at higher

prices, buyers will demand less of an
economic good.
• The law of supply says that at higher
prices, sellers will supply more of an
economic good.
• These two laws interact to determine the
actual market prices and volume of goods
that are traded on a market.
• Several independent factors can affect the
shape of market supply and demand,
influencing both the prices and quantities
that we observe in markets.
Ar. Sri Lakshmi V
Ar. Sri Lakshmi V
LAWS OF DIMINISHING RETURNS
 The law of diminishing returns, also referred

to as the law of diminishing marginal
returns, states that in a production process,
as one input variable is increased, there will
be a point at which the marginal per unit
output will start to decrease, holding all
other factors constant.
 Under the law of diminishing returns, a firm
will get less and less extra output when it
adds additional units of an input while
holding other inputs fixed. In other words,
the marginal product of each unit of input
will decline as the amount of that input
increases, holding all other inputs constant.
Ar. Sri Lakshmi V
LAWS OF DIMINISHING RETURNS
Ar. Sri Lakshmi V
LAWS OF INCREASING RETURNS
 The law of increasing returns is also called the

law of diminishing costs. The law of increasing
return states that: The law rests upon the following
 "When more and more units of a variable factor assumptions:
is employed, while other factor remain fixed,
there is an increase of production at a higher (i) There is a scope in the
improvement of technique of
rate. The tendency of the marginal return to rise
production.
per unit of variable factors employed in fixed
amounts of other factors by a firm is called the (ii) At least one factor of production
law of increasing return". is assumed to be indivisible.
 An increase of variable factor, holding constant
the quantity of other factors, leads generally to (iii) Some factors are supposed to
be divisible.
improved organization. The output increases at a
rate higher than the rate of increase in the
employment of variable factor.
Ar. Sri Lakshmi V
LAWS OF CONSTANT RETURNS
Statement of the Law:

 The law of constant returns is said to operate
when the return remains the same as the
business is expanded or contracted.
 Every additional investment of labour and capital
yields the same return as before.
 Or in other words, whatever the scale of
production, the cost of the product per unit
remains the same.
 We have said before that, in certain cases, and
when the business moves towards the optimum,
the returns increase, and when it goes beyond
the optimum, the returns decrease. But if, after
having reached the optimum point, the industry
is stabilized at that level of output, the returns,
continue to be the same; and they are said to be
constant.
Ar. Sri Lakshmi V
STANDARD OF LIVING
• A standard of living is the level of wealth,

comfort, material goods, and necessities
available to a certain socioeconomic class
or a certain geographic area.
• The standard of living includes basic
material factors such as income, gross
domestic product (GDP), life expectancy,
and economic opportunity.
• The standard of living is closely related
to quality of life, which can also include
factors such as economic and political
stability, political and religious freedom,
environmental quality, climate, and safety.
Ar. Sri Lakshmi V
STANDARD OF LIVING
 The standard of living is often used to compare

geographic areas, such as the standard of living in the
United States versus Canada, or the standard of living
in St. Louis versus New York.
 For example, compared with a century ago, the
standard of living in the United States has improved
greatly. The same amount of work buys an increased
quantity of goods, and items that were once luxuries,
such as refrigerators and automobiles, are now widely
available. Also, life expectancy has increased, and
annual hours worked have decreased.
 In a narrow sense, economists frequently measure the
standard of living using Gross Domestic Product
(GDP). Per capita GDP provides a quick, rough estimate
of the total amount of goods and services available per
person.
Ar. Sri Lakshmi V
STANDARD OF LIVING vs QUALITY OF LIFE
A Standard of living generally refers to Quality of life is more

wealth, comfort, material goods and subjective and intangible, such as
necessities of certain classes in certain personal liberty or environmental
areas—or more objective characteristics. quality.
Characteristics that make up a good quality of life for one person

may not necessarily be the same for someone else.
Ar. Sri Lakshmi V
P B No. 6404, Govindapura, Gollahalli
Off International Airport Road NH-7, Yelahanka
Bengaluru - 560 064, Karnataka, India.
T : +91 80 2216 7900 / 903 / 904

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M : +91 99722 41144
E : nittesoa@nitte.edu.in
director_nittesoa@nitte.edu.in
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SOCIOLOGY & BUILDING ECONOMICS

Ar. Sri Lakshmi V

• Consumption, wants and needs and their characteristics.

Ar. Sri Lakshmi V

The important characteristics of consumption are as follows:

Ar. Sri Lakshmi V

Ar. Sri Lakshmi V

Ar. Sri Lakshmi V

• We all know that economics is a social science, which deals with

Ar. Sri Lakshmi V

Ar. Sri Lakshmi V

Ar. Sri Lakshmi V

Ar. Sri Lakshmi V

Opportunity costs represent the benefits an

Ar. Sri Lakshmi V

The law of supply and demand is a theory

Ar. Sri Lakshmi V

• The law of demand says that at higher

Ar. Sri Lakshmi V

Ar. Sri Lakshmi V

 The law of diminishing returns, also referred

Ar. Sri Lakshmi V

Ar. Sri Lakshmi V

 The law of increasing returns is also called the

Ar. Sri Lakshmi V

Statement of the Law:

Ar. Sri Lakshmi V

• A standard of living is the level of wealth,

Ar. Sri Lakshmi V

 The standard of living is often used to compare

Ar. Sri Lakshmi V

A Standard of living generally refers to Quality of life is more

Characteristics that make up a good quality of life for one person

Ar. Sri Lakshmi V

T : +91 80 2216 7900 / 903 / 904

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