आर्थिकता: मांग और आपूर्ति

Course Details

• Programmes: B.A. (Programme)/B.Com (P)
• Semester: VIII
• Subject: Economics
• Course Type: Discipline Specific Core Course
• Course Title: Principles of Microeconomics I
• Study Material: 1 (1-8)
• University: University of Delhi
• Department: Economics
• Editor: Dr. Janmejoy Khuntia
• School: School of Open Learning

Lesson 1: Problem of Scarcity and Choice

• Introduction: Economic systems are characterized by how they manage the production, distribution, and consumption of resources.
• Key Economic Problems:
  • What to produce? How much of each good or service?
  • How to produce? Which methods and resources are most efficient?
  • For whom to produce? Who gets the goods and services?
• Scarcity: A fundamental economic concept; resources are limited, while wants are unlimited. This necessitates choices.
• Production Possibility Curve (PPC): Shows the maximum possible combinations of two goods an economy can produce given its resources and technology.
• Opportunity Cost: The value of the next best alternative forgone when a choice is made. This is crucial in considering how resources will be used.
• Role of Government: Governments often play a significant role in influencing the economy, guiding resource allocation, and ensuring fair distribution.

Lesson 2: Demand

• Meaning of Demand: The quantity of a good or service that consumers are willing and able to buy at various prices during a specific time period. Demand is differentiated from desire.
• Determinants of Demand:
  • Income: Higher income generally leads to higher demand for normal goods, and lower demand for inferior goods.
  • Prices of related goods: Complementary goods (like cars and gasoline) and substitute goods (like tea and coffee) influence demand.
  • Consumer tastes and preferences: Shifting preferences impact demand for certain products.
  • Number of buyers: Increase or decrease in the number of potential buyers.
  • Consumer expectations: Expected future price changes affect current demand.
• Demand Schedule: A table showing different quantities demanded at different prices.
• Demand Curve: A graph representing the demand schedule, typically showing downward sloping (inverse relationship between price and quantity demanded).
• Law of Demand: Other things being equal, there will be a negative relationship between price and quantity demanded (i.e., higher prices lead to lower quantities demanded).
• Exceptions to the Law of Demand: Certain goods (called Giffen goods) demonstrate the opposite relationship because the income effect outweighs the substitution effect.

Lesson 3: Elasticity of Demand

• Concept of Elasticity: Measures the responsiveness of quantity demanded to changes in other factors affecting demand.
• Price Elasticity of Demand: Measures how much the quantity demanded of a good responds to a change in its price.
• Types of Elasticity:
  • Perfectly Inelastic: Quantity demanded does not change with price (e.g., insulin).
  • Perfectly Elastic: Infinite responsiveness at a static price (e.g., a commodity with perfectly substitutable alternatives).
  • Unit Elastic: Percentage change in quantity demanded is equal to the percentage change in price.
  • Elastic: Percentage change in quantity demanded is greater than that in price.
  • Inelastic: Percentage change in quantity demanded is less than that in price.
• Methods of Measurement: Total outlay method, point method, and arc method.

Lesson 4: Supply and Elasticity of Supply

• Meaning of Supply: The quantity of a good or service that producers are willing and able to sell at various prices during a specific time period.
• Determinants of Supply:
  • Price of the commodity: Higher prices usually lead to greater quantities supplied.
  • Prices of related goods: Prices of other goods that can be used for similar production can influence supply.
  • Technology: Improvements in technology increase production efficiency and thus, supply.
  • Goals of Producers: Firms attempt to maximize profits, influencing their production decisions and subsequently, the supply.
  • Number of sellers: More sellers usually imply a greater total supply.
  • Taxes and subsidies: Taxes increase production costs, and subsidies decrease them, affecting supply.
• Supply Schedule: A table depicting different quantities supplied at different prices.
• Supply Curve: A graph representing the supply schedule; typically shows upward sloping (positive relationship between price and quantity supplied).
• Law of Supply: Other things being equal, higher prices lead to greater quantities supplied (positive relationship).

Lesson 5: Determination of Equilibrium Price and Quantity

• Market Equilibrium: The point where the quantity demanded equals the quantity supplied. At this price, there's no tendency for price to further rise or fall in the market.
• Equilibrium Price and Quantity: The specific price and quantity where market forces are in balance.
• Excess Demand: When quantity demanded exceeds quantity supplied at a given price.
• Excess Supply: When quantity supplied exceeds quantity demanded at a given price.

Lesson 6: Some Applications of Demand & Supply

• Price Control (Price Ceiling): Government-imposed maximum prices (below equilibrium) often leading to shortages and black markets.
• Minimum Support Price (MSP): Government-set minimum prices for agricultural products, protecting farmers' incomes and incentivizing production.
• Tax Incidence: Analyzing how the burden of a tax is distributed between consumers and producers, depending on the elasticity of demand/supply.
• Price Stabilization Programs: Policies designed to smooth out fluctuations in agricultural prices over the short or long run.

Lesson 7: Theory of Consumer Demand

• Utility: The satisfaction received from consuming a good or service.
• Total Utility: The sum of utilities from all units consumed.
• Marginal Utility: The incremental satisfaction from consuming one additional unit of a good.
• Law of Diminishing Marginal Utility: As consumption of a good increases, the additional satisfaction (marginal utility) from consuming more units decreases.

Lesson 8: Indifference Curve Analysis

• Indifference Curve: Set of all possible combinations of goods that yield the same level of consumer satisfaction.
• Properties of Indifference Curves: Downward sloping, convex to the origin, and higher curves represent higher levels of satisfaction; indifference curves can never intersect.
• Budget Line (Budget Constraint): Shows all possible affordable combinations of two goods given a consumer's income and prices.
• Consumer Equilibrium: The point where the budget line is tangent to the highest attainable indifference curve; at this point the consumer maximizes satisfaction given their budget and prices.
• Price Effect: Change in quantity demanded of a good due to a change in the price of the good, while keeping other factors constant.
• Income Effect: Change in quantity demanded due to changes in consumer's purchasing power caused by a change in the good's price, keeping other factors constant.
• Substitution Effect: Change in quantity demanded due to a change in relative prices, keeping the consumer's purchasing power constant.