The concept of total product, marginal product and average product is very important in economics. Let us discuss them one by one:
TOTAL PRODUCT (TP): It is the sum total of output produced by all the units of variable factor along with the fixed factors of production.
TP=50+70+80+80+60=340 UNITS OF A COMMODITY (Refer below table)
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Today we will discuss about concept of production function and its types. It is the functional relationship between physical input and physical output of a commodity.
According to it 30 units are
produced using 2 units of labour and 10 units of capital. By implying more
units of labour say 4 units and 20 units of capital the output could be
increased to 60 units.
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These are the factors which decide the demand elasticity of the consumer. The elasticity of demand may be more elastic or less elastic. The six factors which determine the elasticity of demand are given below:
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- Nature of commodity: There are three types of commodities. The necessities are the things which are essential for the consumer like salt, sugar etc. The demand of these kinds of products does not change much with the change in the price. So the demand of these kinds of products is inelastic. But in case of luxuries products the demand varies with the change in the price. if the price is high some people will stop buying it while if the price falls some people will start buying it. So the demand of these kinds of products is more than elastic. In case of comforts which are required for the comfort of the consumer like air conditioners, heater etc. their demand is elastic.
There are sometimes exceptions to the law of demand:
1. Articles of distinction: it is also called Veblen effect. According to Prof. Veblen, there are some goods which are articles of distinction. These articles are demanded buy the consumer due to high price. If their price falls people will not buy it.
2. Giffen goods: this concept was given by Sir Robert Giffin and it is also called Giffin Paradox. These are inferior goods. According to it if the income of the consumer increases then the demand of such commodities will fall on the other hand if the income of the consumer falls then demand of these products will increase.
3. Ignorance: sometime people buy costly goods due to the
ignorance. They don’t have the knowledge regarding the value of the product.
Last time, we have discussed about the concept of demand. Today we will show that there is an inverse relationship between demand and quantity demanded. There are the following reasons due to fall in the demand curve (refer below figure):
1. Law of diminishing marginal utility: it means that if we go on consuming more and more units of a commodity the utility derived from each additional unit goes on diminishing. So for every additional unit the consumer is willing to spend only at less price.
2. Income effect: It means the effect on the quantity demanded when the real income of the consumer changes due to change in the price of the commodity. For example the consumer has rs. 50 and each apple cost 10 Rs. And if he buys 5 apples then he will have to pay Rs. 50. But if the price of apples falls from Rs. 10 to Rs. 8 then he will have to spend Rs. 40. This means his real income will increase and he will be able to buy anything else with the saved Rs. 10.
Continue reading “Why does demand curve slopes downward?”
Today we will discuss about concept and assumption of law of demand. First, let us discuss about concept of demand.
Concept of Law of demand
The law of demand states that other things being equal, quantity demanded increases with the decrease in own price of the commodity and vice versa. There is a inverse relationship between quantity demanded and its own price, keeping other things equal. The other thing means all other demand determinants or demand functions except price. Continue reading “Concept and assumption of law of demand”