Economics
demand, and other forces that determine
1-Economics is the study of scarcity and its
implications for the use of resources, production of
goods and services, growth of production and
welfare over time, and a great variety of other
complex issues of vital concern to society.
2-Economics is the study of how people allocate
scarce resources for production, distribution, and
consumption, both individually and collectively. The
two branches of economics are microeconomics and
macroeconomics. Economics focuses on efficiency in
production and exchange.
Economics is the study of mankind in the ordinary
business of life.
- Alfred Marshall
Microeconomics
1- Microeconomics is the study of individuals,
households and firms' behavior in decision making
and allocation of resources. It generally applies to
markets of goods and services and deals with
individual and economic issues.
2- Microeconomics is the social science that studies
the implications of incentives and decisions,
specifically about how those affect the utilization
and distribution of resources. Generally speaking,
microeconomics provides a more complete and
detailed understanding than macroeconomics.
Macroeconomics
1-Macroeconomics is a branch of economics
concerned with the behavior and performance of
the economy as a whole. It stands in contrast with
microeconomics, which focuses on the impact at an
individual, group, or company level.
2-Macroeconomics primarily studies large-scale
economic phenomena like inflation, price levels, rate
of economic growth, national income, gross
domestic product (or GDP), and changes in
unemployment.
Macro vs micro economics
 Microeconomics studies individuals and
business decisions, while macroeconomics
analyzes the decisions made by countries
and governments.
 Microeconomics focuses on supply and
price levels, making it a bottom-up
approach.Macroeconomics takes a top-
down approach and looks at the economy
as a whole, trying to determine its course
and nature.
 Investors can use microeconomics in their
investment decisions, while
macroeconomics is an analytical tool
mainly used to craft economic and fiscal
policy.
What is the elasticity of demand?
It is the demand for a commodity that moves in the
contrary direction of its price. However, the
influence of the price change is not always constant .
Sometimes, the demand for a commodity changes
substantially, even for smaller price changes. On the
other hand, there are some commodities for which
the demand is not impacted much by price changes.
1. Price Elasticity of Demand: The price elasticity of
demand, commonly known as the elasticity of
demand refers to the responsiveness and
sensitiveness of demand for a product to the
changes in its price.
2.Income Elasticity of Demand: The income is the
other factor that influences the demand for a
product .
3.Cross Elasticity of Demand: The cross elasticity of
demand refers to the change in quantity demanded
for one commodity as a result of the change in the
price of another commodity.
LAW OF DEMAND
There is an inverse relationship between quantity
demanded and its price. The people know that when
price of a commodity goes up its demand comes
down. When there is decrease in price the demand
for a commodity goes up. There is inverse relation
between price and demand . The law refers to the
direction in which quantity demanded changes due
to change in price.
Alfred Marshal says that the amount demanded
increase with a fall in price, diminishes with a rise in
price.
Exceptions to the law
1] Inferior goods:- The law of demand does not
apply in case of inferior goods.
2] Demonstration effect:- The law of demand does
not apply in case of diamond and jewelry. There is
more demand when prices are high. There is less
demand due to low prices.
3] Ignorance of consumers: - The consumers usually
judge the quality of a commodity from its price.
4] Less supply:- The law of demand does not work
when there is less supply of commodity. The people
buy more for stock purpose even at high price. They
think that commodity will become short.
5] Depression:- The law of demand does not work
during period of depression.
6] Speculation:- The law does not apply in case of
speculation. The speculators start buying share just
to raise the price.
7] Out of fashion:- The law of demand is not
applicable in case of goods out of fashion.
What Is Utility?
In economics, utility is a term used to determine the
worth or value of a good or service. More
specifically, utility is the total satisfaction or benefit
derived from consuming a good or service.
Economic theories based on rational choice usually
assume that consumers will strive to maximize their
utility.
The economic utility of a good or service is
important to understand because it directly
influences the demand, and therefore price, of that
good or service.
Cardinal Utility
To Bernoulli and other economists, utility is
modeled as a quantifiable or cardinal property of
the economic goods that a person consumes.2 To
help with this quantitative measurement of
satisfaction, economists assume a unit known as a
“util” to represent the amount of psychological
satisfaction a specific good or service generates for
a subset of people in various situations.
ORDINAL UTILITY
The concept of ordinal utility states that the level of
satisfaction a consumer obtains after consuming
various commodities cannot be measured in
numbers but can be arranged in the order of
preference.
Key Difference between Cardinal Utility and Ordinal
Utility:
 Cardinal Utility is a utility that determines
the satisfaction of a commodity used by an
individual and can be supported with a
numeric value. On the other hand, Ordinal
Utility defines that satisfaction of user
goods can be ranked in order of preference
but cannot be evaluated numerically.
 The measuring term for cardinal and
Ordinal Utility is utils and ranks respectively.
Utils is the unit of utility and ranks
determine the preference of a product
compared to other products in the market.
 Ordinal Utility measures the utility of goods
subjectively, but Cardinal Utility evaluates
objectively.
 Cardinal Utility is not much realistic as
compared to the Ordinal Utility as
quantitative evaluation of utility is not
practicable. Ordinal Utility depends on
qualitative measurement, which makes it
more realistic.
 Another difference between ordinal and
Cardinal Utility is that the former one is
based on indifference curve analysis, and
the latter is based on marginal utility
evaluation.
 Alfred Marshall and his admirers presented
the Cardinal Utility approach, and Hicks and
Allen pioneered the Ordinal Utility idea.