BASIC CONCEPT OF ECONOMICS

1. DEMAND AND ITS LAW

What is demand?

We can say that there is A demand, of a particular goods and services when there is a need of a customer and there must be willingness to buy and there must be sufficient ability of the customer to buy the product.

EXAMPLE- Many middleclass persons can be wish for a high end BMW car but because of they can’t afford it those wish are not the demand of the BMW.

LAW OF DEMAND

Law of demand says that when price increases demand decreases and when price decreases demand increases.

That means demand is inversely proportional to price.

Example:  1. when JIo was giving free jio sim with data and calling at that time there was a huge demand of the jio but now due to high price demand of jio decreased.

2. In various shopping mall when they give some discount to customer in festive season at that time demand of the discount product increases and vice versa.

2. SUPPLY AND ITS LAW

Supply

When a seller or supplier have willing to sell the goods and service to customer and he/she have ability to sell the sufficient quantity of goods as per the customer requirements then we can say that there is the supply of that goods and service.

Law of supply

Law of supply says that when price of a goods or services increases seller wants to sell more means supply increases and when price of a goods or services decreases supply also decreases

That means quantity supply is directly proportional to the price.

example:1. When price of share in stock market increases many shareholder wants to sell their share. And vice versa.
 Example:2. Generally, farmers wait for the high price for their crops to sell.

3. Opportunity cost and marginal cost

Opportunity cost means what we sacrifice by choosing an alternative of what we actually choose. This concept is not used in accounting because to take a wise decision for choosing different project it is a measure challenge to identify the opportunity cost.

Example 1: Lets Mr. A went to purchase a bike and he have 2 option

                            A) cost- 40,000 max speed 170 km/h

                            B) Cost-30,000 max speed 120 km/h

So due to low cost he choose option B but here he sacrificed extra

50 km/h which could be he get by choosing option A so here opportunity cost is 50km/h

Example 2:  A company is going to purchase a machine so there are 2 option     

                                 A) output- 4000 unit/h life period- 5 yrs.

                                 B) output-  3500 unit/h life period-6 yrs.

So let’s company choose the machine A because of getting high output but here he loses 1-year extra life period which can be get by choosing machine B So here that extra 1-year is the opportunity cost here.

4. MARGINAL DIMINISHING UTILITY

When we consume any goods and services we get some satisfaction from that and we consume more to became more satisfy and we continue it but one situation comes when our sanctification level decreases by consuming one more unit that point is called diminishing marginal utility.

Ex1: when we consume our favorite sweets 1^st time then we wish to eat more and we consume more to get more satisfaction but ta time comes when we don’t want any more that time leads to diminishing marginal utility

Ex2: When we visit a good hotel once and it satisfy us we continue go to that hotel but after some days we switch to another good hotel.  

5. PRICE MECHANISM

According to law of demand there is the inverse relation between price and demand.

But sometimes it happens that demand and price increases at a time and it shows the direct relation.

 When demand of a particular product increases then availability of the product decreases and its leads to shortage of the product.

And so manage the customer supplier make the product costlier.

So due to increasing price slowly demand also decreases and it meets with the supply and market equilibrium occurs. And then it again follows the law of demand.

 Ex1: When investor hear any good prediction of any company they start to buy that company’s share so demand of that share increases and market value of that share also increases till the saturation point comes then slowly price decreases.

 Ex2: In summer demand of Air-conditioner became more so that the seller demands more price and they reduced the price slowly according to demand decrease.