PEOPLE RESPONSIVE TOWARDS INCENTIVE:
We know people are responsive towards incentive. when people get some incentive they at least once think of buying or trying that service or product. They try to compare with the similar range of products and services. So to get the attention of the buyer's sellers try to give more discount, coupon code and many more incentive so that people will spend more.
These things are good from the economic factor because consumer spending is an important economic factor because it usually coincides with the overall consumer confidence in a national economy. Consumer spending makes up roughly 70% of our country's economic activity.
Ex- Once I had gone to a mall. I was thinking of taking a shirt from Killer brand but when I went there I saw Allen Soley was giving 20% flat discount on every product so I went there and took two shirts instead of one.
Ex- I was a regular customer of a Panipuri Wala because once I had gone to him and he gave me two extra panipuris so I went on the next day also and he gave extra panipuri. From then I was the regular customer of him.
INCOME EFFECT:
People spend their income on buying food, clothes and many things that they need but what happen when there is a change in income, how it affects the People's behavior, how they make changes in their buying behavior.
To measure the changes in people's consuming behavior we use parameter call income effect, it is defined as the change in the demand of goods and services with respect to the change in income of the people.
There are Three Types of income effect
-Positive income effect:
When people income increases the demand for normal goods also increases and this is called the positive income effect.
-zero income effect:
The zero income effect is in the case of neutral goods where consumer quantity demanded is fixed .like drug, we buy it irrespective of our income.
- negative income effect:
When there is an increase in the people's income, the demand for cheaper things decreases and they shift to the costlier things and it is called negative income effect and that type of good is called inferior good.
Ex- Before I was using local company jeans (low cost ) when my pocket money was low but now I am using branded jeans because of the increase in my pocket money.
Ex- Before for the snacks item ( burger, French fries ) I used to have it on street food stall but now I go to KFC or MC Donald to have it just because of the increase in the pocket money.
MARGINAL UTILITY:
We the people spend our money on our needs, satisfaction, and comfort. Also sometimes we take an extra unit of that needs if our satisfaction is not fulfilled. We never hesitate to pay extra money if our satisfaction exceeding our budget but when the budget exceeds the satisfaction level of extra-unit consumption, we think whether to go for it or not. Basically, if we tell the marginal utility goes on diminishing. Marginal utility defined as the extra amount of satisfaction that we get from the consumption of one extra unit.
Ex- I am a food lover. Once I had gone to a hotel and I was very eager to eat Ras-Malai and I order one. I felt very satisfied when I took it then I ordered one more and enjoyed but little less than the first one after that also I ordered another one but now in the half of the Ras-Malai I felt I can’t eat it anymore but just because of I paid for it I ate the whole.
Ex- I had gone to a new restaurant that I had never been to. I ordered a full plate of biriyani for me although the waiter was stopping me. I ate half of the plate and felt can’t it then I ate a little more and left there other.
CONSUMER SURPLUS:
Consumer surplus is defined as the benefit of the consumer. It is defined as the difference between what consumer willing to pay and what he actually pay for it. It is a measure of the welfare that people gain from consuming goods and services.
Cs = Cwp – C ap
Wp – willing to pay
Ap- actually pay
Ex- I had gone to buy a t-shirt and I choose a t-shirt for me. I saw that it was written 1250 rupees so I was willing to pay that money but when I went to the bill counter he gave me 20% discount and I paid 1000 rupees for that t-shirt and I got 250 rupees of benefit.
Ex- Once I had gone to my regular sweet shop and brought sweets of 210 rupees and I paid a 500 note to the owner because I had no change then the seller returned me 300 rupees (although I was willing to pay 210) and told me as you are the daily customer I am giving you 10 rupees discount and that was my benefit.
LAWS OF DEMAND :
The laws of demand is the relation between the price and the quantity demand of the product. When there is an increase in the price of the product the quantity demand of the product decreases and vice versa, this is called as laws of demand.
http://www.lidderdale.com/econ/104/gifs/Fig3-1.gif
Ex- Our family used to have 10 kg of Mung Dal in a month when it was 50 Rs/Kg but when the price gradually rises to 80 rs/kg, we used to have it 7 kg in a month. This is how quantity demand affected when there is a rise in the price of that product.
Ex- I used to have 200 gm of Broccoli as my diet plan when I was going to gym but there is a rise in the price of the Broccoli I took it 100 gm.
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