Syllabus BA4103: Managerial Economics Unit Introduction ‘The Themes of Ezonom Behaviour Determinants ~ Market Equlibium ~ between Production and Cost Function. larket . nd perfect Market ~ Different Markt Structures ~ Fiem’s Equilibrium and Supp je Compelion = Faster ake ~Lan, Labour and Capi Of Factor Pice Interaction of Product and Factor Market ~ Geaera 1V Performance of an Economy ~Macro Economics e T aggregates - Circular low of Macroeconomic Activity ~ National Income Determination ~ nang. and Supply ~ Macroeconomic Equilibrium - Components of Aggregate Demand and essing an Deion of Eguitimcommie: VsDieconomisofSale $5 enivte Equi TE2ESimitaneor She of Sopely and Demod 283. Diesel Eula Es. Comamer Behaviour Tarsocioe ‘Reef Conner Behav Tiere Dining. Margin! Usiy Unit 3: Product and Factor Market Product Markt 100 Irate ‘o Nature of Prodact Market Sie Row a Moxey in Pda 100 2eepete of geese Demat ‘Agqepte Demand Cane Aegeese Demand Cone Shee Downwanss ‘Shit in Aggrezate Demand Cue Fim Growth Materte ee ' ™ Introduction to Economics Introduction Rates the Demand for Money ‘Demand Curve for Money 0s ‘Stent un Soply Cave Sinn Shon Agere Soy ane Run Soply Curve Shit in" Loop Ren Agvet Supply 1 changes which can take place in their eoiees because of the dynamic circumstances being its branch, From time to time, various know rowedg isa growing phenomenon whee aay ice ‘of economics. These definitions have been classified ic experts have provided di easing: Lis oy Ply iene nen Many Ply ad 232 Fiscal Policy ee Enocee Retonip emeen_ Change in Uren Rad Gh Roe eS wellbeing” ne ‘This de 20 the following jon was criticised by Robbins on 1 activities wh iy Economics studies all human beings and not jus the socal Beings4). Scarcity Defation: According to Lord Robbins, “Beonomics isa science that studies human behaviour asa relationship between ends ad sazce means which have allemative Lord Robbins definition limits the scope of economics to jst be tmete determinant of values. It doesnot ay down emphasis on man's welfare and there ‘Beonomics isa science that studies those ion by making proper vse of his scarce thet definitions, we arrive atthe conclusion jon of limited resources which tiggers faximising welfare at both indivial and socal eel, 1.1.3. Themes of Economies ‘The study about the way society uses scarce resources o produce valuable commodities and distribute them ng te consumer sas thet wan shown ab ebm. Ascording to Lord Robbins, “Economies aleratve uses”. Ths human behavior as 2 rel ther woes, economic based ypon the following two pine concep 1) That the resources are scarce; and . . ‘Tis has generated the following twin themes of economics cconomists even w according to economics, every good or resource ix sald to Acro MeCeaal, "Sea Sic ‘oman isin wih he it enh ese metal : ‘The amount of resources available on the ‘or good frtine, Because of the arded as a econoanc probe 1.1.5. Efficiency “The effective use of resources available in scie Timited resources Eiciet use of av gnificant way to make an economy efficient. ALLS. ‘Types of Efficiency Tips et Eider Xieticeney Seca else “Tec een ed int following pes ‘quantity of output whereas with respect to prc production incurred to produce a product or service. Thus, ths efficiency can be further clas pe of efficiency is achieved whea the value ofa produc is in accondance ve efficieney when ty of products is equal to the marginal cosero it en i oo te ot ly eoncemed withthe technolo 5 of ingovation given by Avstrian Economist). © production thereon. fim sido have achieved Social ffceng Sol Bett Mail Si Coo SBS. Bh ponies wel = exer we ree 1 be oie lis. Sol et snd al eet nh ie Beneli+ Extera Benet “esta Coat ey: This typeof efficiency dels with th effectiveness used to produce an output with firm cannot incre th economy is ont of ns fenctonng on a simple production possiy, rd iy holds 2 ears then on geting te 3% car his met puts, and technolog fe points A, B,C, D, and F represent : EE econ igure 12: Productive od Allotine Eiency ‘combination ofboth goods can be produced atthe given inputs Jent as by producing the goods at pont C. the society can have an be observed by more units of edveation (OE;) and healt ere (OHS) tmore goods of health and education fon X axis and Y axis respectively ne i produces the combination of goods that falls along the it produces the combination of goods fal isi the PPF. roduce by the society ora coimbination that is most desired point D a [ain allocative efficiency at pont B asa this poi more units of health care ean be produced. ‘Some of the differences between productive efficiency and economic efficiency ae 2 follows Productive Eien Economie Eien fy Productve ecient atsied when de goods | Economie efficiency i atained when goods and sei =) and ‘xchange between fas ant comune force the Firms to peace ie mix of gon Ba sts He]el Ezonomics) AUC MBA Fins Senet say aise wen a ody Proing] sable gods. Sealand sae ere he enon] er scope ad hs wih he way] slang and what ought ot Nature of Economies = 2 jective of the ty of mature of economic i to decide whether economics i srenee ofan Ti oF nomative science of Both heats, the newest of sciences ~ indeed the queen of According stones but an accumulation of fact is collection, classification and analysis of the facts in a asiieaion and analysis ofthe economic fats. ae the prominent features of scence. A detailed is follows recollected, similarly in economic facts pertining ‘observations done by an ecenom safer being collected and measird, The economic ip between cause and effect ofa fact. For example, study of mutual relationship between changes in price 4) Veriteation o verifications by their ir words, whether they Fe are two ways of verification as every science look for vetifieaton ofthe ws based on real assumption shouldbe considered vali ‘th prediction of any la happens tobe tre, then iis vali to verification and experiments are conducted inthis law of diminishing retums, law ‘ = ' retuns, law of dninishing marginal i From the above explanation tis clear that economics is science but hiss contac by some scholars who donot consider tt be science ast sno being exact and universal x compared to ferent law of phic ard chemise cally thei dsapreement is unjustified. According to Seligman, tne two vast tranches of scene are ‘philosophy in respect of any Economists such as Pigou, ter of economics is divided ito the fllowing pats to study it conveniently: Bzoromis Actin == eon oles = sources or ereates wily or value addition in y involved is of using labour, sugar and ‘maida, To transport commodity like sand from the riverbank to the required place i lso production, following are the five factors or means of production: Land, faction of wants isthe activity ing of coffe, et, ae some activity that results in increasing physical and human capital is called investment, formation of eaptal tobe used for the production of other goods and services.‘MBA int Semester Manges Esso) AUC se goods as wel as series ofthe ibm of sale and purchase. Price following pars pest to different eating he ale a parca of prof ant toa exchange. Money isthe tein on of goods © nd inert com es ofthe factor, concering how prices tube people ey consume, pode and exchange gods snd ine exmomi ete and people can arcuate pate goer he government f cn people ant tlone oe priate porn. a xed Ezonomy sytem hte people ae ie 1 perfor some kid of economie onsiered a a midrayteteen capa control the activities like consumption, a included in the subject mater of economics. In shor, According fo Anatol Mura tehaviour of an economy or of an econ olen solutions" bject mater of economies is the description of nature and fc problems with te abject of 1.1.8. Branches of Economics ‘There are two main branches of economies~ Micro Economics and Macro Economics ass. The stay ofan owicol ee i done under the mice in eas of pec, demand nthe economic bject-matier moving fom particular genera analysed in deta ‘heory. The theory is applicable only when “otber things being the same s. Hence, the anal ofan individual producer. respectively. Microeconomics deals in ‘economics is also called 3s "Price Theory" or "Valve Theory a the theory of the small, of the behaviour of the consumers, haviour of individual consumers and producers is analysed hod: The method of micro-economics divides the economy into various small units and every unit is practically i the formulation of various always made in every micto-economic ‘The market forces of demand and supply determines the price of individual mand and supply is studied in Micro-economics, where demand the behaviour of an individual consumer and supply analysis is 3) Welfare Theory: “What to produce?’, ‘When to produce’, “How to produce? and “For whom 10 be produced” are such questions that ae answered by micro-economics which deals withthe optimum all ailable resources and maximisation of socal 1 scarce resources of economy to maximise the p ie welt. ‘of resources are already searce resources are done by the mict Ia short, micro-economics isa guiding 1 of individual consumer or producer ina particular situation less in quantity. Proper mics which are used 10are Sees img EOE r-economics for dete fonmulaed ith UB USe Of tier. mining the prices og mn; Demand-suppy analysis is used in mit 1 economic pans af being explained in micry, f ing of a fre enterprise €cO70 individual has freedom to take his own econo rumen Fix the a at and We pe of 8 8 Wella the vignl wade and tariff Tes, causes of analyses economic te connie sth. i formed onthe asi en inthe ene oF perfect EORPEting Shc Rao the india Varies from peron which is very dificut jing to wrong conclusions. ‘one of the phrase used in micro economies which means thatthe other factors rice of flaled. goods, price of subsite and complementary goods, income, fhe demand and supply of goods. This assumption is practically not true. Hence, it According to Boulding, “Macro-cconomics theory is that part of economies which studies the overall averages and aggregates ofthe system” = oer For Details Refer Units 1.1.0.1. Difference between Miero-Eeonomies and Macro-Feonomics Diterence 1) Objective Dring Forces [Tie ae mambo asamp a ch ar infeed by vars ‘tite ls) Subjer Mater ‘nomic problem isthe problem eating tothe necessity of choosing what how, eve economic growth ‘oncered with the we of scare resources. Des means tht demand (D) is more tan (>) supply S) ‘According to MeConnell, "Scarcity isa situation in which thee is not enough resources to meet al human reeds". 2) Alternative Uses of Means: The main characterise of the is tht they have alternative uses. For ‘example, ste! may be wsed for making items of furniture or ues © pipes and tps, or ralway coaches ny oher goods. The problem ofchove arses due tothe llerative Uses of resources. This problem of choice is'an economic problem. Ie any resoure is ured in a given allemative use then we have to sacrifice its we ia ‘lier aliemative uses. An opportunity cost isthe cot ofan altemative tat must be forgone in order to pursue 2 certain action. Opportunity cost oF puting the we of resources for a given purpose is measured by the ‘benefits soeificed on account of not puting the same in the next best alternative use. The concept of ‘opportunity cost ays emphasis onthe problem of choice. It measures the cost ofthe given quantity ofa ood ‘other goods that could be obtained in its place. In shot, scarcity of means and Since an economy cannot produce all te goods and ‘everything for every individual, that thas to make a choice. These 1.1.11.2. ‘Three Fundamental Economic Problems ‘There ar three fundamental problems of economic what, how and fr whom. These ae discussed 3 follows (arenes Hore is done in business fr determining 1) What to Produce and How Much to Produce: A feasibility analysis “whether product or service become profitable or nt in a specific market. Investors want to proce onlyaA Fint Semester Mage zoos) ALC fone through a simple market study or fe to produce all the goods and services those goods and services which giveth {echnique of production Role of Price Mechanism in a Socta ccna planning authority compiles necessary {Eovernment help in reducing the shortcomings ofthe free-market economy, Dye to the shortage of funds oor counties af at able wo provide such benefits to their poor citizens, Solving Economic Problem uch as what f0 produce, ow to produc, for whom to prodece are faced by each oe socialist or any other type of economy. Individtal enreprencus ake the work done by his or he. is the responsibility of government 10 rial planning authority makes the appropri plan “ae ay be imperfection under the pice mechanism but suey it snot. © element of correctiveness which works. ve ‘chaos and anarchy. It contains the E sasfactrily even ina fee economy. nhsis sre private and we a Pak be help of appropiate ONEay good 6 thee ae on the goods, consumers EXPT me tery hgh which are prefered by the Me fick: These gods are produced in a large ce ecorism helps in sng he ised oem eden with eel c ‘production of different goods. et tase es Ln ee proce. The ‘sey after considering the fact oT production it which prices of goods are iy mote factor ‘ofa mixed economy, price-mechan ty For nhom to Prouce: Unter he ite tot i ‘ Us People with high incomes get larger share {slving the basie problem tat fr whom to produce atonal product than people with low incomes ied economy, the free operation of Neto af rein fvestnent greatly affects the volume of production ( Benween saving and investment i brought about by rate of interest 1) Economie Development: Wid the help of price mec ‘economic development under mixed economy must be Tis" cconomie development, More capial is necessary for acquiring Technique. In med economy. free enueprencrs and government perform the ob of mot fend introdeing ew technique. required 1411.5. Society's Capability to consume goods including base nce lind huge bungalows and also need services like commodities are produced and these resources are he capability of a soccty to produce the required commodities is als limite. This gi ober of making relevant choices ad economic sth study ofthe process by which scarce resources ae ‘cated to say society's wants. Each society, whether eapitalst, socialist ora mixed economy, must ales twee basi and independent problems of economic 1). What to produce and in what quantities? (Ihe what question) ‘or hospitals fo, in what numbers? and less weapons, or vice versa? produced and bow to use society's sare resources? (the how question) Ey cmunpion by dein espe fy geesing me ey ram cose renwal '3) For whom shall the goods be produced? (for whom a distbution question) ‘Whether distribution shouldbe based on purchasing power or needs or sone combination ofboth? ‘of one product towards the nother. According to Lipsey, “The production po J which shows the possible combination of ‘two goods that can be produced by an econor = ourees and techno” the maximum amount of 3) Theres no change in he information and knowledge ofthe society regarding the production of goo and 4) There is optimum utilization of resources othe largest posible production is derived from the given level ice tanned Blue leans IeFrom the above ta ined by plot the ephas menione blowin figure 13 In the igure the two ans shown ie. X-axis represents the production of shits and the ais represents ‘of pulses fom the a ‘sid 38 the unichievable combination wih jie the PPC curve shows the unproductive ‘and efficiency tion “of new factor resources Process of production, > ‘There is outward movement of PPF curve d ee Sin oe, Pee a ce inc nthe techy a how in gure 1 This eat in ne sel se ates on in Suet possibilities and in tu. consumers, ‘The outward mo the production the economy of thee i se in technology, the nature of PPC curve is very bypobeticl 1nd measurement of PPC curve. & parila ie period is refered to a the economic ‘value of goods and services in acount. Besides jon gain nev cero oth nes he Duss ener moe psi ing the prices oftheir stock. As a revlt Uy ae growth, In other words, Increase in prod Elements of Economie Growth growth of «country depends which ate a follows sure the economic growth of a country. In poor and under developed cou sagan anal nome pet he) ar tte brome yey, Te compe of er ing specific objectivesmae vec po TS see $5 scr sea Haat ce ng pe i cal oats jae ene re ol cn et on et — a state tr wae uy mi cman ety oe, shee teens oe 2) Reduction in Poverty: Economic growth ble to produce in reducing the unemployment in the country. The “demand for goods and services and ths reduce unemployment in the country, country having an enkanced economic growth usually has a high income per leads to generate higher ues forthe government witout any actual increase in tax ney on the publi services. in reducing the ratio between the debt and GDP. such they are encouraged 1 vote tht party for next le ian to provide pleasing policies such as reduction in tax puts pressure on the ‘money in public sev 13.2. cir country. Thus, ¢ conomiclly sable. Moreover, dene, economic snstable, bat stable economy ‘rovernn in the county. Therefore, front goes hand a hand w well as various literatures ae a Ineedacton Eso (U1) Crisis Stabilisation: * sheen aloped by RB This policy inthe county acetay formecting the proving needs Offenses {tthe cconomy along wth adequate contol one info te 2) To Promote Priority Sector: Gener the sco hing unr he pry soins gic tou sll ale enepies enf weaker scons ofthe eeunoy The stailiaon pices eset Sorin in corn with tier ato prove legs credit st alfenbl cos tte pony se: 4) To Generate Employment Opportunities: Stahstion policies ensue cretion of employ ‘pparuniis ia he county though nonetary polices. To fate he sae, it an inet te ion policies ean contribute in encouraging the savings fe t0 the public, The more the savings mth banks ot imately geceerate the economic growth‘ortower down the ple depending on the requitement of reserved ne eid tween 960s an 1990 te DOU et headset fea Dic) co use under the contol ved in making ane Tor ncaing the coy eats 3 x Jzge government def the growth of econo Fg the growth of economy by controling Pageron Rati fixing that the capital cased bythe commercial bank, oans and advances categories. are charged variably and selectively for diferent places, uses 2 cheap or general dear money policy that is ‘ve also provided where theres ae Basically im thelr borers. ‘money contol. The important monetary iy divided it fellowing two too ‘Caused beciuse of bank rte changes. Ceilings the ones that commercial banks charge for specific ‘Margin is basically the difference between te security value andthe amount ‘The empowerment isin hands of RBI so as to fx marpin limits for be observed by the commercial banks on the Borrower. This way the ere ard more urgent uses by different margin prescription for differen uses, Proper regional coverage i brought about by the RBI via licensing. Also the cause of » aes regional development is served trough this Quantatve Instruments: Quanta ivrumens of money conta can 1») Regulation of Consumer Credit: consumer credit regulation is often exercised in ease where thes mle H an be funher divided ino Shortage or abundance of certain consomer articles. Permiting or banning cet fr purchast for extending the repayment time or rising o lowering the down pay on situation on inflation and ecession are some ofthe regulations inclode i this. tment and is also known a5 te Discount lise is: Broadly speaking, lini accommodation to commer the reit avaiaily and eredt 3) Open Market Opera RBI of an assets variety rein ech ak seeks to have an iflence on the cron suply under the open market operations,” O™ SOMO iy the sae and purchase by he rng land purchase by the counter these dfs oy eaedreramet sees: Th Sung ech euency ste: which sls in inodsing es purchasing power fm eon nd ao preesing monty ‘helpful in beating depression and unemployment efficiently,sn re cr the disretionary and, hence, he rent-seeking a unlikely to give upon seeking rent fo odution. se in unproductive pring ‘powtening is io after GST Implemer affected the Indisn economy sme and wea stibtion may Be reduce, debt can be assumed as aM importa, tnet out wholly by public borowing, public aime ings when be 240Pt fiscal policy apy taxes. The reduced burden of taxes has enhanced the production and growth of the retail nd ther industries, tose sections of community where they ae funds as soon as possible fom those sections Seem Noun wees aout aa in tito ws uch ands for productive purposes though borowings, public expenditure eam also be use 3s lowing to forms: preme conseqoe maf purchasing power inthe form of an comprise of experts ome publish the data regarding demvonetisation a and credit ards so thatthe purpose of making 1.4.1. Introduction Suid opted mr aes oie hes ee eam aking ye, ‘Matket and goverment are two important fctors that wil affect people's ie inthe wold. Governments and vag snoul also be opened op in private banks so tha it can atact low-income ules of mac boundaries, operation and intatees through rains proeses and Jliberauons, The eae of the social eonact between goverment. he market and eitens hae varied and evolved through histor. Pubic ofthe seial contract Between governments, markets and indivi ny ways ar interested and interdependet on each te. In today's _loal economy, its businessmen and enepreneurs are the diving forces ofthe econo Tn planned econ oF {ven in market economy govemment olds contol of skapng the busine mult cl spending rogrmme, especially aimed a comes Wiha weir exhuge rato here te Ie col apn be pened ee te NE pope invesients a ading tans Stor fs ee ee Ss ot nea es toe ap fosesain he government's curentinatve, stO"S more transparent ae. required forthe welfare of the economy and the nation. environment protection agency handles Central Bank, Food and Drug Admiisvaion, Labour Commission, n and many more. These agencies dely creates, implemen’ laws andpart seme m9) Ae tation, The elton ae versa. THOSE ia (peveloping Country) 1.42. Role of Markets and Government in India (eveloPiMB Following are the roles of market and government in developing coun oy ss activities. These are 1 lanced by the flow of payment ef re mechanism for exchanges of goods ands "The goode are produced for ‘leo. big sponsor of higher education, ‘and mixed economies such as Indi, the state also direcy ning. agency called she. planing fe atlempt on the part of the sate 10 6) Planning Role of Government: In social paricipates in planned economic development under a central ve role by promoting several public sector enterprises. It long period. New proot an technologies ae constantly being Income, prices of elated goods, sou in Pie iy. and therby dirt equim in various markets. Markets er demand and spp. " ‘kets in the Present Economy Scenario ‘aise productivity and living standards in present scenario, 142.2. Role of Governm iy contbutes to achieving high levels of economi ney ofthe pr posable i ican be deposited i a hank, put into a pension fund, wed 0 Bu for example, The common element i th claim the negativesiot seunulation a a inc Sen ab KES elf Investment county A into county nology. 2d expertise 7, Encourage Investment from Abroad: Gove 3 foreign sources ee ieee ‘on imported trade with people i other counties, So vices may be ether too greater eating har - ‘and negtive externalities. According to Neos in such outcome that forthe entire society.producer Behavioy, Acting ot Conrn, “oman ‘ ran ‘any region in which buyers. the ame pods ends 1 ei ‘of operation of demand and supply. Fr sons area while for some commodities the market may cover he ‘ae county 3) Perfect Comp according othe adem imperect mathe sls ex ered With the Market Information: The pares of te marks ae well-versed with the mht tn of demand of customers. h lee, Sellers are Preset: A numberof potential buyers and sellers are preset in the market. Traction in th make are conduced’by hese be slr and the buyer purchases them at ip ofthe goods is transferred from the slle® ti ofthe ferred from the and purchase by fllowing the pce, 21.3. Determinants/Factors of Market Structu; Spanier podict the numberof termina at ) Number and Nature of Sellers: “is ‘and Services: Commodity market and ft and services ‘On the Basis of Status of Sellers: The markets Secondary. and ermal markets onthe basis of th and Defi consuter’s willingness to buy certain quantity of goods and sev Inning ability to pay for same at vious pice ime. AS nt the desire of sand tthe sane iepa ie Meal Eamon gy isamount of Ph Wil Be bough. Benham, “The demand for anything. ta s8€0 Ps ha pce” fs gen commodity oF Service 44 is ready 10 pay for gy enbinations at which ge lua is demanding fora eens now nda ain! price of ado ne time period fora product produce demand forthe product of ll the firms ofan ndusty i own 38 the demand for industry’ 3) Autonomous and Derived Dem: ton ved Demand: The demind for commodity tat snot related 5) Short-Term and Long-Term Demand: Sh ‘used for a very short time period or for eur hrm ai. Te we ray ee 00d and producer goods 1° Inger dena ©) Joint Demand and Compost ‘Mutually demande - set the demand lasts fora lone! ‘sample, demand for durable ‘goods ensumers’ goods such 35 Hrs demand is a demand sed for producing othet mang, °F Producing. ade clothes, mot for such goods which are not use o0ds. Due to this, indiect demand is the consumer. The 1s more purchasing ‘consumer has more lusies and preferences are also considered as an important ce peterence for any commodity thea automatically his tute goods are generally known as related goods. ‘When a demand for a itoods then these goods aye called substitutes, such 35 ing each other then a fallin the pice of one “demand of other commodity such as pen and ferences of consumers the product such as the compet oducts, provided to the ihe demand of the product. The demand ‘considered to be an important determinant buy more quat i ne may force him to increase bis current consump Growth of Population: The growth of population is also an important determinant of demand. If population increases the demand ofthe goods also increases naturally. §8) Weather Conditions: Climatic conditions affect the demand most. Demand for the particular products is Completely hued on te climatic and weather conditions. For example, the demands for cold inks fans and ‘Soles during te sume season and Ue demand fr umbrellas and rincons during the rainy s3s0n 9) Tax Rate: The demand i also affects by the tx rat. If Uhre sa high tax ate then there wil be a es demand for une poods The tak is used as 8 weapon by the government for restricting the consumption of particular Commodity aa cerain tine. The demand ofthat commodity wil be lower fie imposed axis high. 1e most considerable determinants of deman avlbiiy. The ‘purchasing power of the consumer is highly affected by the creitavallbility. IF tere is avallabilty of ‘cheap credit, the consumers try to buy more products. 11) Pattern of Savings The saving pater also influences the demand, In the case when consumer wants (0 ‘save more money then his demand will become less forthe product and vce rsa. F 12) Cireulation of Money: The circulation of money affects the demand greatly. As more mone) circlaes Sumong the people, it increases the purchasing power of de consumer andthe wil buy more Productswaren 2.24. Dem: ‘unctior is expression represents hoy, an Funtn se : = rclerences Dee larket Demand Function: The demsnd inte form of algebraic expr rerminants together sous de 2) sions basically dependent upon the rbiation ofthe individual det test more in obtaining market demand ies are taken all at once, The Dx = Quantity demanded for commodity £ = Functional elation 2 ice of commodity x = Prices mA = Unknown variables 12.3. LAW.OF DEMAND 234, Meaning and Definition of Law of Demand {a ena las i between the change in quantity demanded ofthe commodi that ines tha if pice willbe high then qu fen rice gets down the quantity demanded ofthe Price and quantity demanded have inverse ‘lainship al other things remains conta ‘eine Maral, “The ot dena rs wit a Wus, it expresses an inverse relation beiween al ements nly ‘ty ne shapes sd ec ee wk at allows ofthe estomer shoul min 2 Metaes and ences ote bss tc 3h that pices ltd goods soalsea 4 Yo new substitute for the commodity is present in ee ') The price rise in future should not be expected. = on 2.3.3. Demand Schedule Demand schedale is defined as table ora chart which samadity. When one draws a table berwe quantity demande ith various prices of the comm Schedule. In other wo ind schedul 2) Market Demand Schedule: At 1 determines the mat sure. In ober words, 2.3.4. Demand Curve ‘When the demand schedule is represented wih the use of graph then itis known as demand fe, Demand curve is of Wo Epes: phical presentation that shows differeat as prices of 1 demand a en fed by an individual per period of ‘the other factors constant which affect the demand. Hes ent quantities of a commodity demanded by an individual curve shows the ison ty Jn figure 2.1, quantity demanded are shown 00 X ai 28 slferent prices ar shown on Y axis. Te igure rest sry sd yan ae Ws 2 ws Nt be ice of the commaiy wae reduced © €16 T= was oes 13 ia en th pce of sma her reduced o€10 pri en ua em ‘mindvidal winced to Si pda Demand Carve uty Demands Fre 23: Maret Demand Care inverse relation between price and demand 2:35. Why does Demand Curve Slope Downvards? slope ofthe demand curve. Fellow 7 commodity decreases then it becomes cheaper i0 the consumer to substitute He ondition, the aggregate demand mont Be abEregate ds ‘New Consumer Creat buying it who could not hence, the demand of that, conta de "is then vais consumers sat ‘The mumbo consumers increases Dimins ahs modish = iy of com ‘consumer buys more unit of that commodion ng Marginal Utility is de bass wdity continues 19 decline whe? “There are various commodities and services those can be used fr different purposes. These he negative slope ofthe demand curve, In the ease when the prices of such products Ib used onl for more important uses and their demand wil fal, On the ther hand when Ihe used for various purposes and their demand wil ise ch person has a tendency to satisfy unsatisfied wants which his demand shen the price of any good such a porsezranate “The demand curve slopes dovenwards to the right due 10 this Law of Demand ut there ae certain cases where this law does not hold true. 1 the workers. Based on the given example, ‘of Giffen goods 13). Necessities of Life: Generally, the necessities of ile such a5 Food, cet, ee arent rte by the law of demand ‘Ths consumer ot demanding more quantity of soch products, ifthe prices of such produets wil is. These items were purchased by reducing the demand for confortable gods even the price is very hgh. This isthe feason tht the demand curve slopes upward to he right. ct ofthe consumption patter of sola grop affect vod be sity of life. For nage of instil and agricultural gods. This creates Common man willing to pay higher prices and demandna te «pete knowledEe about tocol ne age hi TO Puchi ‘ose fe i si avant a kao, essa cao. en et ees even though sega OE meh thy tra mia eed pan ured ce going ot use de Jeyone, et ie sonal fonds notin use rin eo ay go dwn in winters even ya 504 Change in Demand de tothe ithe end a Pic ha tahrmone, sere ce at oe eye feed as resco a deren in dean Se retain cosa ide ent nse move See her tocn pe be comment the changes in oer factors such as income, tastes, pices of and movement upwards or downwards onthe Sante Jem! refered s“cange in quantity demanded Movement Along the Demand Curve ‘Armovemet loge he demand cone sue chang ne pce food er sevice When he quant demanl of» amy ees sek {ai ps hen stale exten of demand When pes eins pe tn eed 271. Femain same, demand of @ Price. This ean be shown 2372. Shift in Demand Curve ahi in the demand euve occurs due tothe change in non-price factors of demand such as income, rise inthe ‘ice of rubsiutes, fll inthe pice of complements, change in tastes and technological change, et. 1) increase in Demand: Ar increase in demand means that at the same price, the consumers ae willing 10 buy more of a quantiy. The demand curve sifs Yo the right when Were is an increase in demand, The demand may increase in two ways: " |) "Same Price More Demands Table 2S shows that when peice ofa commodity is 10 per unitthen the demand is Zuni Now, pice emins same, Le, £10 sil demand increases to 4 units and further to 6 wis ‘Table 2.6 shows that when price of a commodity is €2 per unit, fo, az the price increases to €4 per unit, its quantity demanded when prige further increases to'€6 per unit, quantity demanded In igure 25, increase in demand has been shovin. DD is the original demand curve. Whea the price of a commodity i and demanded OX, vit iy from OX; to OX, without be seen from vo perspectives, Firstly, increase in demand for commedi Sof com a same even when the ce changing the price of commodity and secondly, demand being remaining increase from OP, 10 OP;unas Se on sie, te consume! rjecrease in demas commodity is %6, ese vere 83 crease in Demand: The decrease in dewnand me 2) Decrease in Demand: The d ra 2.n snows that wen pre of [Less Demand: Table se condition when Price TEMaIns sng it, quantity demanded is 4 ug ri pce 26 per wi GUSTY 4 nits. Even at price £2, qu 1 price falls wo 24 per unit, quantity demanded remains sme ita 4 2 quaniy Th tinsel 26: BD athe eiginal demand curve, When te price ofa eommodiy, If demand curve sits t0 D'D' (downwards) due to jy ete the station of decrease in demand. price of commodity and’ secondly, ‘demand being Increases fom OP, to OP, ‘be changed in resp pe te contin tees consumers at porate cnsmes because com=™ fect the demand In 4s clasticity of demand, The rate at which the {He elastcy of demand, imanded divided by the percentage chat ice casticity of demand is generally refer! "SPEC the change in price is denoted urden of indirect taxon the consumer and to what prt price, is decided on the bass ofthe elasticity smment can impose higher smand ofa prot is inelastic then the demand ofa produc bythe government due to dec ‘Semand i elastic and government should provide subsidy ‘Types of Elasticity of Demand ‘Therese various types of elasticity of demand, However, the important ones are given below: “ype of Eatiyof Demana ke Has of Demand arenes rice Elasticity of Demand 3 of demand dente he change in quanty demanded of goods with respect oa change in price consumer income sats abd pices fal ter goods ey; "Blstcty of demand may be defined a the rato ofthe percentage hangs in change in price” pe ‘of demand at any price isthe proportional change of amount ‘pee, divided by the proportional change of price.” Thus, price ‘purchased in response to small change {hastlty of demand is the ratio of percentage change in amount demanded toa percentage change in price. I may be Wetten as __S-Change in quantity demanded TF Change in pricessneer Magen Eson0mics) Aug see Creer tr q nal Poise than the proponionte cans in pc fom OP 0 OP. Thi, hee te demand cane DD is ase For 0% = ay * or a gant dtd Sas noe na Qua 0 20, P10 Orinsymbotic tems, by = Oa fon $2 x Where, E, = Prcectasiciy, = Po Pree, ‘8 Q=Change in quantity demanded, ‘ 3 AP = Change in price. ‘TypessDegrees of tiety Wf te demand foray, thatthe price and total outlay are directly ‘slower than the change in price. 3) Unitary Elastic Demand (E = emand is exactly equivalent demand of that product is known as unity elastic demand. In this case the peice elasticity of demand is ‘equal to one. Here, the demand cuve is represented by & rectangular hyperbola as shown in figure 29. The figure ‘proportion of income on each of them Shows that he proportionate change in demand om O Lape -! 2 ‘Nature of the Need that a Commodity Satistic 10 09, is exactly eg any price from OP to OP, Figure29;Ustary Baste Demand oy » Mere are various commodities to which consumption ‘even for any period of time. For example, foodgrains, salt, sugar, medicines, ete. x ory. The demand for these commodities is generally inelastic because there is sumer to pospone the consumption. Consumers have to mann, thee in case of price rise.AP =P,—Py=10- 302-20 PY 8Q=Q;-Q,=0- 60 =-60 20,,P 0, 30 ne Eom AQP 9 HO a aq" 20% hus the demand for such produc 8) Tied Dema tied ote goo 'Qy=40, 20 omy demand from the following table: htc the ease when a country has see aumber of middle class person ual vonger in which the demand is considered then the demand for a produ seme compe the existing product with another product ang = Q\= 50-30=20 4Q,.P 20,20, 2th Ba. In ths, the demand fora commodity is inelastic. 5. Income Elasticity of Demand demand ean be explained as the percentage change in the quantity demanded of «good ntage change inthe income ofthe consumer. In symbole for: Soitingo Tax Burden: poder an at al lod te aden 3 nore By = Income Elasticity, Q= Quantity Demanded Y=Income {8 -= Change in Quantity Demanded ‘AY = Change in Income "eto the buyers by increasing the price of the pr in conto his, would be prewe ths, he Burden of taxon producer would be gre clastcity of demand HigheIncome eel demand is said to be high when the quantity demanded for 8 demand i sid to be unitary when the percentage change has greater importance. The balance of payment of devaluation, Thus this 2) Unitary Income Blast 1 of demand i said to be fow when the quantity demanded for 3 ler percentage as compared with the change in income of consumer. Example 1 A consumer's demand curves a 4) Zero Income Fl income elasticity of demand is said to be zero when the quantity demanded 2 Price of £10 and £20, fora good remains unchanged upoa the change of income. When the price is 5) Negative Income Elasticity: The income elasticity of demand is sad to be negative when the quantity Pi=30,P=10, Oe Prsl0,” Qe 60,0 demanded for a good falls in response t an increase in income.to 6 em nypse soe TIENTS nis now ose iets g,=22x¥ Solution: Etasicty of come, = 32% ‘The coefficient 25 shows thatthe demands neat ses $6. Calculate the In Example 4: Suppose X's income rises 10% and his consumption of sugar increases 5 the Income Blasio, 245.2. _ Difference between Price Elasticity and Income Elasticity Basi of Pree Basi Income lat Diteresce fnDefiiton ‘of demand veer wo the chang ed of» comment in relat pNatare 26, _ Cross Elasticity of Demand on ast of demand fers good is deine a ‘Sor on vitae E04 Ste hag in demand hat ond de to change i rie Fescertage cha eg» PECEHAg chang in quaiy demanded of got e ~ esetage change i quantity demanded of good X _ AQ, | Peerage change in pce of good Yo = ge Where, Ee= Cross elasticity Hoe c= Orginal Quantiy Demanded of x foods if demand of X move in the oppo Increase in the price of printers will decrease the amouat of ik c Noeach at ithe coe tion of Supply {quantities of good or service during in a specific period of time that in general terms, the supply of a product is defind at a uppled by the individuals to the firms. The factor of production is convene into the production process, the supply of factor ‘bsed on the firms" capably to conver prolcts in which the ability ofthe buyer to buy the demanded product lable quantty is known as short-lerm supply. The quantity of gods supplied i he with the change {0 adjust to an impulsive change a demand. ha product thst can meet one of mote demands i known as Jolt supply. as well as of meat If the farming of lamb isunrest NE Homey fas S00 sods camer Ihe nonce inn aces elit in errr ve imple ct In the pice of hotdog then he can increas he prucon of iy exhnlopcal improvement of ination are intend ease te spy ofthe produto services, Firms set various goal to achieve. The objective of the firm influences the services which are supplied. For example, ifthe objective of the firm is to comparison to firm whose supply is ‘The supply of goods oe foods, doughs, sks, lockout the simmer be entey. The supply of ari is roduced usta goods is negatively affected inthe situation of 7) Number of Sellers Market then the production will be discourages tei a a ppl. — ne pio. supply are remaining constant 9 {ie consant Ineeate nthe price ofa com her the price the greater the qu Meine Be sey Accudiag to Dost my soe Inte eer wd, oer ld ine sd when ply canbe expressed flows Seth) 62. Assumptions of the Law of Supply fs foe! sf demand, the law of supply also assumes, other things remains constant. In order to mee ate ty spe, te fers whch ae ten io emai unchanged. of produce donot changes chang in the Government policy in elation to payment of taxes and subsidies Supply Schedule Alara! suppl schedule fr to schelilewhih shows vaius quanti of rae ‘are willing t0 sell to the consumer at various san of al heAF SE me mem a epctedin the figure 2.12, es Price eho Uni tet 5) Disposal of Old Stock nove commit. Tete “The goods which ae rly. The consimee who purcha Sup; lle ie sup Supply curve refers to y ing to sll at diferent prices in ure and market supply uve: Te ve a shown in the Figure 213,45 i uve SS. Avarcay, ween the guanty suri and the price of gy the price inreases, the quant supplied by every fm aso neEases RENEE IRE SUPPLY CUNE:s A ging 49 Prof. Bi supply is defined as the percentage change in quantity divided by loping from lel tight percentage change in pc ply sway be described as the ratio of proportional change in ° ‘uunty supplied tothe proportional change in price. Why does the Supply Curve Slopes upwards to the Right? Se eddy Ueeniy_ remem tesla ig al the preduce to make forthe profits forthe fim When the otber things remain, 2 en cece rl ee urve ich ae 3 lows: of supply: Howe rhs aman of iy of supply is defined as a measure of the degree of responsiveness of 80, Change in supply ‘AP = Change in price P= New price ‘When comparison lone, one can find that clatcty of demand and e ity of supply will show a postive sign since it holds a direct relationship between only difference i that ela price and supplied quantity 2.66. Exceptions to Law of Supply ‘cannot be sored for ina shorter period of tit she pice ofthe commoding Fe ee in determining the amount of tax wo be charged, te. produce having of Supply can be allocated high taxation charges because suply of such 'Y Me Purchased during a given period ofto any change in price en Below ea be used a an example, Perel Batic Ge pesce z¢ fo more than the eas supply curve is Figure 217 BHtSupny Supply Retation eb: Pert Ee San, ‘Change pee has wo aes on up is no change in the quang products Which fatty! le 2 Figure 2415 shows Supply curve S$ which il ‘Proportonate change in quantity supplied SS, 5 proponionate change in price PP, is equal © Petey ce x fed Inelastic “equal” and "balance" respectively, the may also be called a condition where ies ium is achieved when there isa perfect balance se Una Su § and they do no tend to move away or diverge in economics absence of change in movement, while in ‘According to Machlup “Equilibrium isa const eT erent tendency to change prevails in the model which tary Supply Jtuaton in which all major factors remain more or ess constant over a pesiod of 2.8.2. Market Equilibrium: Competitive Eq forces comes toa balance. I supply of goods 1 result price of goods and services roportonate change change in quantity supplied SS, hows supply curve SS which iasuates that the rice PP, a than the proportionate es dhe way buyer responses the price and other factors which affect iy. On the other hand, the supply indicates the way seller responses tothe changes in i selling capacity. Hence, when the buyers and sellers meetin market they is equilibrium is a situation where buyers can buy and seller ‘the goods and services they desire. tis assumed that perfect competition exists in market. ln this perfect competition, there buyers and sellers and each buyer will accept the price and will demand the quanti targe number of. fof goods on that price1 sense (MUM Et Econo ay yaa sy cure ros Sede let like demand curv, supply cuve is writen as: Seem) @ In the above equations, g and f are the noatio ust be stained, Des 5 For Fantini "moter to atin equilibrium, following cont Here, Ds tol demand and $ conse and Procer Bevo (i?) “ ich OQ; where supply crease upto point OP,, Fur improve and amount purchased and sold 28.2.2, Simultancous Shifts of Supply and Demand Practically in market, there are various forces which simultaneously affect the demand and supply. In this case, both the demand curve and supply curve can change tei postion simultaneously. Here, Ube new point of equiitium ‘may be eter less than, more than, or equal to the inal point of equlibum, This eealy depends on the intensity of Shift ofthe curves. n ease demand curve and supply curve Shiftin equal ao then the point of equilibria shit to bt Price wil ize. As shown in figure 2.2 the shift of supply is it in demand curve. Therefor, ther isa change sm pint from Ey to Ey and the result changes of price snd quantity willbe PP, and QQ, “There will be rise inthe level of equilibrium price, if he demand curve moves to right and supply curve moves in quant Ifchange in demand ad change in there are more shits in land supply curve, we not ‘change in pice and change In quantity demand. 2.8.3. Uses of Equilibrium ‘ant uses in economic analysis, These ae as follows: Ta economic generalisations, visalsing an ideal and desirable stationintich: earistion, oF the entire economy a peusebol, 3” 8 Y ie variables are chang fe analysis. HelShe can a > eases to 18, 24,28, 30 and 2.9.1. Introduction positive uly. ACO unt sing rte AU7® uit, total lly market purchas feenerating fom te 2.9.6. Consumer Equilibrium Ifthe consun to make any changes in his purchases of goods then hei ai tobe in equilibumn positon. At i=in equlriom postion purehaves ta basket of foods that provides him maximom satisfaction. Thus, a consumer is sid to be in equibaum postion by purchasing tht combination of goods that ist his budgetary constrains and on the highest indifference cure. According to Scitovosky,"A consume sin equim when he regards his ata! behaviour asthe best posible wonder Js no urge to change his behaviour as long a crcumtances remain uchanged According to Marshall, "Ifa person has to several uses, be will distribute it among 2.9.3. Measurement of ‘The concept of measuring ut s which hl ios in understanding the consumer behaviout Assumplions of Consumer Ea ay he Urge nono ca ia 2) Cardinal n 1.23.4 ete. are the measures of utility.ger Managers Ezonom apa rine eres 4, a ‘Consumer and Producer Behaviour (Unit 2) 3) Consumers completly knowledgeable 4 Marin ty ofmoney emis Oe ud 5) The price ofthe commodity and the income of' nochange inthe tastes of the consume. nies f Consume Enron ee es in ‘equilibrium, following "*° nite | ges the total utility increases ‘ee and the marginal utility ‘combinations of goods X and Y that can be pur ae ° x Gok Consumer t given pases and wis pven nocy income. Snot purchase ary “eomblnaions on Ie) ese ewe 2: Comune Exim TU rs ‘Marginal uly of m units is clear that the wants oF the deste of the consumer keeps on satisfying as the increases, Hence, the wants of the consumer goes on decreasing and in tum the 29.82. Diagrammatical Representation eX for ¥ to cule MRS, i ‘The law of diminishing marginal MRS, >P,/P, The consumer will subs ,. He will substitute Y for X to equalise MRSy aod PP, Equiliri the income ofthe consumer or price of a commodity change Secordingly. tion ofthe consumer changes 2.9.7. Approaches to Consumer Behaviour {rom the consumption ofeach sitions ur There are two theories or approaches of consumer behaviour ‘The curve represents the nits derived from the ‘Approaches Conse Baavoar aimee aa] pint The marginal utility goes below 298. Law of Diminishing Marginal Utility (LDMU) pant The go at-1 after the consumption of 8 oran Zot, sesibio easy a only in economic theory but government and decision-making of monopoiss ; ey actualy pay for thas been seen smers generally are ready to pay more for the goods than they actual them. This extra satisfaction which consumers get from their purchase of goods is called by Marsal as ‘consumer's surplus, ofa panicular good at a potty it resulting in the decrease iarnt Sense AMET Exon, Indifference Curve Analysis, roach y modem dea being ms Tonia is ts on edi estes rate tobeow abou the combination of goody dng th same lly, THeS€ CUNES Are Someta x 1wo goods which provides equal level of sat em these caves the consumer is indifferent is epesening diferent combinat erence eure sftwite, “The diferent combinations of X and Y is shown by a single inference cay isfaction othe consumer ‘of Indifference Curve AX ~ Increasein Untsof when the consumer consumes an ai Ni dines sddtiona unit OFX, the unis of goods ¥ are dissast# 2992.” Indiference Curve and Indiferece Schedule Ssometrical representation of an indlfeence ane . Ponts A, B.C, Ds E, Fr and G are chosen by the producer onthe curves SAC, SRAG, SRACu. SRACs, SRACy and mat SRAC, sapecurehe These pom are elected fra particular tpt, ike for ouput Qx the Kast cost tn fe ay eit gh A SRR for ouput Qy the least cost causing curve is SRACand so 0, AS per the observation Wy of pay i given on Y axis. TH §RACearetoushed hy LRAC curves fom below Any prion of SRAC's cannot be Alow fo RAG Sv 2210 total cost is zero. BY! "yf utput arises for which LRAC curve doesnot tke into consideration hemp Sah then re Pia "mains constant for some tit able, whe Wes more cost,For example, iy iteurve on LRACy ie downward portion of SRAC curves whi portion of SRAC curves while going upward ‘Tous the lower envelope curve is LRAC curve ubich it Mate as compared to SRAC curves, 'SRAC curves are touched by LRAC curve fom below. This curve. Thus, between SRAC curve 2.15.73. Long-Run Marginal Cost Curve mn val cst dene reph shorn map! cot curves as shown in Derivation of ton figure 252. For example, corespoading to SRAC», the get SRMC: 5 run marginal cost curve which is SRMC,. Silay, we con SRAC) Where, Q = Output of proc nd ne pees guts of he vaio factoring of factor inputs andthe cost of output is represented by the fncuted in manufacturing the outpt iis necessary to find out the ‘Aer adding the information aboot factor pices in tbe production pete are the prices of the different 2, ete. required. The factor prices p). Pa. 38 wl depend pon the interaction of te ctr forces of demand and spysn ie Be ota rot sant 8 Consaner nd Pra ‘Example 10: CalculsteTVC, MC, ARC, AVC and AC from the following data: Output of ofa [a | ot 200 | 1400 | 100 | 1.500 | 2000 sr{so0 | s00 | soo [s00_[ 400 | a0 Inputs and total cost. There than the double in ese there first increases and then dere ota Variable Cos] VO=CTCO) 2.16.1. Short Answer Type Questions 1) Waster Tee rid ‘ike 280 ead Go Face ora Boda face Eig nara ase Rea Example 9 Find FC, VC, AC. MC, AFC and AVC from the elloing data nie oti tatstays ‘Total Coa [300] 356 320 | 390 [a0 Son Solution: aia] Four] Fed] Vartie|Niarga Ti © | Cost | cast | costive| Coane) |e FCOPVE WCQ TAC TrID) to | 0 | fre : © | |S 10) "enone see ceo upunen obese ween ih sabe wr Dice ae 12) Explain the shoreun and loser . 13) Desert the reais between production and cous athe shor-cun and long 230 [200 _| 30 is) i i3|pa st semeo= = Introduction market is a market where the final goods and se et make where he inl EO dS at ref macroeconomics The macroeconomic em andthe remaining are the re includes three main markets among which product markets oO te ‘market and financial market. Product markets also known as output or goods markets. “adenine dead sie of he product mathe Te thus help in attaining the balance between demand and supply, 3) Provides a Platform: For agricultural produces, an out rice. The prices which farmers to decrease the qu ls provided by the product market at aft veto produce or ean be disincentive to-farce 8 ty ofthe items to be sopplied. ee Circular Flow of Money in P ee So unconllal population ae ec lar flow model. = a the produces ae ince in bsnessseclot and are hy lor and are shown at the 3) Product Market: Th ditect production from the basins flowing in the opposite direction is shown at . lobe them fhe ow in pa seaNEE ae provided by the household to the busi a8 ineated from the reverse dit cha en wa lel in resource : 1m the product market is attained by at the revenie 3.2.1. Introduction ion of market fom the point of view of economics depends upon the industry structure serving structure depends upon the market variables ‘Types of Market Str cof competition san importa competition on which the ype of market oo walt Hj 1) Perfect Market Structures: The mos import characteristic of perfect market stucture isthe sale of _ Tage number of buyers. A perfect market uses praductivetechaigue rather than producing products. This ype of markets considered to be unrealistic but, is of jotta and thes perfect Market ""Goapatersures OS ggorteding mathet forms: ‘Oigepoly fom [Free ia 3.3.1. Meaning and Defi of Perfect Market/ Perfect Competitive Market market which consists of a large mur ers and eles who ae involved in buying and selling of [A market which ofa large number of bay oh perfect competitive market, Tix market absence of rivalry among the According to R.G. Lip js markt strvctre in which all firms in an indsty sxe Pricestakers and in which there is freedom af ety ino, and exit from, indus". [ 3.3.2, Features of Perfect Market wing are the features of perfect competion 1) Large Number of Buyers and Sellers: The fist conton of the pret competion isthe existence of lage umber of buyers and sles or thers he matt pice cannot who varies his supply fying the second condition of pest none of the buyers may have any choice for he ers. The products suchas Slt, wheat, cotton, cal: Product nd Factor ue ictal Restrictions: The eis freedom to the sellers to sel their goods to any buyer PUFchse from any sll anny cinan Lindel ducati et, Both parties ae nt involving in any Kind ofdscimination. ink Costs: Due to the production of homogeneous products by the finns, the cost of ‘Promotion et, is negligible under perfec competition, Pros/Advantay ie aealAvantaes of Pree Maret rmpetitive market is dominated by consumer. The consumers are 2 eet knowlege about te cndon of he ake Du tos eon, “will never purchase products at a higher price. ” 2) Beneficial to Consumers: tis beneficial the perfect competitive market, ‘The wastage of the resources is deceased a8 the producers do not i advertisement to promote sales. This is due tothe perfectly compete firms which products are homogeneous wee the consume thatthe price is equal to the minimum average expenditure on rce-takers and fency: The perfect competitive firm attains optimum level of functioning inthe long run. the fies achieve ency in production. Te firms actual produced unused, or idle o surplus capacity. amounts are being produced by many small firms, there is ing bigh fixed costs are specifically improper for perfect ‘competition. Due otis easo perfect competition does not exist inthe eal world. 2) Momogenous Products: Consumers have les of choice from boring identical products whereas diferent Products ae of great importance in the indy such as clothing and cars du to lack of supersormal profits whichis important Free flow of Technology: Due to una ty of patems, there is mo profit in developing new technology because other companies wil ue iechnologes. '5) Externalities: Market would be a fllre without the interference of the government due to expense in Production or consumpiion 3.3.5. Price Determi and Firm Equilibrium satisfied with its existing level of output. The frm wil, in this situation firm is sad tobe in eqiibiom, ‘According to Prof. RA, Bilas, “Where profits are maximized, we say the fim is in equilibrium”. ‘According to Watson, “A frm is unit engaged in the production for sale a a profit and with the objective of| ‘maximizing profit” ee rycen eee > Mark Sone hl ty aly nl i ie “Thus in a perfectly competitive market a seller ia ‘price-taker? nota ‘prcesmaker'.soarnsooe” ae quia gene aim PO (wo conditions 50 TOG owe ON ‘ur 32: rem on ender Pec Comet means MR 32 eiciency of ne. 3) All factors of production in perfet matket are homogeneous in nature. Ths, suc factors are acquired at curves ofthe firms same technology for production and thr plants are more alike. jn, ll firms are well aware ofthe peices andthe outputs prevailing inthe marke the frm gets abnormal profit EB by the toa output. 4 short run period, the fixed cost lad ie Normal Profits or Break-Even: When the fm jst mets lr nS ABE fee ARe ATC Svengali eas noma pit The fgure 33 shows ht MR= MCs Eade elvan nar qin to snenge ta cost or OP = EQ thf ely as seem average een teas tm ol ‘ear 39: re Deri td ane Pee er Ran supply curve and the long. run supply cue. 3.3.6.1. Firm Supply Curve in Short Run 7 fie pl with SMC onthe rising part ofthe SMC curve thi leas tothe output level a Note aso that the AVC a ql doesnot exceed the market Thus all thee condions biebied in section 3p, pl, the lence, when the market pi fins cup (Case rice fs es than the minimum AVC. Suppose cn ess te the miu ‘Aver e hve pod se codon 3 nection 3) hat i 2 NSarstiaiy fm potics apoio it or a ‘must be greater than or ccut level, But notice fom Ave scl exceeds p2. In other {is pte firm produces 270 outpt level when the mat rice ‘maximising output level whea the market sue a sare the case tht the fr supplies a postive utp. So, ifthe maket pice i taput Combining cases | and 2, we reach i important conlasion. A fis shortPret \ was 3 ; e ANC together with lt at Fas Me 3) the SMC eure en ad aoe EN, ae Pr » a Fi the ina AVC. pug short 8 Firm Supply Curve in Long Run igure 3.7 an derive the i's og ri 77 ‘monopoly has been originated from the Greek word "monos’ mea ‘Ths, mono Case Is Price greater than or equal othe minim LRAC. Suppose the market pric on minum LRAC Um tee, fetol tie ERMC cane we eb ca eel ne Der celle sere 1 stmt ant-otanoandy seems: : mr ecitae dntret are ntnn pet a ey ene ey ere pices ae being jondy contd by them. Duet ts ears, the (Case 2: Price fess than the minimum LRAC. Suppose aegis ofthe two fms are inerdependent andthe decision of ne Sele wil fect both the sles. the market pice is Py, which i kane etm pe von ing and Definition of Monopoly and bares for others to entry, product having no close ie ewervosae Poi mang So me om meee te ae pt ap oo Senobn, ‘i Sere eae (oD. Salvatore, “Monopoly is the form of market organisation in which there is a single fir ‘ommodity for which there ae no close sus uae According to Ferguson and Kreps," pure monoply ‘commodity in question. In otber words, a monopoly is aone-frm industry .. Features of Monopoly Market onopoly market ae as follows 7 (LRAC), is represented by tbe bold line. ies cui Combing eet tand 2 ech Fee oy ce sage ser of comma o sre seingw al aye eer Pat fe RSI Sie om a boven A Ky , Sinn Ser: mone ars amt sock oman tT le neal fm hat so) pa minimum LRAC peice ne Spply curve is the rising oa Provided that tee is 9 cose subsite ofthe prdoets and services, The markt is ere efi © nity. Tis er Bang 2 tm LRA. In Figure 38 he bol in represents the ong an sage al prices Less ha enooly 35 hs market st nn refemedt 3 pre monopo ‘SPely curve ofthe frm, There emerge close substiues by manufoctaes who hold important market, ti maser whch's exteclyemcd as monepos competion Te on the ee ety of ew erations as ew sels ae probed artl Following ee primary bars esting teeny of ew sells ceo rachis, eect A market stuctre in which ll fed is refered to as imperfect own a imprest tute goods which are not fem nce Va es of startup cost. and ¥) Decreasing average total costa? rested ofthe new Ce opel same Bo0ds op 3 charging erent pes ist has an advan yu de eps sy com ale ing ifered by Monopoly Company o individual sed ah bude’ Icha ben refered rece ial ations. Hence the pie of th ros i tl the consumers i same in the monopaly anda Te wumen al he ase sent monoplane hares uniform pce pending is done throupk ‘cousin the fong tem by I The The fndanel retirement of .‘ nora ne cama to msn Gan ly low-cost monopolis spe fre pada renin contin, Moneply 8 ce of Revenue forthe Government en by the government a a, ‘snopoly ions give buge ame "© mous of money which is received lute Mae consumers will be dealt rely by a monopoly compromise in gu never they are 00t complaining about the produ the matket, there are no price war which benefits the Tae free to charge high pices of goods and services. ‘ep the prices down and tus peiting them ‘harps igh pies acorang heavy pits wheter podacing the goo in an efficent Way O 9 3.5.6. Equilibrium of a Firm under Monopoly [oft is eamed by a monopoly fr at th ‘marginal evenue is equal to marginal “The monopoly frm finds equiixum level of output atthe point ‘where marginal even is equal to marpnal cost, A his level of ‘Output firm ears maximum profits. ‘ee 27: Eur of Fem “Thus, to understand about the equilibrium under monopoly itis er Menepely reared to observe the demand and suply curve or the cost curves of monopoly. curves of @ monopolist. AC and MC are the formed ata level where MR = MC. The ‘on this point, the producer enjoying the ition forthe monopolist, Under the given demand-cost structure no profit In equilibrium the monopolist charges price OP which "The total revenue of the Ron the average revenue cur rmonopoli "TR OQ OP = OORF Likewise tacos oe mon cost of posing out i Fre = 09 x 0C = 0QSC “The profs of the monopolist ue othe rene between TR and TC ar: Po ats TR TC = OQRP OSC = CSRP ruled by point onthe average cost eure. QS or OC is the average i be:for Equilibrium re the two conditions for egiium ina monopoly maket which ae the basis of price-ouny ‘The figure 38 shows that at E, MC cure cus MR curve tht ans equlisiam pic is OP and equilbian outputs 0Q at E Monopoly Price in Short-Run © Thus, tal monopoly pois are: ‘AP CA =the ates CAP, us ed loses in a short y lished by demand conditions, does not PY the equation SMC = tot * shown in Figure 3.9. THE mone on SC = at Praca Fate 2 a ‘covers the average variable costs MP, represented by the tangency of the demand curve D and the AVC 35.7.2. | Monopoly Price in ‘Whe at that level of output mi revenue the Tong run eq recovered by the monopoly frm then it shoul prodvction and must leave the market ewe 4h MonepayPoeDorie ae Hom means a sal increases, AR ‘produced bythe firm atthe equilibium price (0 average revenue ofthe firm exceeds is a oF fo) MCand AR I) Price Discrimination ie Tong-run ihe firm eas oly normal ptt i Oe (Gos repel low opi Gon can _Optinan Sale ronpolist) can charg diferent pices s termed as discriminating monopoly Na Farrar epee otic fosccietad attinseaate coca ions for Price Discrimination © price discrimination i followed: it imperfection leads to the price discrimination. In imperfect into Separate parts by the indivi eller 1) Market Imperfections: ‘competition, te market ean bedaaron ns son occurs ¥he inion for eling he rete ee come Prodi ‘The sation or the gre ten consumers need the Same sf col and COPPE. alway ayy Seg ber, - Truc epee 0 sar pcan ae ‘charge diferent prices rece pes from dfleent customer acer ermination in be prices ion abo oecrs when monopolist chang, ina buyers. The arifcialdilflerences may gat fc the diferent peo out 12080) same goods are sold with deren inthe _ 7) Differences in Demand: There canbe substan change te deme 9 CE ‘rice disrimination. The price in each market fer scoring tothe chang 35.92. Tools of Price Discrimination product lke a Sunday newspepe oun if they use the coupons be at the makes and charge of demand which Treas the price ofthe market tte hy ina demand ‘Reduction in the prices in the ma rae thet athe highly else demand, wing roles must be considered Whasthe same matin eens MR= Mec. Example of Be atket includes dis FD subsripon SOUR on medicine —s males for college students how Profit nd Factor Mat (si) 3.6.2. Features of Monopol Some of the features of monopol in onopolisic competition ‘competitor either by quality variation, without any price eu packaging variation or by updating promotional programmes, etc, 8) Control over Price: Pics are consoled by the firms to some extent. For example, professionals such as 3, Pros/Advantages of Monopolistic Competition sof monopali ‘One important etre of his make is lack of tout ad enter the market Aart exty propery igs. large sap cos, ‘Terefore in long hs ensures that roe ofthe nd themselves wi power of onoply ( ‘rnlot concurs because fnew fi entering in he market,ar pret and Face Mukti), 1a Explanation Ur fons & rice and ouput are fixed by each firm so 10 maximise the profits. There san of price dnd 0 del ‘marginal cos) curve cus the MR ut 0 and price QA (= OP). Resulting from this, the firm eams the area PABC, ame equilib of output and price. But the frm only covers the as shown by the demand eurve D's tangency and the short-un are that is SAC leaed at A Hears normal profit. ses a aan capita ps se i om nig cee ora ea we of busines in its epulation. impars another dawback tht is they have tendency to extenuae ‘asket power” in comparison of + 's demand curve for its products her wll ke more elasticity inthe curve rium ofan Individual Firm rium and determination conditions ofan indivi ram and detrnaton condos fn inv fem may be dscrbed as flo: be intersection of MR cuve by MC curve from below, ‘Short-Run Equilibrium ofthe Industry orn ofthe frm under monopolistic competion is based on some assumptions. The srence between Monopolistic Competition & Perfect Competition Perec Compe ae naar tm RAR, boas donna Tog bia [Seng Co [0 Production