CONTENT

• Consumption, wants and needs and their characteristics.

• Concepts of economics: Opportunity cost; Laws of supply and demand;
Laws of
increasing, diminishing and constant returns; Standard of living.

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CONSUMPTION

• Consumption means using up of utilities. According to Prof. Ely – “Consumption in its

For example – when we take a glass of water to broadest sense means the use of economic
quench our thirst, we are said to consume water. goods and personnel services in the satisfaction
of human wants.”
• Whenever we make use of any commodity or
service for the satisfaction of our wants, the act Prof. A. L. Mayers has said – “Consumption is
is called consumption. the direct and final use of goods or services in
satisfying the wants of human beings.”
• Therefore, by consumption we mean the
satisfaction
of our wants by the use of commodities and
services.
• Economists have defined consumption as ―the
destruction of utility‖. When a man eats an apple,
he does not destroy the matter of which it is
composed; he has only changed its form. Man
has destroyed its utility in the act of eating it.
Production is ―Creation of Utility‖ Marshall has
called it Negative Production and has defined as
such—‖Consumption may be regarded as
negative production.‖
CHARACTERISTICS OF CONSUMPTION

The important characteristics of consumption are as follows:

1.Destruction of Utility: Science has proved this fact that man is neither the creator of any
article nor he is destroyer of any article. By the use of the article the utility of the article is
destroyed. The form of the article is changed.
2. Satisfaction of Human Wants: By consumption we must have satisfaction of human wants.
If satisfaction is not achieved it cannot be called consumption.
3.Direct Satisfaction of Wants: By consumption of any article people must get satisfaction from
the article directly. For example: If one is thirsty—taking a glass of water to satisfy thirst is direct
consumption.
4.The Reduction of Utility can be Rapid or it can be Slow: The utility of an article diminishes
slowly and gradually. For example: Using of scooter; or use of television.
5.Consumption of Services: There is consumption not of goods only but also of services.
Coaching to students by teacher; to treat patients by doctors.

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NEEDS & WANTS

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NEEDS
• By the term needs, we mean those requirements which are extremely necessary for a human being to live a
healthy life. They are important for an organism to survive and may be
• personal,
• psychological,
• cultural,
• social, etc.
• In ancient times the three basic needs of the man were
• food,
• clothing and shelter
• For improvement of quality of life now additional important needs are
• education and
• healthcare
•They are a person‘s first priority as they are the things, that they keep
us healthy and safe.
• Therefore, if needs are not satisfied in time, it may result in
• illness,
• inability in functioning properly or
• even death.
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WANTS

• In economics, wants are defined as something that a person would like to possess,
• either immediately or
• at a later time.
• Simply put, wants are the desires that cause business activities to produce such products
and services that are demanded by the economy.
• They are optional, i.e. an individual is going to survive, even if not satisfied. Further, wants
may vary from
• person to person and
• time to time.
• We all know that human wants are unlimited while the means to satisfy those wants
are limited.
Hence, all the wants of an individual cannot be met and they must seek for
alternatives.

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UNDERSTANDING RELATION BETWEEN NEEDS & WANTS

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

 production,
 distribution and
 consumption functions.
• It is all about making choices regarding the allocation of scarce resources, so as to make
their best possible use and satisfy human wants and needs.
• From economics point of view
– While needs point out the something you must have for survival,
– wants refers to something which is good to have, but not essential for survival
• For the purpose of spending and saving money wisely, every person must know the
difference between needs and wants.

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UNDERSTANDING RELATION BETWEEN NEEDS & WANTS

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KEY DIFFERENCE BETWEEN NEEDS & WANTS

• The term ‗needs‘ is defined as an individual‘s basic requirement that must be fulfilled, in order to survive.
• Wants are described as the goods and services, which an individual like to have, as a part of his
caprices.
• An individual needs are limited while his wants are unlimited.
• Needs are something that you must have, in order to live.
• On the contrary, wants are something that you wish to have, so as to add comforts in your life.
• Needs represents the necessities while wants indicate desires. Needs are important for the human being
to survive.
• As against this, wants are not as important as needs, because a person can live without wants.
• Needs are those items, that are required for life and does not change with time.
• As opposed to, wants are those items, that are desired by an individual either right now or in
future. Therefore, wants might change over time.
• As needs are essential for life, non-fulfillment may lead to illness or even death.
• In contrast wants are not essential for living and so non-fulfillment, does not have a great
impact on a
person‘s life,
CONCEPTS OF ECONOMICS

1) OPPORTUNITY COST
2) LAWS OF SUPPLY AND DEMAND
3) LAWS OF INCREASING, DIMINISHING & CONSTANT
RETURNS
4) STANDARD OF LIVING

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OPPORTUNITY COST

Opportunity costs represent the benefits an

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

The law of supply and demand is a

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

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LAWS OF SUPPLY & DEMAND

• The law of demand says that at higher

prices, buyers will demand less of an
economic good.
• The law of supply says that at higher
prices, sellers will supply more of an
economic good.
• These two laws interact to determine
the actual market prices and volume
of goods that are traded on a market.
• Several independent factors can affect
the shape of market supply and
demand, influencing both the prices
and quantities that we observe in
markets.

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LAWS OF SUPPLY & DEMAND

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LAWS OF DIMINISHING RETURNS

 The law of diminishing returns, also

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

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LAWS OF INCREASING RETURNS

 The law of increasing returns is also

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

Statement of the Law:

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

• A standard of living is the level of

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

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STANDARD OF LIVING

 The standard of living is often used to compare

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

A Standard of living generally refers Quality of life is more

to wealth, comfort, material goods subjective and intangible, such as
and necessities of certain classes in personal liberty or environmental
certain areas—or more objective quality.
characteristics.

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

may not necessarily be the same for someone else.

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Analysis Of The Housing Market In Indian Cities To Understand The Dynamics Of Urban
Housing Supply And Demand.

The housing market relies very heavily on supply and demand, which is why it is very prominent in the industry.
Each housing transaction involves a buyer and a seller. The buyer places an offer on a property, leaving the
seller to accept or reject the offer. The law of supply and demand dictates the equilibrium price of a property.

FACTORS AFFECTING HOUSING SUPPLY AND DEMAND:

• Supply and demand is never an easy thing to measure in the real estate market. That's partly due because it takes a
long time to construct new homes and fix up old ones to put back onto the market.
• Similarly, real estate is not like other industries in that it takes a lot of time to buy and sell homes and other
properties.
• Some of the factors that influence housing demand include lower interest rates or borrowing costs. When interest
rates are low, people are generally willing to take on more debt.
• They may be able to finance the purchase of a home because the amount of interest they have to pay isn't
burdensome. If more buyers flood the market, demand for housing increases, And if there's a limited supply of
housing inventory, that makes people in a low interest rate environment want to purchase even more.

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FACTORS AFFECTING HOUSING SUPPLY AND DEMAND:

• Meanwhile, the supply of housing is in a constant state of change. Inventory may increase when people are
moving—some may downsize, others may be try to make more room for an expanding family, while others
may purchase their first home. Similarly, there may be an increase in development and new home
construction, adding to the existing inventory.
• On the other hand, housing inventory decreases during times of natural disaster—such as floods and
earthquakes—and when existing properties are demolished. Land is also a finite resource, so the amount of
new developments is generally limited.

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REASONS FOR HOUSING SHORTAGE IN INDIA:

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EXAMPLE CITY : MUMBAI

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Recent Trends In The Residential Real Estate Market In 2019
• Houses are cheaper
Many cities saw prices fall. In others, the rise in prices was lower than the consumer price inflation.
Except in Hyderabad, prices are down in real terms across India.

• Lower GST rate

Reducing the GST rate to 1% for affordable housing and 5% for others helped improve buyer
perception. But builders hiked prices to compensate for loss of input tax credit.

• Impact of rate cuts

Rate cuts by the RBI have helped but not to the extent they should have. The repo rate was cut by 75
bps(basic points) but only about 35 bps(basic points) cut was transmitted to borrowers

• Speculators are out

Given the high cost of capital and slow rise in prices, speculators are staying away from real estate.
Buyers prefer ready-to-move-in properties than those being constructed.

• Builders play safe

After the rollout of the RERA (Real Estate Regulatory Authority), builders are playing safe. Not many
new projects
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V being launched. Instead, builders are focusing on completing their ongoing projects.