Utility

Utility: The satisfaction people derive from consumption activity is known as utility.

Or, satisfaction derive from hobbies, is known as utility.

There are two types of utility:
a. Cardinal utility
b. Ordinal utility

A. Cardinal utility:  cardinal utility can be quantified and it assigns no.
Cardinal utility is associated with RATINGS.

Ex: imagine you watched a movie and someone asked you how much you enjoyed that particular movie? You cannot answer it untill a particular scale is given to you. So in that case you can rate the movie but u can not say how much you enjoyed like 10 or 100 .

B. Ordinal utility: Ordinal utility is associated with RANKING.
Ordinal utility offers independent data and it doesn't depend on cardinal utility.

Ex: Top ten B-schools
       Top ten sports
        Top ten songs etc.

So, here we can see the major difference between cardinal utility and ordinal utility.

Is price is the only sole factor that affects demand?

Is price is the only sole factor that affects demand?

certainly not, price is not only sole factor that influence the demand of any product, there are various factors affecting demand are as follows:

• Income- income of customer determines the ability to buy a product like if a consumer having high income will spend more than that person who will having less income.

• Taste and preferences- taste and preferences determines that what product customers wants like if a customer wants demands for an axe perfume then he will demand for it.

• Availability of substitutes- there are variety of substitutes available that customers can choose from, for example coke and pepsi  customer can choose between these two.

• Price- price of the product is one of the main reasons that affects demand, high price product would be demanded by few customers that can afford it. For example how many people buy ferrari, very few because not every can afford ferrari.  

EXPLAINING UTILITY

UTILITY :

Utility has a great significance in economics."The capacity of goods or services to satisfy a human want is known as utility."

Example : 

The utility of a cigarettes is zero to a non smoker, while the same packet may have a very high utility for a smoker.

Therefore, the utility depends upon two things :-

(i) The inherent quality of goods or services.

(ii) The intensity of the want of the consumer for that good or service at that point of time.

Cardinal Utility :-

According to this analysis we can measure utilities  derived from the consumption of different commodities in terms of arbitrary units called utils.1,2,3,4 are called cardinal numbers.'Alfred Marshall' followed cardinal utility approach to explain the theory of consumer behavior.

In simple terms cardinal utility analysis gives numerical expression to utility.

Example : Law of diminishing marginal utility 

Ordinal Utility :-

According to this approach utilities cannot be measured in numerical terms it is a subjective concept .The ordinal numbers ranked utilities are arranged in a serial order such as 1st, 2nd, 3rd etc.The indifference curves analysis based on ordinal utility  analysis.

Utility And Types Of Utility

           UTILITY  :

                       Utility can be defined as the amount of satisfaction expected to be derived from the consumption of good or service at a particular time. it is the power or capacity of a good to yield satisfaction. utility is a subjective concept and that is the reason it differs to person to person,time to time and place to place.

           TYPES OF UTILITY :

                                 some of the types of utilities are 1.form utility

                                                                                     2.place utility

                                                                                     3.time utility

                                                                                     4.possession

           FORM UTILITY :

                        The process of increasing the attractiveness  of the product to a group of consumers by altering its external appearance. in a business context, from utility might involve making a product ready for consumption by converting it to a form that is more beneficial to consumers than the raw materials used to make it.

     Ex: Carpenter changed the wood into chair which creates the form utility.

           PLACE UTILITY :

                         This utility is created by transporting goods from one place to another. Thus, in marketing goods from the factory to the market place, place utility is created. Similarly, when food-grains are shifted from farms to the city market by the grain merchants, place utility is created.

             TIME UTILITY :

                          Storing, hoarding and preserving certain goods over a period of time may lead to the creation of time utility for such goods e.g., by hoarding or storing food-grains at the time of a bumper harvest and releasing their stocks for sale at the time of scarcity, traders derive the advantage of time utility and thereby fetch higher prices for food-grains. Utility of a commodity is always more at the time of scarcity. Trading essentially involves the creation of time utility. 

  

             POSSESSION UTILITY :                          

                          The utility of possession refers to the benefit customers derive from ownership of a company's product once they have purchased it.

 

                 Ex:  if a company sells mobile, then it offers customers an added value in listening to music, games etc.  Offering favorable financing terms toward ownership is another way a company might choose to improve the value of possessing its products.

Relationship between consumers and producers.

CONSUMERS :-
          The consumer is the one who pays something to consume goods and services produced.

PRODUCERS :-
        Producer who provides goods and services to their consumers and produce products according to consumer's needs,demands, and desires.

RELATIONSHIP :-
     Producers and consumers are connected by trade and prices. Flactuation of supply and demand is depend upon the relationship between producers and consumers in a given market.

DIFFERENT TYPE OF CONSUMERS :-
- Seasonal consumers
- Personal consumers
- Organisational consumers
- Impulse consumers
- Needs based consumers
- Discount driven consumers
- Habitual consumers.

TYPES OF PRODUCERS :-

- Agricultural producers (primary)
- Industrial producers (secondary)
- Service producers (tertiary)
- Seasonal producers.

Satisfaction of people by the consumption of any good

For example,
If I am ready to pay Rs.2000 for cloth then I can say that I derives utility from that cloth.
So, "when people satisfaction derives from their consumption activities is called utility. "

There are two types of utility:
>Cardinal utility
>Ordinal utility

Cardinal utility is about rating it's quantitative in nature.

Ordinal utility is about ranking it can't be measured.

There is another important Term related to utility  and that is known as "diminishing marginal utility ".

Where in every additional unit I consume, the utility  decreases is known as diminishing marginal utility .

Total utilty and marginal utilty

Total utilty and marginal utility

Total utilty and marginal utilty

PRODUCTION FUNCTION & UTILITY CHARACTERISTICS

THE PRODUCTION FUNCTION :

Maximum output 'Q' that  a firm can produce for every specified combination of inputs.

-> LABOUR (L)
-> CAPTIAL (C)

 -> Q = F(K,L)

The SHORT RUN refers to a period of time in which one or more factors of production cannot be changed.

Factors that can be varied over this period are called FIXED INPUTS

LONG RUN refers to a period where in all inputs are variable. Many inputs can also be changed.

CAPTIAL(constants): steel plants ,aluminium plants, educational institutes , technology , raw materials(composition cannot be changed) , machinery .

LABOUR : can be changed in short run .




UTILITY CHARACTERISTICS:

Principle of diminishing marginal utility:

the more of a good that one obtains in a specific period of time, the less the addiional utility derived from an additional unit of the good

Utility dimensions overtime : 

the shorter the time period , the more quickly marginal utility diminishes

Consumers are not identical :

the sale at which marginal utility diminishes depends on individual tastes and preferences and so differs across consumers.

examples:
unlimited calls and messages
advertisements
movies
fashion industry
daily bus passes
amusement parks

Production function and it's types

The production function can be defined as a functional relationship between input and output that is, maximum output that a firm can produce for every specific combinations of input.
The production function can be stated as:
                           
                           Q=F(K,L)
This production function indicates using certain combinations of Capital and Labour, maximum amount of Quantity can be produced.

Types of production function :

1.Short run production function :

This refers to a period of time where atleast one factor remains constant. Factors that can't be varied over this period are called fixed factor.

For example, Q=f(K-bar,L) here, maximum amount of quality can be produced while labour is variable and capital is fixed.

2.Long run production function :

This refers to a situation all the inputs for production are variable or there is no fixed factor.

For example,  Q=f(K,L) here, to produce maximum amount of quantity can be used by all the factors which are variable in nature.

At The End Of the Day What Matters!!!Only "SATISFACTION"

'Tastes' and 'preferences' are are synonyms which refer to the "satisfaction", what we get from a bundle of goods. 'Taste' and 'preference' are fixed and given,which play a large role in decision making. People allocate their income to maximize their 'satisfaction' or 'total utility'.
                   Additional utility is generate when consumer consume one additional unit that is called marginal utility.
                    If we buy more of one good(keeping purchase of the other goods constant) we will increase our satisfaction but by less than the increase satisfaction coming from the previous purchase of that good. This is called diminishing marginal utility.
                          In 2 ways we can measure disable utility-
                        1.Cordinal utility
               ( which refers to rating)
                        2. Ordinal utility
                ( which refers to ranking)
             Taste also describes the effect of our satisfaction from interaction between goods and purchases. If goods are substitutes then purchasing more than one will reduce the satisfaction from purchasing.Other demanding more of 1 reduce the demand for the other because the two goods satisfy the same want. The way of our choice and satisfaction changes from person to person.The marginal utility diminishing from unit to unit.Everything happens in subconsciously and consciously.
                             For example:-
                                                      When a new song released in the market people constantly listen that particular song for a certain time period but after a period of time when other new song come to the market that previous song value changed.
    THE MAIN DIFFERENCE BETWEEN MARGINAL UTILITY AND DIMINISHING MARGINAL UTILITY:-
       1. Marginal utility refers to the benefit you get from something.
             For example:-
                                       If we buy a new bike or scooty, then no longer have to work.
       2. Diminishing marginal utility refers to how much a business makes by hiring new workers.So basically marginal utility is talking about consumption.
             For example:-
                                      Consuming one candy bar may satisfy a person sweet tooth, if the second Candy bar is consumer the satisfaction of eating that will be less than the satisfaction gained from eating the first bar.
SOME CHARACTERISTICS OF UTILITY:-
       1. Principle of diminishing marginal         utility:
            The more of a good that one obtains in a specific period of time,the less the additional utility derived from an additional unit of the good.
       2. Utility diminishes over time:
               The shorter the time period, the more quickly marginal utility diminishes.
      3. Consumers are not identical:
                 The rate at which marginal utility diminishing depend on individual taste and preference, so it differs across consumer.
                       

Law of diminishing marginal utility

The law of diminishing marginal utility states that as a consumer consumes more and more unit of a specific commodity, the utility of the specific commodity goes on diminishing.

For example, Suppose a man is hungry he goes to the market and buy one plate pani puri, the first plate of pani puri gives him immense pleasure si the utility of the first plate of pani puri is high, if he order a second plate the utility will be less than the first plate because he is not as hungry as he was in the first time.

Marginal cost

The marginal cost is also a per unit cost of production . It is the addition mode to the total cost by producing one more unit of output. Symbolically Mcn =Tcn-Tcn-1 that is the marginal cost nth unit of output is the total cost of producing n unit  minus the total cost of producing     n -1 unit of outputs

For example suppose in production plant total cost of producing 5 chair is Rs 10000 while that for 4 chairs is Rs 8000.
Marginal cost of producing the 4th chair therefore work out as under.

MC5=TC5-TC4 = 10000-8000=2000

Marginal cost is the cost of producing an extra unit of output . It can also be defined as the change in total cost associated with a one unit change in output. It is also known as" extra unit cost "or increment cost. It can also be calculated by dividing  the change in total cost by one unit change in output
Mc = ∆TC/∆1Q
Where ∆ denotes change in output assume to change by 1 unit.

Utility as per economics

It is the power of a commodity to satisfy the wants of human beings.
Ex: when we eat a chocolate it satisfies our want and provide us sweetness.so here a chocolate has a power to satisfy the want of a human.

Further, utility can vary from person to person . considering the above said example,there are some person who like sweet.so the person who likes sweet may derive a good amount of utility from chocolate. But a person who does not like sweet may not have any utility of the chocolate.

There are some people who equate utility  as usefulness but practically it is not true.there are some things which are usefulness but don't have any utility,conversely there are also products which are utility but not useful to human man kinds .
Ex: alcohol, cigarette
But how ever for a drunker and smoker there is utility for cigarette and alcohol.

EXPLAINING UTILITY AND THE LAW OF DIMINISHING MARGINAL UTILITY

        Utility can be defined as the amount of satisfaction expected to be derived from the consumption of a good or service at a particular time. It is the power or capacity of a commodity to yield satisfaction. Utility is subjective concept and that is the reason it differs from person to person, place to place and time to time. For example, for a person who is hungry,  food possess utility but to a person who has just completed his lunch, food has no immediate utility.

        

        The Law of Diminishing Marginal Utility is an important law of consumption in economics. For understanding this, we need to first distinguish between Marginal utility and Total utility.

Marginal utility: It is the additional utility derived when an additional unit of a given commodity is consumed.

Total utility: It is the total amount of utility derived when all the units of a particular commodity are consumed with in a certain period of time.

We can identify from our experiences that when we consume more and more units of the same commodity with in a certain period of time, the utility derived from successive units goes on diminishing. Each additional unit yields less and less satisfaction and finally the want is fully satisfied. Consumption beyond this stage leads to dis-utility or dissatisfaction.

Now, coming to the law, it states that "the more we have of a thing, the less is the utility we get from the consumption of every additional unit of that particular thing". Util is the term used by economists to measure utility or satisfaction.

Example: Suppose a consumer eats 5 chocolates within a short period of time. The first chocolate provides, lets suppose 20 utils. With the second, the marginal or additional utility will be 15 utils. The third chocolate will have only 10 utils. Thus the consumption of each successive chocolate yields less utility until marginal utility of fifth chocolate becomes 0. At this stage, the consumer want is fully satisfied. The consumption of sixth chocolate yields dissatisfaction as utility has turned into dis-utility.

Diminishing Marginal Utility

Suppose you are outside on a hot sunny afternoon and you want to eat ice cream. At that very moment the urge for eating ice cream is very high so even if the ice cream costs $100 ( instead of orignal price $10) you will be ready to sacrifice the amount but once the first ice cream is consumed the craving for ice cream goes down and hence you won't be willing to sacrifice that much amount. This is known as the "Law of diminishing marginal utility".
The law of diminshing marginal utility states that as the consumption of a product increases the benifit (utility) derived from each extra unit decreases
Therefore, Marginal Utility is derived as the change in utility when an additional unit is consumed. The marginal utility (MU) diminishes over time and shorter the period more quickly MU diminishes.
For example : suppose you wanted to watch bahubali, you were very much excited before watching it. Now if after watching another friend of yours calls you again to watch the movie you may go and watch it again but the excitement will decrease.
Further, as the consumers are not identical - the rate of diminishing marginal utility may defer, it defers on the basis of individual tastes and preferences.
Suppose in the above example if the consumer is a true fan of prabhs then the decrease of excitement level may be not be that quick.
Hence , these factors explain the law of diminishing marginal utility.

UTILITY

UTILITY :
It is the want satisfying power of commodity.   
                   (or)
the power of a commodity that satisfy the wants of consumer-want satisfying power.

  ORDINAL UTILITY:
1.Ordinal means- can be compared          with each other - 1, 2,3rd etc
2.ordinal utility analysis--utility can compare but cannot be measure
3. popularized by J.R Hicks & R.G.D Allen
4. used the tool name indifference curve.
Known as indifference curve approach of utility analysis.

Assumption of cardinal utility analysis.
1.Consumer is rational (or) rationality:
-Consumer objective is maximization of utility subject to price & consumption expenditure.
2.Utility is ordinal:
Utility cannot be measured cardinally. it can be expressed ordinally can rank according to the satisfaction or utility of each basket.
3.consistence in choice:
If the consumer prefers combination of A of good to the combination B of goods he then remains consistent in his choice.
  if A>B, then never become B>A.

As consumption increases the marginal utility derived from each additional unit declines? Why?

As consumption increases the marginal utility derived from each additional unit declines? yes it declines.

Utility is the amount of satisfaction a person gets from consumption of a certain item. 

Definition: - According to MARSHALL,” The additional benefit a person derives from a given increase of his stock of a thing diminishes with every increase in the stock that he already has.” 

 Let us understand this through an example: - Consuming one chocolate may satisfy a person desire. If a second chocolate bar is consumed, the satisfaction of eating that second bar will be less that the satisfaction gained from eating the first, if a third is consumed the satisfaction will be even less.

No of chocolates	Marginal utility	Total utility
1	100	100
2	80	180
3	50	230
4	20	250
5	0	250
6	-20	230

Utility And Its Types

Utility of goods or a service means, the rate at which a consumer is satisfied from the product or service that he/she is getting.

For Exercise - Suppose a person want to buy a product say , Rice,  comes home and uses it. Here, the level of satisfaction that he will be getting from it is concept of utility.

There are two types of utility-
Cardinal Utility
Ordinal utility

1) Cardinal Utility-
        Cardinal Utility is basically assign number to the utility.
For Example - Bagrry's give 200 units of utility
                         Kelloges give 300 units of utility

2) Ordinal Utility-
        Ordinal Utility is basically assign Rank to the utility.
For Example - Top 10 models of Samsung phone and second best service centre in the town for car.

So, Utility means, a level at which a customer is satisfaction or the rate at which customer is getting profitable or benefit.

The concept of utility with reference to malls.

Utility refers to the satisfaction that people obtain from their consumption activities.

For example:- Bigbazaar and Reliance fresh. There are people who prefer Reliance fresh because they are satisfied by their products and the consumer services given to them whereas, there are people's who prefer bigbazaar rather than preferring Reliance as they are satisfied by their products and the services given to them .So all in one utility depends upon the consumers taste and preferences.It depends upon their satisfaction for consumption activities.

Diminishing marginal utility

Marginal utility is the total amount of satisfaction after buying a particular amount of goods or commodity.
1. Cordinal utility : which can be quantified talk about values for example i liked the pizza for 10 units
2. Ordinal utility : It is measured in ranking among many choices for example who is the best batsman in current times it can be judged by giving rank to the batsman.
Maximum production - additional of total product for extra amount of labour
Law of diminishing marginal return : as the usage of input increases with other input fixed the points will eventually reach at which the resulting addition to output decreases for eg if i am having kfc for dinner everyday the utility for the particular product will decrease after certain period of time. 
As law of diminishing marginal utility refers that if an event take place in a regular interval of time the utility of the event decreases eg.  World cup of cricket if it start taking place in regular interval no people will take interest in the world cup.
If all input in the production rate is doubled three things take place
1. Output increases more than proportionately with increase in input
2.  Output increases in the same proportion as the input constant return to sale.
3. Output increases less than proportionlly with increase in the input.
For example if a company appoints 10 employee in the place to take care of their clients where appointibg 5 will easily do the job ,  no need of appointing 10 for the time being productivity will rise then after than there will be less productivity. After a period of time productivity will stop.

How demand curves classified based on elasticity.

The demand curve changes as the price varies which we know. Now the demand curves are been classified into five types based on their elasticity of change.
 
1. Perfectly inelastic demand:
        In this the demand of the product will not change, though the prices increased and proportionally will not have any effect in the elasticity. In this case the elasticity will be zero

2. Inelastic demand:
       In this curves there will be elasticity less than one since the price increases and the demand decreases, but not zero.

3. Unit elastic demand:
       This could be explained well with an example, let us assume that a ice cream shop increases the price of a ice cream by 10 % and at the same time the demand of the product also reduces by 10% this is called unit elastic demand. Here the elasticity will be equal to 1.
      
4. Elastic demand:
       Here then the price of the product increases and the demand decreases and the elasticity value will be greater than one. This means that that that reduction in demand percentage is greater than the increase in price percentage. Obviously hear the value of elasticity will be greater than 1.

5. Perfectly elastic demand:
       Here in this case the demand of the product will be zero if the price increases, if the prices are being stable then the demand quantity will be high and if the price decreases futher the more then the demand will be infinite.

Incentives and its Impulse of Reward and Menace

This short story tells the tale of a little incentive that was so powerful but came out to be super response propensity. There was an IT security provider name 'Elixir Bytes' whose dev income were at risk. The company developed security software for consumers, servers and cloud computing systems but sparklines of the analytical data show the downtrend in the profit of a company due to the quality of service they provided to customers. The director worked together with directors of security firm services, friends in quality and decision support to establish quality incentive based on core measures of performance.

The incentives involved weekly & monthly patches and bug improvements within 6 hours of report. Special incentives during a pernicious virus outbreak. The developer's group historically succeeded on core measures. The value of company quadruple withing 36 months. Now the birth of super-response propensity takes place. To control a virus infestation across global Elixir's board members passed a bonus package: For every virus who provides an anti-security solution to market, the dev will receive a reward. Yes, many viruses were cleaned & fixed but many were also generated to gain incentives. Employees who did their best and still didn't qualified for incentive became resentful and started giving up less output on projects.

The end of this story is that through the power of this little incentive company drastically changed the dice towards its side but it also turns out to be hollow inside. Incentives should be established on a timely basis with appropriate relevance, measurable by imbibing the work inside the industry under the direct control & action of the manager's full awareness.

Incentives are what motivates you to behave and achieve in a certain way, while preferences are your needs, wants and desires to perform any action.
Four broad classes of incentives:
Remunerative incentives/Financial incentives- It includes material rewards especially money in exchange for action and output in a particular way.
Moral incentives- It exists where a person feels the sense of self-esteem, approval & admiration from the community.
Coercive incentives- It exists where a person is inflicting pain or suffer in punishment. Example: Deduction of salary due to negligence in time efficiency.
Natural incentive- When it comes from inside and is naturally satisfying.

Incentives motivate your staff, increase competition in the market but also create employee resentment and some gain unfair advantages. Incentive must be smart & balanced. Representatives who need to win motivations may do as such in ways that hurt the organization all in all. In the event that manufacturing plant yield is the benchmark, laborers on the shop floor may organize speed and let quality slide. In the event that business volume is the thing that matters, salesmen may offer clients rebates or arrangements that eat into your net revenues.

Attributes of utility

Definition:Utility is the quality in goods to satisfy human wants, so it can also be said that human wants satisfying capacity of goods or services.Utility is measured in terms of money and it depends upon the intensity of want. In modern time, utility has also been called"expected satisfaction".

ATTRIBUTES OF UTILITY:

1)Principal of diminishing marginal utility: Equal quantities of good consumed by an individual during a specific period yeild ever lesser marginal satisfaction while all other factors remain static.

Example:Consuming 1st slice of pizza may satisfy a person's hunger.If a 2nd slice of pizza is consumed, the satisfaction of eating that 2nd slice will be less than the satisfaction gained from eating the first.If a third is eaten the satisfaction will be even less.

2)Utilty diminishes over time: The utility of a commodity diminishes at the consumer gets larger quantities of it.

Example:Suppose a person starts buying new dresses, he has a positive marginal utility initially. As a person wears his dresses he will be buying more and more and his degree of satisfaction will be reduced because of the accumulation of more new goods.Here utility towards wearing old dresses diminishes over time.

3)Consumer is not an identical: The rate at which marginal utility diminishes depends on individuals taste and preferences and so differs across consumers.

Example: Suppose a person is going to the hotel for the first time , his initial marginal utility has positive .When he goes for the second time for the same hotel, his expectations on the food taste will be high but if that hotel fails to satisfy the customer wants , his preferences gets changed, marginal utility diminshes.

Cardinal Utility vs Ordinal Utility

Cardinal Utility

It enables customer to rank the magnitude of how much they prefix other words we can say that Cardinal utility is the utility where one good to another. The satisfaction derived by the consumers from the consumption of good or service can be expressed numerically. The notion of Cardinal utility was formulated by Neo-classical economists, who hold that utility is measurable and can be expressed quantitatively or cardinally, i.e. 1, 2, 3, and so on. 
For example, people may be able to express the utility that consumption gives for certain goods. For example, if a Nissan car gives 5,000 units of utility, a BMW car would give 8,000 units. This is important for welfare economics which tries to put values on consumption.
 

Ordinal Utility

In ordinal utility, the consumer only ranks choices in terms of preference but we do not give exact numerical figures for utility. Ordinal Utility is propounded by the modern economists, J.R. Hicks, and R.G.D. Allen, which states that it is not possible for consumers to express the satisfaction derived from a commodity in absolute or numerical terms.
For example: Suppose a person prefers tea to coffee and coffee to milk. Hence, he or she can tell subjectively, his/her preferences, i.e. tea > coffee > milk.

Total , Average and Marginal product relationship

Total Product
In simple terms , total product is the total volume or total amount of final output produced by a firm using the given inputs in a given time period .

Marginal Product
Marginal product is the additional output produced as a result an additional unit of variable input factor is called marginal product . Thus , marginal product is the addition to total product when an extra input  factor is used .
      M.P =Change in output/Change in input
Thus , total product is the summation of marginal products at different input levels .

Average product
It is definedas output /unit of input factor or average of total product / unit of inputs and can be calculated by
Average P= total product / unit of variable input factor

PRODUCTION FUNCTION

PRODUCTION FUNCTION:-

 It expresses the relationship between the physical inputs and physical output of a firm for a given state of technology. The production-function is a purely technical relation that connects factor-inputs and outputs. The production-function can be written mathematically as follows:

Qx = f (F1, f2, f3………. Fn).

There is functional relationship between factor-inputs and the amount of goods x.

TYPES OF PRODUCTION FUNCTION:-

The types of production-function it will be useful to understand the meaning of following important terms :
1. SHORT TERM PRODUCTION FUNCTION:-

It shows the relationship between production and factors of production in the short period all factors may not be available, so the factors of production in the short period can be divided into two types they are:
1. FIXED FACTOR.
2. VARIABLE FACTOR.

1. FIXED FACTOR: The factors which are not available in the short period they can be kept as constant. So they are called fixed factors.
EXAMPLE: land, building, machines etc

. 2. VARIABLE FACTORS: The factors which are available to change the output in the short period, they can be changed so they are called variable factors example: capital, labour, raw materials etc

. 3. LONG TERM PRODUCTION FUNCTION:

It explains the relationship between production and factors of production in the long period. It is also called as law of return to scale.
The classification of fixed and variable factors is related to only short period. But in long period all factors are variable factors.

THE ANALYSIS OF UTILITY

MEANING OF UTILITY:-

The power to satisfy a want. Any commodity or service which can satisfy a human want is said to have utility.
A consumer may desire a unit of good "X" more than that of a unit of good "Y" ,because commodity "X" gives him a more utility.

CARDINAL AND ORDINAL UTILITY:-

The numbers 1,2,3,4,5 etc are called cardinal number.

The numbers 1st, 2nd, 3rd, 4th, 5th etc are ordinal number.

MEASURMENT OF UTILITY:-

The utility is measurment in "utilis". The measurment of utility depends differs from person to person. For the same it differ from time to time. As, such it is not possible to measure directly the utility commodity.

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.”

We can briefly explain Marshall theory with the help of 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	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.

However there are some exceptions to this law:

• use of wisky
• want of money
• collection of precious things, etc.

Utility in Economics

Utility is a term which basically means satisfaction, and is generally used in the context of some want as perceived by a person. I am hungry, I therefore want food, a burger provides me some utility or satisfaction of that want. Giving me a lecture on history when all I want is food does not give me utility. In fact it may annoy me if you start lecturing me on history. Under those circumstances, the lecture on history has disutility, a source of dissatisfaction to me. Utility is measured in utils means satisfaction. When we buy anything we compare utility of that commodity with money spent. Because we have limited money and many wants, so we compare utilities of other substitutes and goods we are not buying to get that particular good.  

Are Hype beasts rational?

Before we start on why Hype beasts behave rationally for any product. Let's understand what being Rational means.
The jargon "Rational" has been defined in the Collins Dictionary as:- Thoughts which are based on reasons rather than on emotion.
This means the purchasing pattern of a customer is purely based on various reasons rather than emotion for the product.
As humans, we are very rational about our decisions to be it for a flavour of ice cream or a colour of a car. we tend to find reasons behind buying a particular product. this tendency is very common but the intensity of it increases among the Hype beasts.

What is a Hype beast you may ask?
As defined by the Urban Dictionary as:-
A person that collects clothing, shoes, and accessories for the sole purpose of impressing others.
These are those kinds of customers who only buy a product to impress others. their behaviour is very rational as they will buy anything that will provide a good reason to brag about in front of peers and friends.

Brand such as BAPE, SUPREME, OFF-White, etc. are living off this kind of rational customers as they sell a limited amount of articles such as t-shirts, shoes, hoodies etc. creating a huge demand for the product.

In Economics we know a seller increases the supply to meet the demand of its customers. However, this mechanism is not adopted by this brands as they intend to supply less to a market filled with hype beasts. These brands are well aware of the rational behaviour of its customers and hence it focuses on selling a limited amount of product.

An American streetwear brand by the name SUPREME had taken a huge advantage of this phenomenon in the recent year. SUPREME is known for making ridiculous items such as hammers, axe, baseball bat, etc. which isn't its main article of trade. However, there is a running joke in the streetwear community that a customer of SUPREME will buy anything that is sold by them. Playing on that joke SUPREME launched a brick with its logo in a very limited quantity and for one time only.

The response of such tactics was they sold out the brick in about 5-10mins of the portal opening. This explains clearly, how a customer is rational about buying things and this was a classic example of how a hype beast behaves in terms of buying a product with the reason of showing off behind the purchase.

Can you measure happiness? Economists say Yes!

Say, when you go to "Big Bazar" or "D-Mart" every month for a grocery shopping, you have an amount in your mind that you want to spend, let's take Rs. 2000 maximum. This means your objective will be to get maximum happiness or satisfaction from every rupee that you'll spend! But we know that happiness cannot be quantified or put into numerical terms. It's a feeling that can only be expressed. But interestingly, the concept of Utility in Economics tells you otherwise.

So, what is Utility?

Utility is the amount of satisfaction that you derive from the consumption of a product or service. For quantifying it, there is an abstract measure of satisfaction that people receive from a commodity, known as Util. Now, remember, a Util is an abstraction because it is something that doesn't exist in the real world (like an inch or pound). It is something in your mind representing one unit of satisfaction or happiness!

Moreover, the level of satisfaction for a particular product may vary from person to person as well as time-to-time. As per Prof. Hobson, “Utility is the ability of a good to satisfy a want”.

For Example - You love potato chips, so you assign 20 Utils as satisfaction from eating a packet of Potato chips but some other person may not be fond of it and get only 5 Utils of satisfaction. 

How do you measure that happiness (Utility)?

The example below shows two popular approaches to measure satisfaction derived from the consumption of a product. 

Byju's

Cardinal Utility lets you quantify Utility by giving absolute values to it (measured in Utils). Another example will be - when you buy something from Flipkart or Myntra, they send a feedback form to you after delivery to rate (quantify) their services to measure how satisfied you are. This refers to measuring the Cardinality of their services!

Another approach is the Ordinal Utility where the consumers don't assign numerical values for utility but ranks the products or services in terms of their preferences. One thing to note is that Ordinal Utility can be either derived independently or through Cardinal Ratings. Using the similar example, say, you prefer Myntra over Flipkart for shopping or Maruti over Chevrolet when choosing cars!

Credits:

https://study.com/academy/lesson/

https://www.economicshelp.org/blog/

The cross-price elasticity of demands

The cross price elasticity of demand measures  how the quantity demands of one good responds to a change in the price of another good.it is calculated as the percentages change in quantity demanded of good 1 divided by the percentage change in the price of good 2. 

Cross -price elasticity of demand    =   percentages change in quantity demanded of good 1

                                                                ---------------------------------------------------------------

                                                               percentages change in the price of good 2

* The cross -price elasticity is sometime positive and negative number depends on 

whether the two good are substitutes or complements.

*An increases in hot dog prices induces people to grill hamburgers instead.

because the price of hot dog and the quantity of hamburger demanded  move in same direction, 

the cross the price elasticity is positive .

*conversely ,complements are good that are typically used together  , such as computer and software .

in the case , the cross-price elasticity is negative ,indicating that an increases in the price of computer reduces the quantity of software demanded.

UTILITY & MARGINAL UTILITY

UTILITY:-

The consumer satisfaction is called as UTILITY in economics.

Eg:- 

1. If Apple is your favourite fruit then, the satisfaction you get by consuming apple is called as Utility from Apple.
2. If you love to ride Royal Enfield bike then, the satisfaction you get by riding Royal Enfield is called as Utility from royal enfield.
3. If you love to have Grape juice then, the satisfaction you get by drinking Grape juice is called as Utility from Grape juice.
4. Generally all the hobbies of an individual gives satisfaction for him/her. Therefore the satisfaction is called as Utility in Economic terminology.

MARGINAL UTILITY:-

The Consumer's Additional Utility generated by consuming the additional unit is known as Marginal Utility.

Eg:-

1. The difference between the utility you get from consuming first apple and consuming second apple is called as Marginal Utility.
2. The difference between the utility you get from drinking first Grape juice and second grape juice is called as Marginal Utility.
3. The difference between the utility you get while riding bike in the initial stages and after some period of time is called as Marginal Utility.
4. The Marginal Utility of all the events will get reduced when the no of units consumed are increasing.
5. Even the person with High Drinking Capacity will gets saturated at certain point of time and will not be in a situation to consume next round of Alcohol.

Therefore, There is No Exception for Law of Diminishing Marginal Utility.

Law of Diminishing Returns for a Farmer

Law of Diminishing Returns

The Law of diminishing returns states that, if one of the variable is increased in the production process there will be decrease in output with respect to marginal per unit output with other factors as constant. Law of Diminishing Returns can also be called as Law of Diminishing Marginal Returns. When the usage of an input increases, a point will be eventually reached at which the resulting additions to output decrease.

Example:

Let us assume that, a farmer with an acre of land with a corn crop. To cultivate the crop, farmer needs fertilizers, water and labour. Assume that the farmer already decided about the quantity of water and labour is required for the season. He need to decide on the quantity of fertilizer. When he increases the usage of fertilizer, the corn crop production will be increased. But, there may be a point that if the fertilizer is used to a greater extent, the crop may turn into poisonous.

The Law of Diminishing Returns states that the additional usage of fertilizers increases the production, the less usage of fertilizers will decrease the production. The cost of fertilizers and the production is related to marginal output.