CONCEPTS OF ECONOMICS

1. OPPORTUNITY COST

Definition: Opportunity cost is the next best alternative foregone.

Scarcity is the basic problem of economics. Therefore, we are concerned with the best use and distribution of these scarce resources. Wherever there is scarcity there we are forced to make choices.

Example:

a. Once I had been to a restaurant and there I was forced to make choice in between limited non-veg thali and unlimited veg thali, where both of them costs 500/- each and I got only 500/- in my pocket. Then I choose unlimited veg thali, the opportunity cost is the limited non-veg thali which is supplied in limited quantity. 

b. Once I have been into a situation where I had to choose between whether to buy a laptop or a IPhone where both of them are same price. Then I choose to buy laptop rather than buying IPhone as I need laptop for study purpose and instead of IPhone I can make use of other company mobiles which costs less. Here opportunity cost is the IPhone I cannot afford to buy.

2. DEMAND

Definition: Demand is the want or desire to possess a good or service with the necessary goods, services, or financial instruments necessary to make a legal transaction for those goods or service.

In general, demand is the quantity of goods or services that people are willing or able to buy at a given price. Price of the goods, Income of the consumers, Price of substitutes and complementary goods, Tastes of the people and expectations are the five determinants of demand.

Law of demand is the relationship between the quantity demanded at a given price while all other factors remain constant. If the price of a commodity rises, then the quantity demanded decreases and vice versa. In economics it is known as the ceteris paribus, which means the quantity demanded for a good or service is inversely related to price.

Example:

             a. Once I went to market to purchase 1kg of onions. There I came to know that the price of onions has been decreased to half, therefore I bought 2kgs rather than buying 1kg. Here due to the decrease in price of commodity I demanded for more quantity.

              b. Once I went to a retail shop to purchase 5 Maggie packets which costs 10/- each. There I found that price of the Maggie has been increased to 12/- and I got only 50/- with me. So, I bought only 4 packets rather than buying 5 packets. This is because of the increase in the price of the commodity and demand for the commodity has been decreased. 

3. SUPPLY

Supply is the producer’s willingness and ability to supply a good at different prices, where all other factor held constant.

Factors that affect the supply of a product are: -

a. Decrease in cost of production

b. Price

c. Natural conditions

d. Transport

e. Government policies

These are the factors that affect supply. A Producer can control either price or supply but cannot control both at a time. He can increase the price of his product by reducing supply, and can supply more at low price in order to sell his stock.

Example:

               a. We have a Brick manufacturing industry where we sell our product at high price by reducing the stock of bricks and sell more bricks at low price than daily if our competitor reduces the price of his product.

               b. On the occasion of Diwali I went to purchase crackers, sellers took away some stock and sold stock at high price when there are more customers. They sell the same crackers at low price at night time when there are less customers to sell out the stock.

4.MOBILITY OF INPUTS

 There are some inputs which can be moved and some which cannot be.

         a. If kalanikethan shop owner wants to shift his shop from JP nagar to Jaya nagar, he can only shift the goods in it but not the building.

         b. There is famous dosa bandi in Hyderabad called ramki bandi. He started with a hotel, later to expanded his business, he updated himself to food trucks which can be moved easily to everyplace.

5.PRICE MECHANISM (GOODS MARKET):

If the demand of the good increases, then shortage occurs in the demand for goods. When there is a shortage of the good, the price of the good automatically increases. Because of the increase in the price, the demand gets decreased and supply gets increased. This is done until the demand and supply comes to same level.

 Examples:

          a. Whenever there is shortage of Onions, the demand increases. The price gets increased automatically like about 150 rupees for 1kg. Then the demand decreases, many people stop buying and supply increases because of increase in the price. This happens until the demand and supply comes to same level

          b. Whenever there is shortage of Water in cities especially in summer, the demand increases. Then people choose water tanks which costs almost 1000/- for 1 tank which is actually 400/- in normal days. This is only because of increase in demand. Then the demand decreases, people stop buying and supply increases because of increase in the price. This happens until the demand and supply comes to same level.