PPT-5 - Lecture notes 2 PDF

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Summary

 Extension or expansion/contraction in supply and increase/decrease in supply  Market equilibrium : it is defined as a condition of rest, of no disturbances, where demand equals supply at a given price  a). Shifts in demand : increase and decrease , supply unchanged  b). Shifts in supply : incre...

Description



Extension or expansion/contraction in supply and increase/decrease in supply



Market equilibrium : it is defined as a condition of rest, of no disturbances, where demand equals supply at a given price



a). Shifts in demand : increase and decrease , supply unchanged



b). Shifts in supply : increase and decrease, demand unchanged



c) simultaneous shifts in both demand and supply



1. demand rises, supply falls : sharp rise in price



2. demand falls, supply rises : sharp fall in price

Equilibrium Price

Demand

Supply

10

50

10

20

40

20

25

30

30

40

20

40

50

10

50

The market is in equilibrium when price is Rs.25

Utility analysis 

The satisfaction a person receives from the use of a commodity is called utility.



The power of a commodity to give satisfaction is it’s utility.

Utility is neither satisfaction not usefulness.  Total utility: the total amount of satisfaction that a person receives from the consumption of all units of a specific good /service.  Marginal utility: the addition utility gained from the consumption of one additional unit of a good /service. 

Dr. Marshall’s statement of the law of diminishing marginal utility 

“ The

additional benefit which a person derives from a given increase of his stock of anything diminishes with the growth of the stock that he has.”



For example an imaginary consumer consuming rasgullas in this table:

Schedule of TU and MU

‘Number of rasgullas

total utility (TU)

marginal utility (MU)

1

15

15

2

28

13

3

38

10

4

46

8

5

50

4

6

52

2

7

52

0

8

50

-2

9

45

-5

Production function 

Meaning of production: production is defined as “ the creation of utilities”.



Production is any economic activity which is directed towards the satisfaction of wants of people by converting physical inputs into physical output.

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Production function: Q = f ( k , l , t…. )



Where Q = output



K, l, t are various inputs



K = capital, l = labour, t = technology



f = function of



Utility can be created in the following ways:

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1. Form utility: for example, changing the form of a log of wood into furniture, gold bar into necklace etc

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2. Place utility: utility can also be created by changing the place to a more convenient location, for example, the corporation creates place utility by bringing river water into our taps

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3. Time utility: preservation / storage/ cold storage. Or, a raincoat has time utility in rainy season, a sweater in cold weather etc

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4. Possession utility: grocery items change hands from seller to user



5. Service utility: services of doctors, lawyers, teachers also are intangibles which have utility



6. Knowledge utility: having information creates utility. For example, herbs having medicinal



properties



Production is basically the conversion of raw material into finished product.



Or, the conversion of input into output



Production function is written as:



Q = f ( i1, i2, i3………)



Where Q = output, f = function, i1, i2, i3…. Are the various inputs



Output is a function of inputs or output is dependant on inputs

PRODUCTION FUNCTION

Types of production function  Short

run production function  Long run production function

Production 

Production happens in every sector: PRODUCTION

   

Primary sector GOODS Agriculture

Secondary sector GOODS Car manufacturing plant

Tertiary sector SERVICES Airlines sector

Agriculture Car mfg plant Which factors do we need for production?

Airlines

1. Land

YES

YES

YES

2. Labour  3. Capital

YES YES

YES YES

YES YES

 



4. Enterprise

YES

YES

YES



5. Power

YES

YES

YES



6. Raw Material YES

YES

YES...