Class

12

Economics
Micro and Macro
Class
12 Micro and Macro Economics
152-157
158-160
 900
= 10
90

MU x MU y
=
Px Py
25

20

15

10

0
1 2 3 4 5 6
Goods

Goods

Goods
 Goods
Goods
Goods

Goods
Goods

Goods
 Px
Py

MU x MU y
=
Px Py
 `
`

`
`

`
 B
100

75
A
50

25

0
250 500 750 1000
 In figure 3.5(a) When the price of a
Pomegranate is ` 100. per kg then the amount
demanded is 250 gms when the price falls to ` 50 per
kg then its quantity demand increases to ` 750 gms.
This is called expansion in demand. The movement
from point A to B in the figure depicts expansion of
demand.
In the Fig 3.5 (b) when the price of
Pomegranate is ` 50 per kg the quantity demanded is

`
750 gms. When the price increases from ` 50 per,
kg. to ` 100, per. kg., then its quantity demanded
decreases to 250 gm. Other things remaning
constant, with the increase in the price there is
decrease in the quantity demanded. This is called
contraction of demand. The movement is from
lower to upper side along the same demand curve.
`

`
 `

`
 4-6 - 2 - 1
= = =
6 6 3

Dq p
= ´
Dp q
-1 3
= ¸
3 7
-1 7 -7
= ´ = = - 0.77
3 3 9
 LowerSegment0
= = =0
UpperSegmentAB

LowerSegmentNB
= = = Ep > 1
UpperSegmentNA

LowerSegmentBA
= = = Ep = µ
UpperSegment0

e=¥
A
e>1
N
e=1
Price
Mid P
point e<1
M
e=0
O B
Quantity Demanded

PB
= =1
PA

Lower Segment MB
Upper segment MA <1
 162
q2 = = 18
9

0
010
Ep = 18 = ´ = 0 (Zero)
1 181
10
D q/q
Dp/p
Price 10 20 30 40 50 60 70
Supply of Firm - A 10 15 20 30 40 50 60
Supply of Firm - B 20 30 40 60 80 100 120
long run chages in production. On basis of time,
changes in factors of production & their ratios are
considerd.
Difference between short run and long run
production function-
The main difference between short run and
long run production function is regarding the input
ratio.In short run, change in production occurs
according to the conditions of short run production
function. In short run, the ratio between fixed and
variable factors changes with change in
production.In the long run all the factors of
production are changed in same proportion or ratio.
The second difference between both types of
production function is related to change in
techonology. In the short run, there is no change in
the given techonology, where as in the long run,
techonology can be changed.
On the basis of time there are two types of
production function-
1. Production function of fixed proportion.
2. Production function of variable proportion.
Production function of fixed proportion-
In the long run all the factors of the production
are variable. The long run production function is
also called “fixed proportion production function.”
and is related to “ law of returns to scale”.
In the phrase “return to scale” it is necessary to
know the meaning of scale. Here ‘Scale’ means a
unit of measurement like metre, litre, kilogram, feet,
etc. For instance a man buys 1 metre of cloth but if
the unit of measurement is changed to
centimetres.then it is said that the man bought 100
centimetres of cloth. In this way with change in unit
(scale) we show the measurement in the changed
unit (scale).
Similarly for instance, 5 labourers with 2 acre
of land produce 10 quintals of wheat. Hence here
acre is the unit (scale) of measurement of land.
Quintal is unit (scale) of measurements of output of
 Figure 7.1

Figure 7.2

Figure 7.3
 TVC
Q

TC
Q

D TC
DQ

Quan- Total Total Total Average Average Aver- Marg-

tity Fixed Variable Cost Fixed Variable age inal
Cost Cost Cost Cost Cost Cost
(Q) TFC TVC TC AFC AVC SAC SMC
0 10 0 10 ¥ - - -
1 10 8 18 10 8 18 8
2 10 14 24 5 7 12 6
3 10 18 28 3.33 6 9.33 4
4 10 24 34 2.5 6 8.5 6
5 10 34 44 2 6.8 8.8 10
6 10 50 60 1.67 8.33 10 16
Y AC
AVC

MC

AFC

O X

MC AC
e

a d
c
b

X
O

DTC
DQ
Q TFC TVC TC AFC AVC SAC SMC
0 20 20
1 20 30
2 20 38
3 20 44
4 20 49
5 20 53
6 20 59
Y M

N
X
O
D = 10,000 Crores Depriciation

=10,000 Crores

year =5,000 Crores

year =5,000 Crores

individuals =2,000 Crores

Fines =2,000 Crores

 Credit Creation Process By Bank
Assets Liabilities (Rs.)
Loan/ Derived
Stage Deposites CRR (20 %)
Demand
I 10000 2000 10000-2000 = 8000
II 8000 1600 8000-1600 =6400
III 6400 1280 6400-1280 = 5120
IV 5120 1024 5120-1024 = 4096
V 4096 819.2 4096-819.2 = 3276.8
……… ……… ……….
Total Td = 50000 Rr = 10000 Dd = 40000

1 1
=
RR 20%
3. Moral persuation:-
 DC
b=
DYd
100
=¥
0

150
= 1.5
100
 Y

O X

Y=E
Consumption

B C = bY

A DC
DY

O X
Income

NQ
RQ

C 1 C2
Y1 Y2

C = a + b.Y

OC1 OC2
C OY1 OY2

Y
-50
=- 0.5
100

50
= 0.16
300
 R1 R2 Rn
C= + 2
+ ....... +
(1r)
+ (1 + r) (1 + r) n
 DC
MPC =
DY

DS
MPS =
DY
DS C
DY Y

DC Y
DY C
 Y
AS

AD & Ia
AS

a
450
O X
Y1 Y* Y2

Y Z Y
Y=C+S
AS

S - Ia
Ia & S e
I = Ia

Ia - S
450
O X
X
Y1 Y* Y2
 1
K=
1 - MPC

500 Cr.Rs.
= 5 Cr.
100 Cr.Rs. 1
K= =1
1-0

1 1
DY K= = =¥
K= 1-1 0
DI
 Y YY
12 DY
AS = C + S = =
C, I & S I12I DI

E2 C + I + DI
I2
Consumption C+I
Investment
DI E1
Saving

I1 DY

450
O X
Y1 Y2

S
E2
I2 I2
Saving and investment

DI
E1
I1 I1

Ia - S
DY

O X
Y1 Y2
S
Income

1
Y= (a + Ia)
1 - MPC
 1
MPC + MPS

1 1
K= =
1 - MPC MPS
 Y

P2

P1

AD
X
O Y2 Y1