Concepts of Economics

1. Price Elasticity of Demand

Price Inelasticity Demand: A change in price causes a smaller % change in Demand.

Example 1: Apple brand is so strong that many consumers will pay a premium amount for Apple products. If price rises people will still afford to continue buying apple products.

Example 2: As petrol has few alternatives because people with car/bike need to buy petrol so increase in price also lead them to buy petrol.

Price Elasticity Demand: A change in price causes a bigger % change in demand.

Example 1: Taking the example of KitKat Chocolate the increase in price will led people to switch to another alternative as there are many in the market.

Example 2: in case of Heinz soup there are many alternatives to Heinz soup. So, if price increases people will switch to less expensive varieties.

 Law of Supply:

Higher the price, the higher the quantities supplied. As selling higher quantity at higher price increases revenue.

Example 1: As there is less demand of ice-cream in winter so sellers are supplying less product and when the demand increase in summer then the supply will go high with increase in price.

Example 2: Taking the example of Uber cabs during the peak time it increases its price, so as profit increases it increases its availability of cab also so as to increase its revenue.

3.       Law of Demand:

Higher the price, lower the quantity demanded.

Example 1: A new restaurant opens in town and gets good reviews. There are only 10 tables in the restaurant but everyone wants to get a reservation the demand for the reservation goes up.

Example 2: Suppose one famous artist dies and thus will not be producing any art. So the demand increases as people wants to purchase the fewer piece that exists.

4.       Diminishing Marginal Utility:

Utility means the amount of satisfaction that one will get from the consumption of a product.

Marginal Utility states that each addition of a unit of good added the satisfaction you receive from consuming the good decreases.

Example: By eating first piece of chocolate cake the utility is at highest which satisfies a person. Eating second piece of cake will be less than the satisfaction gained form the first cake. If third piece of cake is eaten the satisfaction will be even less.

5.       Price Mechanism:

It is a tool of setting price with relating to demand and supply. When demand of any product increases price also increases for a certain time period till the market equilibrium.

Example: Some supplier store the commodity product in warehouse and didn’t supply to the local vendor. So that there becomes an artificial scarcity of that product. But demand remains constant. So here Demand and supply increases so automatically price of the product increased in the market . At that time supplier sell the goods in higher price in market for their own benefit which is a illegal practice according to law.