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MICRO ECONOMICS (BASED ON CBCS CURRICULUM )

(HONS/GENERIC ELECTIVE /PROG.COURSES)FOR SEMESTER -I

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(PREPARED BY MOUMITA GHOSH , SACT, CHAKDAHA COLLEGE ,NADIA, WEST BENGAL)

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  • This e-content will help you to understand –
  • 1. Meaning of demand .
  • 2. Demand Function .
  • 3. Factors affecting individual demand.
  • 4. The concept of law of demand .
  • 5. Demand Curve .
  • 6. The concept of individual demand curve & Market demand curve.
  • 7. The concept of supply .
  • 8. Determinants of supply .
  • 9. Distinction between change in quantity supplied and change in supply .

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Meaning of Demand

In economics, demand means effective demand and is defined as the quantity of the commodity

demanded at any given price over a particular time. In short, demand for a commodity means the

desire for the commodity-backed by purchasing power.

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Demand Function

  • A demand function is a functional relationship between the quantity demanded of the
  • commodity and all factors affecting the individual demand. It is stated as :

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  • The individual demand for a commodity and all the factors which may affect the individual
  • demand can be expressed in a functional form. This is called the individual demand function.

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Dx= f (PX , PY , Y, T, Pe, A etc.)

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Factors affecting individual demand

  • 1. Own price of the commodity (PX ).
  • 2. Price of the related goods (PY ) :- (i) Substitute goods .(Tea & Coffee) (ii) Complementary goods (Petrol & car) .
  • 3. Income of the consumer (Y). (i) Normal Goods (ii)Inferior Goods
  • 4. Taste and Preferences pattern of the consumer (T) .
  • 5. Expected changes in commodity price shortly (Pe ).
  • 6. Advertising for the product (A).

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Law of Demand

  • The law of demand express that assuming other factors remain the same, there is an inverse
  • relationship between the quantity demanded of any commodity and the price. Thus,
  • the consumer’s demand function for a good gives the amount of the good that the consumer
  • chooses at different levels of its price when the other things remain unchanged .

The consumer’s demand for a good as a function of its price can be written as –

  • Q= f (P)
  • Where Q denotes the quantity demanded for a good and P denotes the Price of the good.

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Demand Curve

  • The demand function can also be represented graphically as in figure 1.1.
  • The graphical representation of the demand function is called the demand curve.
  • The demand curve is a relation between
  • the quantity of the good chosen by a consumer a
  • and the price of the good. The independent
  • variable (price ) is measured along the vertical
  • axis and dependent variable (quantity )is
  • measured along the horizontal axis.

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Q=f(P)

Price

Quantity

o

Fig-1.1

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Individual demand Curve &Market Demand Curve

  • The curve that shows the relation between price and quantity demanded by an individual buyer and other things remaining unchanged is called the individual demand curve. We get the market demand curve by horizontal summation of all the individual demand curves. Here market demand curve is (DD1+DD2=DD), shown in fig.1.2.

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According to figure 1.2 , the market demand for X

  • at a price P0 would be –
  • OQ1 + OQ2 = 0Q0

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Price (in Rs.)

Quantity demanded(in Kg.) by

Market demand (in total)(Kg)

Individual 1

Individual 2

45

1

2

3

35

3

4

7

25

5

6

11

15

6

9

15

Price

Quantity

0

D

D1

D

D

Po

Q1

Q2

Q0

D2

Fig.1.2

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Exceptions Of Law of Demand

1. Giffen goods .

2. Veblen Effect .

3. Speculation .

4. Demonstration Effect .

5. Addicting goods.

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Concept of Supply

  • Supply means the amount of commodity which is offered for sale at a given price. Supply of any
  • commodity largely depends upon the behaviour of the producer or suppliers. The amount of
  • commodity that different firms are able and willing to offer for sale at different possible prices
  • considered as supply of a commodity . It is a flow concept.

The three important aspects of Supply are…..

        • Supply is the desired quantity .
        • Supply is always explained concerning price .
        • The time during which it is offered for sale .

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Determinants of Supply

  • Price of the commodity .
  • Goals of the firm.
  • Input prices.
  • Prices of related commodities.
  • Techniques of production.
  • Nature of the market
  • The policy of taxation and subsidies.
  • Expectations about future prices.
  • Natural factors.
  • Agreement among producers.

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Distinction between change in quantity supplied and change in supply

  • Change in quantity supplied:-
  • Movement along the curve .
  • Caused by a change in the market price of the product.

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Change in supply :-

  • A shift in the supply curve ,either left or right .
  • Caused by a change in all supply determining factors except the price of the product.

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Test Your Knowledge

  • Why does demand curve slopes downward from left to right?
  • What will be the shape of the demand curve in the presence of demonstration effect ?
  • What will the position of the demand curve if the price of any complementary goods increases?
  • If the Government gives production subsidy to any producer , What would be its impact on the supply curve ?

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References

  • Mukherjee Debesh .(2004).Essentials of Micro and Macro Economics, New Central Book Agency (P)Limited.
  • Gould &Lazear. (1989).Micro Economic Theory ,All India Traveller Bookseller , Delhi -110051.
  • Banerjee Asis &Majumder Debashis. (2000).Principles of Economics for ISC class-XII ,ABS Publishing House (edited volume),pages-9 to 70.
  • Pindyck, R. S., Rubinfeld, D. L., & Mehta, P. L. (1995). Microeconomics (Vol. 4), Englewood Cliffs, NJ: Prentice Hall.
  • Introductory Microeconomics , Textbook in Economics for Class XII. (2007).NCERT Textbook .