5 CONCEPTS OF MICRO ECONOMICS

1)  DEMAND

 demand is the quantities of a commodity or a service that people are willing and able to buy at various prices, over a given period of time

 The law of demand states the inverse relationship between quantity demanded and the price of that goods that is the quantity demanded for a good rises as the price falls, and vice versa ,with all other things remaining constant

The tabular representation of demand data is called demand schedule

Graph showing the inverse relationship of price and quantity demand is called demand curve

Example

increase in price of flats leads to decrease in its demand for flats		Decrease in price of pen leads to increase in demand for pen
PRICE OF FLATS (LAKHS)	QUANTITY DEMANDED	PRICE OF PENS	QUANTITY DEMANDED
50	10	25	1
60	8	20	2
70	6	15	3
80	4	10	4
90	2	5	5

2) ELASTICITY

ELASTICITY is the measure of degree of responsiveness to percentage change in one variable with that of percentage change in another variable.

Price elasticity of demand: with the percentage change in price of a commodity there is a change in percentage change in quantity demanded of that goods.

Elastic:

With the percentage change in price there is a greater change in percentage change in quantity demanded

Inelastic:

With the percentage change in price there is a less change in percentage change in quantity demanded

   

3) OPPORTUNITY COST :

                            Opportunity cost is the cost of the next best alternative for which we have to sacrifice the initial or other alternative

FOR EXAMPLE :

                 1. One day i was in stationary shop, I was buying a pen So, salesman offered me a linc gel pen. But suddenly I saw a parker and than I decided to buy a parker pen and thereby sacrificing the linc pen.

                 2. When a person goes to a hotel to have lunch. Than he can either eat paneer or chicken.so if he decides to eat paneer than he has to sacrifice chicken for that

4) Diminishing marginal utility

The satisfaction that the people derived from the consumption activity is called utility.

Marginal utility is additional utility that is derived from consumption of one extra unit of goods or service.

According to Alfred Marshall the law of diminishing marginal utility is defined as follow:-

“During the course of consumption as more and more units of a commodity are used, every successive Unit gives utility with a diminishing rate provided other things remaining the same.”

Example. Suppose we are very hungry and when we eat first chapatti we get a greater satisfaction (i.e 10 unit). In second chapatti or satisfaction decreases (i.e. 16 unit) and after eating few more chapattis we started feeling like vomiting i.e our marginal utility becomes negative

Therefore, the above example Prove the law of diminishing marginal utility.

Schedule of Law of DMU

Unit consumed(chapatti)	Marginal utility	Total utility
1	25	25
2	20	45
3	15	60
4	10	70
5	05	75
6	00	75
7	-05	70

With the help of schedule we have made the following diagram.

if we eat large no. of mangoes than initially we get higher utility than with every additional piece of mango our hunger start satisfying, we become less excited.finally after eating over mangoes we may suffer from loose motion i.e. negative utility.

5)Production possibility curve

Production possibility curve is the curve that depicts all possible combination of two goods that an economy can produce with its limited resources

Example

We have to select the combination of cotton or wheat that can be produced from limited resources.

Production possibilities	Cotton(quintal)	Wheat(quintal)
A	0	15
B	1	13
C	2	11
D	3	9
E	4	4
F	5	0

Second example:

Suppose a bakery company has to make a choice between the no. of pastries and the no, of breads that it will produce, from its limited raw material(resources). the solution to this problem can be found out with the help of PPC

Production possibilities	pastries	bread
A	0	20
B	2	16
C	4	12
D	6	8
E	8	4
F	10	0

Thus above were some concepts of micro economics, hope everyone will enjoy reading.