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 ~ Fem’s Equilibrium and Supp i Compelion - Faster ast ~Lan, Labour and Capit Of Factor Pice Interaction of Product and Factor Market ~ Geaera 1V Performance of an Economy Macro Economics P T aggregates - Circular low of Macroeconomic Activity ~ National Income Determination ~ nang and Supply ~ Macroeconomic Equilibrium - Components of Aggregate Demand and essing and Deion of Equicommie: VsDieconomisofSale $5 entvte Equi TE3ESimitaneor Sule of Sopoly and Demod 283. Vivo Equliiom Es. Comamer Behaviour Tesoro ‘Reset Conner Bevin Leer Bimini Marginal Usiy Unit 3: Product and Factor Market Product Markt 100 Irate ‘o Nature of Prodict Makat Cie Row a Moxey in Prods 100 2oepete of geese Demat ‘Agqepte Demand Cane Aegeese. Demand Cone Shee Dowmeants Shit in Aggrezate Demand Cure im Growth Materte ee ' ™ Introduction to Economics Introduction Rates the Demand for Money ‘Demand Curve for Money 0s ‘Shan us Sophy Curve Sin 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 Koes ia growing pesanesea whe steers ave pot being its branch, From sie to time, various know of economics. These dfiitions have been clasifed meaning: Lis May Py iene nen Mana Ply ad 232 Fiscal Policy et Ener Retinsp meen Change in Uenpltet Rad Gh Rae a wellbeing” ne “This de 20 the followin jon was criticised by Robbins on 1 activities wh iy Economics studies all human beings and not jus the socal Beings4). Scarcity Definition: According to Lord Robbins, “Economics 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 mete determinant of values. It docs not 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 arive atthe conclusion jon of limited resources which tiggers aximising welfare at both indivial and socal eel, 1.13. ‘Themes of Economies ‘The study about the way society uses scarce resources o produce valuable commodities and distribute them ing te consumer sais thet wan shown as ebm. Ascordiag to Lord Robbins, “Economies aleratve uses”. Ths human behavior as 2 rl ther words, economic based yon the following two pine concep 1) That the resources are scarce; and . : ‘Tis has generated the following twin themes of economics economists even wl according to economics, every good or resource ix sald to Acar MeCeaal, "a Sic ae isin which he it enh ese metal : ‘The amount of resources available on the ‘or good frtine, Because of the arded as an econoanc probe, 1.1.5. Efficiency “The effective use of resources available in scie Timited resources Eiciet use of av ignificant way to make an economy efficient. LSA. ‘Types of Efficiency Tips et Eco Xieticney 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 cas pe of efficiency is achieved whea the valu 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 innovation given by Avstrian Economist. 3 production thereon. fim sido have achieved Social efficeg iS Beett sl Mail Si Cor SBS. Bh ponies wel = xe we reed be oie al fis. Sole snd al eet nh ie Benel + Extera Benet “esta Coat ey: This typeof efficiency dels with the effectiveness used to produce an output with firm cannot incre th ‘economy is opt of ns fenctonng on a simple production posi, rc 1y holds 2 ears then on geting the 3% car his met puts, and technolog fe points A, B,C, D, and F represent : EE econ ure 12: Productive nd AllostineEiency ‘combination ofboth goods can be produced atthe given puts Jent as by producing the goods at pont C. the society can have an be observed by more units of edveaton (OE;) and healt ere (OHS) tmore goods of health and education fon X axis and Y ax 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 thats most desired point D a ‘tain allocative efficiency at pont B as at this poi more units of health care ean be produced. ‘Some of the differences between productive eficency and economic efficiency are 2 follows Productive Eien Econom Eien fy Producve ecient atsied when the goods or Economie efficiency is ated when goods and seni =e) ana ‘xchange between fas and comune force the Firms to peodce ie mix of gon Bat Sts He]al Economics) AUC MBA Fins Senet say rained wen ary Proding] sable gods. Sol and xe ere he eon] er cope ad hs wih he way] in which the pa ac atlaing and what ought to te| [ane sind a society, and a5. species, 1.1.6. Nature of Economies ‘The primary objective ofthe study of nature of economics is to deve whether economics is ssience oF an art vor normative science or Both. the ats, the newest of sciences ~ indeed the queen of According the prominent festres of selence A dete wastes trellis in economics facts perinn ‘observations done by aan economis : ibe nad fa fae er eas rudy of mutual relationship between changes in price 4 Verteaton to veeaons by tee i forveienior ere are two ways of verification as every science lok ws based on ral assumption shouldbe considered valid, ‘the 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 hat economics is sien ut hiss contradic by some scholars who donot consider it to be science ast sno being exact and universal as compared to ferent laws of pice ard chemise cally thei disagreement is unjustified. According to Seligman, tne two vast tranches of sence are ‘philosophy respect of any Economists such as Pizou, subject refers to its subject mater, According to Samuelson, economics i ew lines and to delimit it rom ober sub ter of economics is divided ito the fllowing pats to study it convenienly: ‘roronis Actin = eon ole i sources or creates 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 Fit Semester Mange E008) ALC se goods as well 8 series ofthe eibm of sale and purchase. Price following parts pect to different eating othe ale a parca of prof amu ton exchange. Money i the te in on of goods © nd pert com es ofthe factor, concerting how prices tube people ey consume, pode and exchange gods snd in exmomi ete and people can arcuate private goer he government f cn poole ent stlone oe priate porn. . xed Ezonomy sytem re people ae ie 1 perfor some kid of economis onsieed a a nidrayteteen capa control the activities like consumption, ar included in the subject mater of economics. In shor, According to Anatol Mura tehaviou of an economy or of an econ olfering Sluis” bjct mater of economies is the description of nature and ic problems with te abject of 1.1.8. Branches of Economics ‘There are two main branches of economies Micro Economics and Macro Economics. alysis. The stay of a0 owicol ee i done ude the mic in eas of pce, demand th the economic bject-matier moving fom parcular to genera analysed in deta ‘heory. The theory is applicable only when “otber things being the same s. Hence, the anal x 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 23) Welfare Theory: “What to produce?’, ‘When to produce’, “How to produce? and “For whom 10 be ‘produced? are such questions that are answered by micro-economics which deals withthe optimum all ailable resources and maximisation of socal 7 scarce resources of economy to maximise the p ie welfare. ‘of resources are already scarce resourees are done by the mict Ia short, microeconomics isa guiding x of individual consumer or producer ina particular situation less in quantity. Proper mics which are used 10re Seer ime EO) r-economics for dete fommulaed ith te USE Of tier. mining the prices og mn; Demand-suppy analysis is used in mit 1 economic pans af being explained in mice, ing of a fre enterprise econo individual has freedom to take his own econo rumen Fix the x at and pe of 8 8 Wella the vionl wade and tariff TUS, causes of analyses economic to connie sth. i formed onthe asi en inthe enemy of perfect EORPEting Shc Rao the india Vari from eran sc which is very difiut jing to wrong conclusions. ‘one of the phrase used in micro economies which mean thatthe other factors rice of felaled. 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” a eee For Details Refer Units 1.1.0.1. Difference between Miero-Eeonomies and Macro-Feonomies Diterene 1) Objective fb) Deiing ay [Tie a name oF asamp io ch ar infeed by varios ‘tite ls) Subjer Mater ‘nomic problem sth problem eating tothe necessity of choosing what how, eve economic growth ‘concerned with the we of seare resources. Des ‘means tht demand (D) is more than (>) supply) ‘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 funiture or utensils or pipes and tps, or ralway coaches ny oher goods. The problem of cove arses dv tothe allrative ses of resources. This problem of choice {s'an economic problem. Ie any resoure is ured in a given allemative use then we have to sacrifice its we ia ‘lier allemative uses. An opportunity cost isthe cot ofan altemative tat must be forgone in oder to pursue 2 certain action. Opportunity cost oF puting the wie of resources for a given purpose is measured by the ‘benefits soerificed on account of not puting the same in the next best alteative use. The concept of ‘opportunity cost ays emphasis onthe problem of choice It measures the cost ofthe given quantiy ofa 00d ‘other goods that could be obtained in its place. In shot, scarcity of means and Since an economy cannot produce all the 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 are discussed 3 follows [arenas HL ore 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 markt. Investors want ro proce onlyaA Fiet Semester Mage zoos) AC fone through a simple market study or foto produce all the goods and services those goods and services which give the {echnique of production Role of Price Mechanism in a Socta central planning authority compiles necessary _Eovernment help in reducing the shortcomings ofthe free-market economy, Dye to the shortage of funds oor countries ae at able wo provide such benefits to their poor citizens, Solving Economic Problem Such as what f0 produce, ow to produc, for whom to produce are faced by each oe socialist or any other type of economy. Indvidtal eneprencus take the work done by him or he. is the responsibility of government 10 rial planning authority makes the appropriate plan “Dias ay be imperfection under the pice mechanism but suey it snot. © element of correctiveness which works. ve ‘chaos and anarchy. It contains the E sasfactorily even ina fee economy. nisis sre private and ws ae a Pak he help of appropiate ONeary good ss thee pm the goods, consumers EXPT me ery hgh which are prefered by the Me high, These goods are produced in a large ce econo helps in s08 he ised conan eden wih eel ‘production of different goods. et Tae es Le ee proce. The ‘sey after considering the fact o production it which prices of goods are iy more fcr ‘of a mixed economy, price-mechan ty For nhom to Proace: Une he ite «ot i ‘ Us People with high incomes get larger share “sting the basie problem tat for whom to produce atonal product than people with low incomes nied economy, the free operation of Neto af ein fvextent greatly affects the volume of production (Between saving and investment i brought about by rate of interest. 1) Economie Development: Widh the help of price mec ‘economic development under mixed economy must be Tie" cconomie development, More capial is necessary for acquiring Techniguc. In mixed economy. free enueprencrs and government perform the ob of mot fend introdeing ew tecniqu. required 1111.5. Society's Capability to consume goods including base nce lind huge bungalows and also need services like commodities are produced and these resources are the capability of a socoty to produce the required commodities is als limite. This gi ober of making relevant choices and economics sth study ofthe process by which scarce resources ae ‘cated to say society's wants. Each society, whether eapitalst, socialist ora mixed economy, must addres twee basi and independent problems of economic 1). What to produce and in what quate (Ihe what question) ‘or hospitals; fo, in what numbers? and less weapons, orice versa? produced and how to use society's sare resources? (the how question) Ey cmunpion by dein es pe fy geesing meee 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 another. According to Lipsey, “The production po J which shows the possible combination of ‘two goods that can be produced by an econor = ourees and technology” 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 tonne) Blue leansFrom the above tat ined by pot the erphar menione below i figure 13 In the igure the two axis shown ie. X-axis represents the production of shits and the Yai represents ‘of pulses fom the a ‘sid 38 the unichievable combination wih jie the PPC curve shows the unproductive ‘and elficieney tion “of new factor resources Process of production, > ‘There is outward movement of PPF curve d ee Sin Soe, Pee a ae oy inc ne techmlgy a how ogre 1 This at in ne oe se ates on in uet possibilities and in tu. consumers, ‘The outward mos the production the economy of thee i sen technology, the nature of PPC curve is very hypothetical 1nd measurement of PPC curve. « paula ie period is refered to a the economic ‘value of goods and services in a country. Besides jon gain nev cero owt nbs he sess ener moe psi ing the prices oftheir stock. As a rel Wey ae growth, In other words, Increase in prod Elements of Economie Growth growth ofa country depends which ate a follows sure the economic growth of a country. In poor and under developed cou nant anal nome pet he) ar te ohrae yey, Te ome of ie ing specific objectivesme ae $5 ocr ges Haat cet ng pe i ec ratos™ oe re ge ol nS a ot et See state tr wae uy mi cman uty a, shee Aten 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 reduces unemployment inthe country, country having an enkanced economic growth usually has a high income per leads to generate higher ues forthe government without any actual increase in tax ney on the public services in reducing the ratio between the debt and GDP. such they are encouraged to 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 stable. Moreover, fidence, economic nstable, bat stable economy ‘rovernn in the county. Therefore, ont goes hand a hand w well as various literatures ae a Jared Esnois (U1) Crisis Stabilisation: * heen adopted by RL This pig inthe county acer frmecting the growing needs Offenses ‘tthe economy along wth adequate contol on tein te 2) To Promote Priority Sector: Gener the sso hing under he pry sconce gic tou sll ale enepries en weaker sions ofthe eeunsy The saison pices ere th Morin in corn with ter ato prove lest credit st alfonbl costs tte poor se: 4) To Generate Employment Opportunies: Stahstion policies ensue cretion of employs “panies ia he country thou monetary polices. To fact he same, it an nee the te ion policies ean contribute in encouraging the savings fe t0 the public, The more the savings m the banks ot imately geceerate the economic growth‘ortower down the ple depending on the requitement of reserved ne ei tween 960s an 1990 te Bou ret eames fea Dc) cor usar the contol ved in making ane Tov ncaing the coy ease 3 lrg government def the rowth of econo Fg the growth of economy by controling Pageron Rati fixing that the capital cased bythe commercial bank, oars 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 borowers. ‘money contol. The important monetary iy divided it fellowing two too Caused because of bank rte changes. Ceilings the ones that commerial 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 ugent uses by different margin prescription for differen uses, Proper regional coverage is brought about by the RBI via licensing. Also the cause of > eae 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 Han be funher divided ino hortage 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 ap te Discount lise is: Broadly speaking, lial acommedaton to commer the ret avaiaily and ered 1) Open Market Opera RBI of an assets variety rein exch ak seeks to have an iflence on the cron suply under the open market operations,” O™ SOMO iy the sae and purchase by he reg land purchase by the counter these fis oy eaefrerament secures: T Sung ech eureny ste: which esl in inodsing es purchasing poet fm eon nd ao preasing monty ‘helpful in beating depression and unemployment efficiently,stn re et co the disretionary and, hence he rent-seeking ar unlikely to give upon seking rent fo osuton. se in unproductive pring ‘powtenin iw io after GST Implemet affected the Indisn economy sme and wea stdin may Be reduce, debt can be assumed a aM importa, net out wholly by public rowing, public arme tings when he 2dOpt fiscal policy apg taxes. The reduced burden of taxes has enhanced the production and growth of the retail nd ther indus, tose sections of community where they ae funds as soon as possible fom tose sections Seen mod un wees aaah aa tists uch ands for productive purposes throu borowings, public expenditure eam also be used 3s lowing to forms: preme conseque mvof purchasing power inthe form of an comprise of experts ome publish the data regarding demvonetisation a and credit cards so thatthe purpose of making 1.4.1. Introduction Suid opted moras oe hee ee eam aking ye, ‘Matket and goverment are two important fctors that wil affect people's ie inthe wold. Governments and or acy anoUl also be opened op n private Ranks so tha it can strat low-income ules of mac boundaries, operation and intateas thugh varius proses and Jliberauons, The ear of the seca eonact between goverment. he market and eens hae varied and evolved through histor. Pubic of the seil contract between governments, markets ad indivi ny ways ar intrested and intrdependet on each te. In today's lal economy, its businessmen and enepreeurs are the diving forces ofthe econo Tn planaed econo oF {ven in market economy govemtment olds contol of skapng the busine mln scl spending programme, especially aimed coed witha weiter exchange mato chorea te Ie col fn be pened ee te NE pope investments a align Stor fr ge ee Ss ot eae es toe ap fosesain the Eovernmen’scuren inate, HOS more transparent a. required forthe welfare of the economy and the nation. environment protection agency handles Central Bank, Food and Drug Admiisvaion, Labour Commission, mand many more. These agencies diely creates, implemen’ laws andpart seme m9) Abe ston, The elton Be ae versa. ThOSe ia (peveloping Country) 1.42. _ Role of Markets and Government in India (DeveloPIMB Following are the roles of market and goverament in developing Coun — ss activities. These are 1 lanced by the flow of payment ef fe mechanism for exchanges of goods ands "The goode are produced for ‘leo aig sponsor of higher education, ‘and mixed economies such as Indi, the state also direcy ning. agency called she. planing fe atlempt on the part ofthe 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 ong period. New products an technologies ae constantly being Income, prices of elated goods, sou in Pie ix. and thereby dsp eur in various markets. Markets ef 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 econom ney ofthe pr posable i ican be deposited in a hank, put into a pension fund, wed 0 Bu for example, The common element i th claim the negativegiot seunulaion a a inc Sen abd KES elf Investment county A into county nology. 8d expertise: 7, Encourage Investment from Abroad: Gove nf foreign sources ers ieee ‘on imported trade with people i other counties, So vices may be ether too greater eating har - ‘and negtive externalities. According to Neocls in such outcome that forthe entire society.producer Behavioy, Acoting ot Corn,“ nd ‘ an ‘any region in which buyers. the ame gous ends 1 eli ‘of operation of demand and supply. For sons area while for some commodities the market may cover he ‘ae county 3) Perfect Comp according othe adem imperfect mathe sls ex ered With the Market Information: The pares of te marks ae well-versed with the mht tn of demand of customers. ferent, Sellers are Preset: A numberof potest buyers and sellers are preset in the market. Traction in th make are conduced'by hese te slr and the buyer purchases them at ip ofthe good is transferred from the slle® thi ofthe ferred from the and purchase by following the pce. 24.3. Determinants/Factors of Market Structu; Spanier product the numberof erin at ) Number and Nature of Sellers: = ‘and Services: Commodity market and fat and services ‘On the Basis of Status of Sellers: The markets Secondary. and eral markets onthe basis of th and Defi consurer’s willingness to buy certain quaty of goods and sev Inning ability to pay for same at vious pice ime. AS nt the dese of sand tthe sane ieMpa ee MEA Emon gy isamount of MPH Wl Be bough Benham, “The demand for anything. ta s8e0 Ps nha poe” ofa gen commodity oF Service yy, is ready 10 pay for mnbintions at whih ge lua is demanding for a cen now nda ain! price of and co ne time period fora product produce «demand forthe proiet of ll the fms ofan ndusty i own 38 the demand for industry’ 3) Autonomous and Derived Dem: ton ved Demand: The demind for commodity that snot related 5) Short-Term and Long-Term Demand: Sh used for a very short time period ‘or for eur hem ai. Te we ray ee 00d and producer goods. 1° Inger dena ©) Joint Demand and Compost ‘Mutually demande spt the demand lists fora lone ‘ample, demand for durable ‘goods ensumers’ goods such 35 isc demand is a demand sed for producing othe ang, (°F Producing ade clothes, mot for such goods which are not use 004s. Due to this, indiect demand is the consumer. The 1s more purchasing ‘consumer has more tastes and preferences are also considered as an important ce petcrence for any commodity thea automatically his tute goods are generally known as related goods. ‘When a demand for a ‘roods then these goods aze called substitutes, such 3s ing each other then a fallin the pice of one “demand of other commodity suc as pen and ferences of consumers the product such as the compe oducts, provided to the ine demand ofthe 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 af the goods also increases naturally. 58) 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 summer season and Ue demand fr umbrellas and rainconts during the rainy s3s0n 19) Tax Rate: The demand i also affect by the tx rat. If Uhre shih tax ate then there wil be a es demand for uve poods Ths tak is used as 8 weapon by the government for restcting the consumption of pariular Commodity aa certain tine. The demand ofthat commodity wil be lower fie imposed xis high. 1e most considerable determinants of deman avalbiity. The ‘purchasing power of the consumer is highly affected by the creitavallbility. IF there is availabilty of ‘cheap credit, the consumers try to buy more products, 11) Pattern of Savings The saving pater also influences the demand, tn the case when consumer wants (0 ‘save more money then his demand will become less forthe product and vce rsa. : 12) Cireulation of Money: The circulation of money affects the demand greatly. As more mone) circlaes mong the people, it increases the purchasing power of de consumer and they wil buy more Productswaren 2.2.4. Dem: ‘unctior is expression represents hoy, an Funtn a : = rclerences De larket Demand Function: The demsnd inte form of algebraic expr ferminants together ious de 2 sions basically dependent upon the rmbiation ofthe individual de irest more in obtaining market demand ies are taken all at once, The Dx = Quantity demanded for commodity £ = Functional elation = Pc of commodity x = Prices mA = Unknown variables 12.3. LAW.OF DEMAND 234, Meaning and Definition of Law of Demand {a ena xls i between the change in quantity demanded ofthe commodi that ines tha if pice willbe high then qu fen rice gts down the quantity demanded ofthe Price and quantity demanded have inverse ‘lainship alter things remains conta ‘ego Maral, “The ot dena es it a wus, it expresses an inverse relation beiween al denen alg ‘ty nS chage bg st ec e d we ar allows te estomer should emia 2 Tetates and rences ote ber shad mts 3h tha pices ltd goods soateas 4 Yo new substitute for the commodity is present in te ») The price rise in future should not be expected. == ons 2.3.3. Demand Schedule Demand schedale is defined as table ora chart which eimadity. When one draes a table Berwe quantity demande ith various prices of the comm Schedule. In other wor ind schedul 2) Market Demand Schedule: At re determines the mat sure. In ober words, 2.3.4. Demand Curve ‘When the demand schedule is represented with the use of graph then itis known as demand fe, Demand curve is of Wo Epes: phical presentation that shows differat as prices of 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sos ty Jn figure 2.1, quantity demande are shown 00 X ai 28 siferent prices are shown on Y axis. Te igure reset ery i yan ae ws 2 is Nt Be ice of he commaiy was reduced © €16 T= was ieee 13 ia en th pce cma her reduced o€10 pri en ua em ‘mindvidal winged to Sta sda Demat Carve uty Demands Fre 23: Maret Demand Care inverse relation between price and demand 235. 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 mani Be abEregate ds ‘New Consumer Creat buying it who could not hence, the demand of that, cana de "is then vais consumer sat The manker ef consumers increases Dimins his modish = wy of comm ‘consumer buys more unit of that commode ng Marginal Utility is de bass diy 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 fr varios purposes and their demand wil rise. ch person has a tendency to satisfy unsatisfied wants which his demand when the price of any good such a porsezranate “The demand curve slopes dovenwards tthe right due 10 this Law of Demand ut there ae certain cases where this law does nt hold tue. 1 dhe workers. Based on the given example, ‘of Giffen ods 13). Necessities of Life: Generally, the necessities of ie such a5 fod, cet, ee arent rte by the law of demand ‘Fhe consumer not demanding more quay of soch products, ifthe prices of such produets wil is. These iRems were purchased by reducing the demand for confortable goods even the rice is very hgh. This isthe Feason tht the demand curve slopes upward to the right. ct ofthe consumption patter of sola group affect vod be sity of life. For nage of instil and agricultural gods. This creates Common man willing to pay higher prices and demandma te «pete knowledEe about Bosca ae age hi 1 Puchi oer fo i sie avant a kaow essary en et owes even tho Ie sgafene E meh thy tra oe mia ead pan saree es going out use de Jeyone, et ie sonal fonds notin use rn eo ay go dwn in winters even ya 04 Change in Demand Se tothe ith te end a Pc ha tasmone, roe ce at roe eye feed as resco a ders i dean Se retain cosa ide ents move Sea her tocin pe be comment. the changes in oer factors such as income, tastes, pices of and movement upwards or dowavards onthe sane Jem! refered as “change in quantity demanded Movement Along the Demand Curve ‘Armovement alongwith he demand cone se chang ne pce food er see When he quant densa fs ayes sek {ain ps hen stale exten of demand When pes eins pe tn eed 2371. 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 rubsites 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 are 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 2 shows that when peice ofa commodity is 10 pr unitthen the demand is Zuni Non, pice emins same, Le, £10, sil demand increases to 4 units and fre to 6 wis ‘Table 2.6 shows that when price of a commodity is €2 per unit, fo, az the price increases fo €4 per unit, its quantity demanded hen price further increases to €6 per uni, quantity demanded In igure 25, increase in demand has been shown. DD is the original demand curv. Whea the price of a commodity i and demanded OX, vit iy from OX; to OX, without be seen fro vo perspectives, Firstly, increase in demand for commedi eof con a same even when the ree changing the price of commodity and secondly, demand being remaining increase from OP, 10 OP;unas Se one sie, te consume! recreave in demas commodity is %6, 1 ese vere 83 crease in Demand: The decrease in dewand m= 2) Decrease in Demand: The d ra 2.n snows that when pie of [Less Demand: Table se contin when Price TEMains sng it, quantity demanded is 4 ug re pce is 26 per wi GUSTY 4 nits. Even at price £2, qu 1 price falls wo 24 pe unit, quantity demanded remains sme ita 4 2 quaniy Th tinsel 26: BD athe vigil demand curve, When te price of « ommodiy, demand curve sits to D'D' (ownwards) due 19 jy ete the sation of decrease in demand. price of commodity and’ secondly, ‘demand being Increases fom OP, to OP, ‘be changed in resp pee te conte becase consumers at © porate cnsmes because come? fect the demand In ‘as clasticity of demand, The rate at which the {He elasticy of demand. imanded divided by the percentage chat ice elasticity of demand is generally refer! "SPEC tothe change in price is denoted" urden of indirect taxon the consumer and to what pret price, is decided on the bass ofthe elasticity smment can impose highet smand ofa prodet is inelastic then the demand ofa produc by the government due to dec ‘Gemand 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 Eat of Demand ke Bay of Demand aerial rice Elasticity of Demand 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; "Blstcity of demand may be defined a the rato ofthe percentage hinge in change in price” pe cof demand at any price isthe proportional change of amount ‘pce, divided by the proportional change of price.” Thus. price ‘purchased in response to smal change rastity of demand i the ratio of percentage change in amount demanded toa percentage change in price. I may be Wetten as __S-Change in quantity demanded Ts Change in pricessnes Magen Eson0mics) Aug eae Creer tr a nl Poise than the proponionte can in pce fom OP 0 OP. Thi, hee te demand cane DD is ase For 0% = iy * a gan dtd as noe nol Qua 0 20, P20 Orinsymbotic tems, by = Oa fon £8 x Where, E, =Pricectasciy, = Perce, ‘8 Q=Change in quaiy demanded, : 3 AP = Change in price. ‘TypesiDegrees 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 from O ioe hs 2 ‘Nature of the Need that a Commodity Satistic 10 09, is exactly eq any price from OP to OP, Figure 29; Unitary Baste Demand oy » Mere are various commodities to which consumption «even for any period of ime. 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 19 mann thee in case of price rise.AP =P,—Py=10- 302-20 aa 8Q=Q;-Q,=0- 60 =-60 20,7 10,30 ne Eom AQF 9 8 a aq" 200 thus the demand for such produc 8) Tied Dema tied oor gos 'Qy=40, :=0 Conny demand from the following table: htc the ease when a country has vee aumber of middle class person eaual Tonget in which the demand is considered then the demand for a produ ramet 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 a good ntage change inthe income ofthe consumer In symbole for: Soitingo Tax Burden: poder at al rod te aden 3 nore By = Income Elasticity, Q= Quantity Demanded Y=lncome {8Q-= Change in Quantity Demanded ‘AY = Change in Income "ax tothe buyers by increasing the price of the pr incontastto his, would be pret ths, he Bude of taxon producer would be gre clastcity of demand HighcIncome eel demand is said to be high when the quantity demanded for 8 demand i said 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 is 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 tobe 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 sud to be negative when the quantity Pi=30,P=10, Oe Prsl0,” Qe 60, = 0 demanded for a good falls in response to an increase in incomeNaar 6 mys oe TINO ISD nis now ese iets g,=22x¥ Solution: Etasicty of come, = 32% ‘The coefficient 25 shows thatthe demands ineasts ses $6. Calelate the In Example 4: Suppose X's income rises 10% and his consumption of sugar increases 5 the Income Blasi, 245.2. _ Difference between Price Elasticity and Income Elasticity Basi of Priest Tocame Blast Diteresce fpDefiidon ‘of demand veer wo the chang ed of omamenity in relat pNatare 26, Cross Elasticity of Demand on sts of demand for 4 god i defined a ‘Sor on ifn nS Ste changin demand hat ond dv to change i rie escerage cha eg» PEE chang in quity demanded of got e » esetape change f quantity demanded of good X _ AQ, |, Peerage change in pce of good Yo = ge Where, Ee= Cross elasticity Hoe Qe =Orginal Quantity Demanded of x foods if demand of X move in the oppo Increase in the price of printers will decrease the amount of ik c Noeach at ith coe tion of Supply {quantities of good or service during in a specific period of time thar in general terms, the supply of a product is defined at a supplied by the individuals to the firms. The factor of production is convene into the production process, the supply of factor ‘sed on the firms" capably to conver rovcts in Which the ability ofthe buyer to buy the demanded product lable quanity is known as short-lerm supply. The quantity of ods supplied i he "with the change 0 adjust to an impulsive change in demand. product that can meet one of mote demands i known as Jolt supply. as well ae of meat If the farming of lamb isunre OE Homey fas © S90 sods camer Ihe nonge bin aces tit in rst Eos mpl ct Inthe pice of hotdog then he can increas he pracon of iy exhlopcalimpovement of inovations are intakes eae te sappy ofthe producto services, Firms set various goal ta achieve. The objective of the firm influences the services which are supplied. For example, ifthe objective of the firm is ts comparison to firm whose supply is ‘The supply of goods oe foods, doughs, sks, lockout the summer be entey. The supply of agri is roduced usa 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 8 {ie constant Ineease nthe price of a com hee the rice the greater the qu Meine Be sopy According to Dost my soph Inthe aie woth, er id inn sd when ply cane expressed flows Soh 62. Assumptions of the Law of Supply rE foe! sf demand, the law of supply also assumes, other things remains constant. In order to mee ate uly spe, te foes whch ae ten io seman unchanged. of produce donot changes change in the Government policy in elation to payment of taxes and subsidies Supply Schedule Alara suppl schedule frst shi whih shows vais quanti of rae ‘are willing to sell to the consumer at various san of al beFs SE meme as epctedn the figure 2.12, es ricer eho Ua ‘tet 5) Disposal of Old Stock nove commodity. Tete “The goods which ae rly. The consimee who purchas Sup} lle a ie sup Supply curve refers 10 y ing to sll at diferent prices in ure and market supply curve: Te ve os shown in the Figure 213,45 ri awe SS. Avarcaye ween the suanty suri and the price of gy he price inreases, the quant supplied by every fm aso neTESSES RENEE IRE SUPPLY CUNE:, A srging 49 Prof. Bi supply is defined as the percentage change in quantity divided by loping from lel tight percentage change in pc ply may be described as the ratio of proportional change in . ‘uantty supplied tothe proportional change in price. Why does the Supply Curve Slopes upwards to the Right? Se a ddcae Ueeniy_ Remmmpeensln iy al the peduce to make futher profits forthe fim When the otber things remain, 2 en cele ol es ure ich ae 3 ollows: of supply. Howe rhs aman of iy of supply is defined as a measure of the degree of responsiveness of 80, Change in supply ‘SP = 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 he pice ofthe commoding Fe ee in determining the amount of tax tbe charged, te. produce having of Supply can be allocated high taxation charges because suply of such "Ye Purchased during a given period ofto any change in rice en lowe be used a an example, Perey Blasi Ge pesc~ z¢ fo more than the eeaaes ‘supply curve is Figure 217. BHtSuppy Supply Retaton eb: Petey Ee Sap, ‘Change pee bas wo aes on pe is no change in the quan products Which fats! le 3) Figure 215 shows Supply curve S$ which il proportionate change in quantity supplied SS, 5 proponionate change in price PP, is equsl © Petey Se x fed) Inelastic “equal” and "balance" respectively, the may also be called a condition where ss clea ium is achieved when there isa perfect balance se Una Sup § fand they do no tend to move away or diverge in economics absence of change in movement, while in ‘According to Machlup “Equilibrium isa cons aaa erent tendency to change prevails i the model which tary Supply Jtuaton in which all major factors remain more or ess constant over a period of 2.8.2. Market Equilibrium: Competitive Eq forces comes toa balance. I supply of goods ‘result price of goods and services Proportonate change change in quantity supplied SS, hows supply curve SS which iasuates that the rice PP, fu 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 meet im maket 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 farge number of. fof goods on that price1 Sense (MUM sone ay yaa sy cue ros Sede lt like demand curv, supply cuve i writen as: See@ @ In the above equations, g and f are the noatio ust be stained, Des 5 For Function. a "moter to atin equilibrium, following cont Here, Ds tol demand and $ conse and Procer Bevo (i?) “ ch 9. OQ, where supply increase upto point OP,, Fua improve and amount purchased and sold 28.2.2, Simultancous Shifts of Supply and Demand Practically in matt, there are various forces which simultaneously affect the demand and supply. In this case, both the demand curve and supply curve can change their postion simultaneously. Here, Ube new pint of equiitium ‘may be eer less than, more than, or equal to the tial point ofequlibum, This gealy depends on the intensity of Shift ofthe curves. n ease, demand curve and supply curve Shift n equal ao then the point of equilibria shits to bt Price wil ize. As shown in figure 2.2 the shift of supply is if in demand curve. Therefor, ther is 3 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 quanti Ifchange in demand snd change in there are more shifts in land supply eurve, we not ‘change in pice and change In quantity demand. 2.8.3. Uses of Equilibrium ‘ant uss in economic analysis, These ae as follows: Ta economic generalisations, visalsing an ideal and desirable stationin tick: earisation, oF the entire economy a peusebol, an 8 Y ie variables are chang ie 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 purch feenerating fom 2.9.6. Consumer Equilibrium Ifthe consun to make any changes in his purchases of goods then hei a tobe in equilibumn positon. At i=in equllriom postion purehaves tha basket of foods that provides him maximom satisfaction. Thus, a consumer is tid to be in equibsum postion by purchasing tht combination of goods tht ist his budgetary constrains and on te highest indifference cur. According to Scitovosky,"A consume sin equim when he regards his atal behaviour asthe best posible wonder J no urge to change his behaviour as long a crcumtances remain unchanged 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 ayo "Urge nono ca ‘2 2) Cardinal n 1.23.4 ete. are the measures of utility.ger Manazena Econom apa rine Sere 4, = ‘Consumer and Producer Behaviour (Unit 2) 3) Consumers completly knowledge 4 Marit of mooey emai Oe ud 5). The price ofthe commodity andthe income of nochange inthe tastes ofthe consume. nent Consume Erion fe es 0 ‘equilibrium, following "*° nite | jes the total utility increases yee. and the marginal utility ‘combinations of goods X and Y that can be pur ae ° x Gok Conuomert given pases and wits piven mocy income. Snot purchase ary “eomblnaions on Icy ese we2¢ Comune Exim TU rs ‘Marginal uty 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 He X for ¥ to lie MRS, a ‘The law of diminishing marginal MRS, >P,/P, The consumer will subs P,. He will substiute Y for X to equalise MRSy aod PP, Equiliri the income ofthe consumer or price ofa commodity change Secordingly. tion ofthe consumer changes 2.9.7. Approaches to Consumer Behaviour {rom the consumption ofeach sditionsl ur There are two theories or approaches of consumer behaviour, The curve represents the units derived from the ‘Approaches Conse Baavoar aire aa] pint The marginal utility goes below 2.9.8. Law of Diminishing Marginal Utility (LDMU) pont The go at-1 after the consumption of 8 oran Zot, estilo easy a only in economic theory but government and decision-making of monopoiss , cy 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 a8 ‘consumer's surplus. of a panicular good at a potty it resulting in the decrease iwarns Sense AEH Exon, Indifference Curve Analysis, roach y modem dea being ms Tonia is td on etl estes raat to keow about the combination of goody wedng th same lily, THeSe 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 sfUwite, “The diferent combinations of X and Y is shown by a single inference cx 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 aissas# 2992.” Indiference Curve and Indiferece Schedule Ssometrical representation of an indlfeence ane . Ponts A,B. C,D.E, and G are chosen by the producer onthe curves SAC, SRAG, SRAC.. SRACs, SRACy and mat SRAC, eapecurehe Thee pom are elected fra particular tpt, ike for ouput Qx the Kast cost tn ay eit gh WSR for output Qy the least cost causing curve is SRACand so 0, AS per the observation Wyo py i given on Y axis. TH# —_SRACearetoushed by LRAC curves om below Any prion of SRAC's cannot be Alow 10 RAG Sve 2e10 total cost is zero. BYE "yf utput arises for which LRAC curve doesnot tke into consideration hemp Sch then re ae mains constant for some tit able, whe es moe 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 cure is LRAC curve ubih is Mate as compared to SRAC curves, 'SRAC curves are touched by LRAC curve fom below, This curve. Thus, between SRAC curv 2.1573. Long-Run Marginal Cost Curve mn al cst dene dregh shorn mage! cout curves shown in Derivation of ton figure 252. For example, corresponding to SRAC», thet get SRMC: SI run marginal cost curve which is SRMC. Silay, we con SRAC) Where, Q = Output oa proc nd ne yes guts of be vaio factoring of factor inputs andthe cost of ouput is represented by the fncuted in manufacturing the outpt iis necessary to find out the ‘Afler adding the information aboot factor pices in tbe production pete are the prices of the different 3, ete. required. The factor prices pi. Pas 3s wil depend pon the interaction of te ctr forces of demand and supplynie a ot a rot sant e8 Consaner nd Pra ‘Example 10: Calculste TVC, MC, ARC, AVC and AC from the following data: Output oto [2 [a | o 200 | 1.400 | 1400 | 1.500 | 2000 sr{so0 | s00 | soo [s00_[ 400 | a0 Inputs and total cost. There than the double in ese there fist increases ad then dere ota Variable Cos] VO=TCIO) 2.16.1. Short Answer Type Questions 1) Watiemarte| Te ran do ‘ike 250 ead Cu Face bro Podave face Eh aaenay en ioe Re "Example 9 Find FC, VC, AC. MC, AFC and AVC from the elloing data nie oti tatsals ‘otal Co [306] 356 [320 | 390 [a0 Son Solution: sia] Foal] Fed] Vartie| Narga © | Cost | cast | costeve| coc aney |e FCOPVE WSOC TrID) to | 0 | fre : © | |S 10) "enone see Feo upuncn bese ween i stab wr Duce ae 12) Explain the shoreun and oar . 13) Desert the relations between production and cous inthe shor:-cun and long 230 [200 —| — 30 is) i i3|pa Bstsemeo = Introduction market is a market where the final goods and se et i mae where he inl EO dS at ref macroeconomics The macroeconomic fem andthe remaining are the re includes tree main markets among which product makes oO cc ‘market and financial market. Product markets also known as eutpt or goods markets. “hardened i edema sie of he product make 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 is provided by the product market at aft veto produce or ean be disincentive to-ferce 8 ty ofthe items to be sopplied. es Circular Flow of Money in P ee So unconllal population ae co lar flow model. = a the produces ae included in bsness sector 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 . Lote hoa thet fhe ow in paesezeaNES LO re provided by the household to the busi te a8 indicated from the reverse dit cha en, wa lel in resource : 1m the product market is attained by at the reverie 3.2.1. Introduction ion of market fom the point of view of economies depends upon the industry structure serving structure depends upon the market variables ‘Types of Market Str of competition isan importa competition on which the ype of market << walt Hj 1) Perfect Market Structures: The mos import characteristic of perfect market stucture isthe sale of : Tnvge number of buyers. A perfect market uses productive techaigue rather than proving prducts. This ype of markets considered to be unrealistic bt, is of jotta and thes perfect Market "Goapaterarises RS ggorteding market forms: ‘Otgepoly fom [Fee ia 3.3.1. Meaning and Defi of Perfect Market/ Perfect Competitive Market market which consists of a large mur rs 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 stroctre in which all firms in am indsty sre Pricestakers and in which there is freedom af ety ino, and eit from, indus". [ 3.3.2, Features of Perfect Market wing are the features of perfect competion: 1)Large Number of Buyers and Sellers: Th fist conton of the pertet competion isthe existence of lage umber of buyers and sles or thers he market 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 Sal, wheat, cotton, cal: Profit nd Fast ut cial Restrictions: The eis freedom tothe sellers to sel their goods to any buyer Purchase from any sll mee cin an Lindo ducioaton et, Boh parties ae nt involving in any Kind of dscimination. Ink Costs: Due to the production of homogeneous products by the finns, the cost of Promotion et, is negligible under perfec competition, Pros/Advantay ine aealAvantages of Pree Maret mpetitive market is dominated by consumer. The consumers are a erect knowlege about the cnion 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 ae ‘he consume thatthe price is equal to the minimum average expenditure on rce-takers and iency: The perfect competitive firm stains optimum level of functioning inthe long run. the firms achieve ency in production. The 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 o this easo perfect competition does not exist inthe real world 2) Momogenous Products: Consumers have les of choice from boring identical products whereas diferent Products ae of great importance in the industy such as clothing and cars due to lack of supersormal profits whichis important Free flow of Technology: Due to una ity of patents, there is mo profit in developing new technology because other companies wil ue iechnologes. '5) Externalities: Market would be a fallre without the interference of the government due to expense in Production or consumpsion 33.5. Price Determi and Firm Equilibrium satisfied with its existing level of output. The frm wil, in this situation firm is said 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 es ayer owes > Mark SoM ey th al ty aly nl i ie “Thus in a perfectly competitive market a seller is a ‘price-taker? nota ‘prcesmaker'.soarnsnon~ ae quia gee ei POE to conditions 50 TOO owe ‘ur 32: rem on ede Pec Comet means MR 32 eiciency of ie. 3) All actors of production in perfet matket are homogeneous in nature. Ths, such factors are acquired at curves ofthe firms same technology for production and thr plants are more alike. jn, al firms are well ware ofthe peices andthe outputs prevailing inthe marke 2s the frm gets abnormal profit EB by the toa output. In short run period, the fixed cost lad ie Normal Profits or Break-Even: When the fim jst mets Mra nS ADEE. fee ARe ATC Svengali eas noma pit The fgure 33 shows ht MR = MCs Eade elim npr ein to snenge ta cost or OP = EQ thf ely as seme he average eee esac tm ol ear 39: Pre Dern td arene Peg er Ran supply curve and the long run supply curve 3.3.6.1. Firm Supply Curve in Short Run 7 fie pl with SMC onthe rising part ofthe SMC curve thi leas tothe ouput level a Note aso that the AVC a ql doesnot exceed the market Thus all thse condions biebied in section 3p, pl, the lence, when the market pi fim cue Case Price fs ess than the minimum AVC. Suppose ean ss te the miu ‘Aver e veep se codon 3 in ection 3) hat i Sates fm potics a poe cpu it or on ‘must be greater than or ecutive, But notice fom Ave scly exceeds p2. In other {is pte firm produces 270 outpat level when the mat price ‘maximising output level whea the market sue a sare th case tht the fern supplies a positive utp. So, ifthe maket pice taput Combining cases Land 2, we reach i important conlasion. A fis short