1. Meaning of demand
Demand refers to the amount of consumer desire, ability and will to
purchase goods. Demand is always related to price and time.
1 Example 1. When
I was in graduation I have a desire to buy iPhone X but this is not a demand because I don’t have ability to buy. At the same time when a rich person wants
to buy iPhone 7 we can say that it’s a demand
2 Example 2. Recently
in PGDM I have desire to buy a Dell laptop but I have ability to buy but I am not willing to pay. It is not a demand
2. LAW
OF SUPPLY
Supply
is the willingness to sell, ability to sell depends upon availability of stock
at a particular price at particular time.
Law of supply states that when price increases supply
also increases, when price falls supply also falls
1 Example 1. I
want to sell my car when I was in
graduation I have ability to sell but I am not willing to sell, this is not
supply
2 Example 2. My
father wants to sell the land when I was in class 12 this is the example of
supply because he has ability and willingness, at particular price at
particular point of time.
3.Opportunity cost
Opportunity lost is opportunity cost ( or) sacrificing
opportunity for getting best alternative.
Example 1.
My grandfather is a farmer he wants to cultivate the land with rice and wheat. He
cultivates the rice because he is getting more income in wheat as compared to rice.
Here the opportunity lost is rice because sacrificing rice to get best
alternative (wheat) is called opportunity cost.
Example 2.
I have desire to purchase a bike between 60K -70K. when I gone through all
these bikes between these range (60k-70k) I found activa is good in terms of
mileage, here opportunity lost is other bikes between (60k-70k). sacrificing
other bikes for getting best alternative (activa) is called opportunity cost
4.ELASTICITY
Measure of the sensitivity of one variable to another. % change in one variable in response to a% change in another variable.
Elasticity =%change in quantity / % change in price
Elasticity
of demand
change in demand for a product quantity in the market
to the change in price of that product.
Elasticity
of demand = % change in quantity demand / % change in price of the product
Example
1. Assume that the price
of Juices has increased by 30% as result the consumption is fall by
20% then,
Elasticity of demand = -20% / 30% = -0.66
Elasticity
of supply
Change in quantity supplies from producer to the
change in the price of product.
Elasticity
of supply = % change in quantity supply /
% change in price of the product
Example
2.
suppose the price of onion has gone up
by 50% as a result supply of the onion rises by 25% then
Elasticity of
supply = 25%/ 50% = 0.5
5.
Consumer surplus
The difference between the amount consumer willingly
and able to pay to buy any product or services and the amount consumer actually
pays to buy the product or services
Example
1. Suppose I went to
K. R market to buy one shirt. I want to buy a shirt of Rs 1000 but after
bargaining I manage to get the shirt of price Rs 800. so the difference in
price is (1000-800= 200), here the amount I save Rs200 is the consumer surplus.
Example 2.
Suppose my friend wants to go for family trip to Goa during his summer vacation.
He has fixed his budget to Rs 90,000. But at the same time he contacted with
travel consultant who provides the coupon and fixed the deal in Rs 75000. So the
amount he saves (Rs90000-Rs75000= Rs15000), here the amount he saves Rs 15000
is the consumer surplus.
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