Distinction between Decrease in demand and Contraction of demand

Distinction between Decrease in demand and Contraction of demand 

 

CONTRACTION OF DEMAND ; Other things remaining the same , when less commodity is purchased due to increase in its price , it is termed as Contraction of demand . It is shown as demand curve moves upwards or leftwards along with the same demand curve.

This can be better understood with the help of table and diagram, just like below;

Example;

Price	10	20
Demand	20	10

Here we see the quantity demand moves from point B to point A along with the same demand curve.

DECREASE IN DEMAND ;  It is the situation when less commodity is purchased due to other factors, not by the price, this term we called Decrease in demand . Did you know what are those other factors that are responsible for decrease in demand, they are; 

• ·         When a fall in consumers income
• 
  
• ·         A fall in the price of a substitute
• 
  
• ·         When the price of a complementary goods rise
• 
  
• ·         Change in taste

This can be understood with help of n example and diagram;

Example;

Price	10	10
demand	20	10

With the help of diagram we see that demand curve shifts from DD to D1,D1 due to other factors not due to price.

 OR

Price	20	10
Demand	10	10

 With the help of diagram we see that demand curve shifts from DD to D1,D1 due to other factors not due to price. 
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What's the difference between increase of demand and extension of demand

What's the difference between increase of demand and extension of demand

EXTENSION IN DEMAND AND INCREASE IN DEMAND

In common terms Extension in demand and Increase in demand are taken in the same sense, but in economics they express different situations, the same with contraction and decrease in demand. Which can be discussed below?

EXTENSION IN DEMAND;  Other things remaining the same, when more commodities are purchased with the fall in its price, that’s called extension in demand. It is shown below with the help of diagram, in which demand curve slops downwards along with the same demand curve.

In the diagram the movement of demand from point A to B along with the same demand curve shows the extension of demand. It shows as the price falls from P TO P1 the demand increases from D to D1

SUPPOSE,

PRICE	10	5
DEMAND	5	10

Here we notice that as the price falls from P to P1 the demand increases from D to D1, that causes the original point A moves downwards to B along with the same demand curve

INCREASE IN DEMAND; This is the situation where due to other factors, the more quantity is demanded with the same in its price , or the same quantity is demanded with the rise in its price ,this indicates the increase in demand . Here the demand curve shifts from upwards    

With the help of an example you will clearly understand, First did you know the other factors , that is responsible for that , ok , they are ..

1.       Rise income of the consumer

2.       When the price of the substitute rises

3.       Change in taste

SUPPOSE

When the income of the consumer rises he demand more commodity , or when the price of the substitute good rises the demands for the original product  increase .Below you can see the table and diagram of increase in demand .

E-G

PRICE	10	10
DEMAND	20	30

Here we see  the demand increases due to other factors , while the price remaining the same, that cause the original demand curve D,D shifts to D1,D
















OR

PRICE	10	20
DEMAND	10	10

The Law of Demand (With Diagram) ,AND DEMAND CURVE IN AN EASY WAY

The Law of Demand (With Diagram)

Law of  demand

 

Its our general experience that if there is fall in price then the demand of the product increases, and when there is rise in price then the demand of the product falls, that shows that there is a negative relationship between demand and price , both price and demand move in an opposite direction,
 so the law of demand states that there is the negative relationship between price and demand ,as the demand for a commodity  expands with fall in its price and contracts with a rise in its price, other things remaining the same.


This can be better understood with the help of an example ;


Suppose in a market the price of bananas are increased and we found that people are not buying that product even we also because they are expensive and next day the price of bananas fall here we found that people rushed to buy these bananas as its price fall ,that called the negative relationship between price and demand, as the price falls demand increases and as the price rises the demand falls.


LAW OF DEMAND CAN BE EXPLAINED WITH THE HELP OF TABLE AND DEMAND



PRICE OF THE COMMODITY	QUANTITY DEMAND
10 8 6 4 2	10 20 30 40 50



From the above table we see that as the price falls the demand rises , when the price is 10 the demand is also 10, but when the price falls from 10 to 8 the quantity demand rises from 10 to 20,
And when price falls from 8 to 6 the demand rises from 20 to 30 , the same with other price variations as they falls the demand increases that shows that both moved in an opposite direction,




 BELOW IS THE DIAGRAM OF DEMAND AND PRICE 







D,D1 IS THE DEMAND CURVE


 From the x side we take the demand of the commodity , and from the y side we take the price of the commodity, when the price of the commodity is 10  both intersects each other at point A , and when price falls from 10 to 8 the demand rises from 10 to 20,then the curve starts moving downwards from point A to point B ,similarly when the price falls from 8 to 6 the demand rises from 20 to 30, demand curve moves from point B to point C, and when the price of the commodity falls from 6 to 4 ,the demand of the commodity rises from 30 to 40 that effects the demand curve moves from point C to point D, similarly when the price falls from 4 to 2 the demand rises from 40 to 50, that causes the demand curve moves from point D to point E,


When we connect all these points means point A,B,C,D,E These points creates a curve D , D1 AND THAT CURVE IS CALLED THE DEMAND CURVE




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THE CONCEPT OF UTILITY, IT'S MEANING , TOTAL UTILITY , MARGINAL UTILITY, LAW OF DIMINISHING MARGINAL UTILITY.

THE CONCEPT OF  UTILITY, IT'S MEANING , TOTAL  UTILITY , MARGINAL UTILITY, LAW OF DIMINISHING MARGINAL UTILITY.

Did you know that why people buy commodities? why they spent lot of money on them? Simply in order to satisfy their wants that's we called Utility.

UTILITY; Is the want satisfying power of a commodity or good, now the question arises  did we measure the utility, some economist said that utility is measured in terms of units and some said that it is measured in terms of money.  The two forms of utility that are Marginal utility and Total utility.

Marginal utility; Simply we say change in total utility by which a unit increase in consumption is called the marginal utility, marginal means additional.

                Marginal utility = change in total utility

  This can be better understood with the help of figure and the table that are given below;

Units of a commodity	Marginal utility (change in total utility)	Total utility  (sum of marginal utility)
1 2 3 4 5 6 7 8	10 8 6 4 2 0 -2 -4	10 18 24 28 30 30 28 24

With the help of table we may know that how much units change due to increase in total utility, when we have 1 commodity at that point the total utility is equal to 10 and the marginal utility is also 10 its because there is no change in total utility , but when we have 2 commodities our total utility increases to  18 so at first commodity we have total utility 10 and at 2^nd we have 18 it means the total utility increase 10 to 18  .10 +8 = 18  ,so the change in total utility is 8 that is our marginal utility, means change in total utility is called marginal utility . At 3^rd commodity we have total utility 24 it means our marginal utility is equal to 6, the same with other commodities.

Total utility; Total utility is the sum of marginal utility obtained from the consumption of different units of a commodity.

           Total utility = Sum of marginal utility

From the above table we have notice that the sum of marginal utility is total utility e-g when marginal utility is equal to 10 total utility is also 10 but when marginal utility changes from 10 to 8 it means 10+8= 18  that is our total utility same in the case of other commodities.

Relationship between total utility and marginal utility.
As we have shown in the above table that total utility  in first 4 commodities increases and at 5,6 the total utility remains stable ,at 7,8 it starts decreasing while on the other hand marginal utility is always decreasing from start to end . Marginal utility can be positive , negative or zero  but total utility is always positive from the beginning then it remains stable then it starts decline.

The fallowing figure shows the relationship between the marginal utility and total utility, Here we see that marginal utility is always decreasing while total utility at first increases then remains stable , after that it starts decreasing.





 The figure shows the marginal utility curve and total utility curve,










        


Now the question arises why the marginal utility is always decreasing ? This is called the law of diminishing marginal utility .

This is an important law to analysis utility  .  
 Law of diminishing marginal utility is better understood with the help of an example, suppose you want to eat a banana and you buy 12 bananas when you eat first banana you feel satisfy and when you eat the 2nd banana your taste starts decreasing it means your utility (want satisfying power) starts decreasing and when you eat 3rd ,4th,5th means all those bananas your taste decreases , when you eat 6th banana the marginal utility of that banana is zero then it starts negative means you don't feel any taste by eating the remaining banana, means marginal utility starts diminishing .

when you eat first banana you fell it is tasty and when you eat 2nd banana you fell it less tasty the same with all these bananas , the first banana gives you the better taste as compered to the 2nd banana and the 2nd banana gives you the batter taste as compered to the 3rd banana the same with all these bananas, that's called the law of diminishing marginal utility (marginal means additional , utility means want satisfying power ).



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CENTAL OR BASIC PROBLEMS OF AN ECONOMY

BASIC OR CENTRAL PROBLEMS OF AN ECONOMY

 Central Problems that are faced by every Economy

•       WHAT TO PRODUCE
•  
•       HOW TO PRODUCE
•       FOR WHOM TO PRODUCE
•       PROBLEM OF FULLER UTILIZATION OF RESOURCES
•       THE PROBLEM OF GROWTH
•       PROBLEM OF EFFICIENCY

THESE ARE THE PROBLEMS THAT AN ECONOMY FACE AND THE ABOVE THREE ARE THE MAJOR PROBLEMS. THESE PROBLEMS ARE DISCUSSED BELOW .

1.       WHAT TO PRODUCE:  this is the first problem that an economy face . The economy has to face that what type of commodities is to produce its because he  has  a limited resources  and the economy want to fully utilize of all these resources. So the first question arises that what type of goods is to produce  e-g civil goods , war goods, consumption goods, capital goods, (the definition of these goods are discussed below) , the first problem that an economy face is  what commodity is to produce.

2.       HOW TO PRODUCE: This is the second problem that an economy face, suppose an economy choose that what type of commodity he wants to produce, now the question arises how to produce that commodity, and what technique to used, weather to use Labour-intensive technique or Capital-intensive technique, this problem arises because there are number of ways by which goods is to be produced.

Labor intensive technique ; It is the technique where we use large portion of labour as compared to the capital(machines) its called Labour-intensive technique.

Capital-intensive technique: it is the technique where we use large portion of capital (machines) as compared to the labour its called the Capital-intensive technique.

So the economy face that problem its because the economy wants the best results of these

3.   FOR WHOM TO PRODUCE : Suppose an economy has to decide that he wants to produce and how to produce that commodity now the problem arises for whom to produce means decision, as we know that in order to produce that commodity the economy use different factors of production just like Land , Labour and Capital  so the output of production should be distributed among these factors of production. Now the question arises how to distribute that out among these. That’s the third problem that an economy face.

These are the main three problems that an economy face, there is also the other problems like Problem of Efficiency , Problem of Allocation of resources , Problem of Growth but the above three problems are the main problems of an economy .

• Civil goods just like cloths, radio, watches,shoes etc that are uses for the civil perpose
• War goods just like  guns, fighting aircrafts , machine guns, bomb etc
• Consumption goods like cloths,,shoes, tea , suger,etc that are consuming means that doesn't remain for a long time.
• Capital goods like machines, tractor, plane means those that remain for a long time.