ECONOMICS

1.MARKET ENVIRONMENT

It is the market that brings together buyers and sellers. There are different types of markets such as,
goods market, financial markets, factors market, which bring together potential buyers and sellers to
determine prices and quantities.

Markets can also be local, national, international or virtual. Some of them are highly personal in which
people are involved physically while others are beyond borders, in which buyer and seller do not know
each other.

Some of the types of market include:

 Local markets
 Regional markets
 National markets
 International markets
 Online or virtual markets

Other types of markets

 Goods market
 Factors or resource market
 Financial mark

2.DEMAND
Demand is the quantity of a good or service which buyers are ready or willing to buy at a given time and
at a given price. Every desire or want is not demand, but it implies the ability to purchase the good or
service. If a consumer holds only one of them demand does not exist. As in the case of a poor farmer, he
may be willing to purchase an expensive harvester, but his willingness is not supported by the ability to
purchase due to insufficient amount of money. On the other hand, a student may afford a burger,
however he has no mood for it. Therefore, he abstains from purchasing that burger, even though he has
the ability to purchase. In both these cases demand does not exist.
 Market demand and individual demand
Generally, students confuse the market demand with individual demand. While market demand
is the collective demand of all consumers for a product in the market intend to buy at different
possible prices while the individual demand curve represents individual consumer or household
in the market.

3.LAW OF DEMAND
“when the price of a good rises ceteris paribus, the quantity demanded will contract and vice versa”.
Economists called this relationship the law of demand.
 REASONS
 INOME AND SUBSTITUTION EFFECT
There are two main reasons for this predictable response to a price increase:
1. People will feel poorer. They will not afford to buy so much of the good with their
money. The purchasing power of their income has fallen in economic theory this is
knows as income effect of a price rise.
2. The good will now is dearer relative to other goods. People will thus switch to
alternative or substitute goods. This is called the substitution effect of a price rise.
 LAW OF DIMINISHING MARGINAL UTILITY:
Law of diminishing marginal utility states that “the additional benefit which a person derives
from a given increase of his stock of a commodity diminishes with every increase in stock that he
already has”.
DETERMINENTS OF DEMAND
 Taste:
 Change of taste or liking/disliking can affect demand for a product. For example, someone likes
to use more of sugar but later taste gets change, the demand will for sugar will fall without
bothering its price.
 Changes in Income:
 As the income of the consumer rises, he will purchase more of those products which are still
available at the same prices. Hence their demand will rise and vice versa.
 Changes in price of substitutes:
 Prices of substitutes also affect the demand for a product. An increase in the price of one good
will cause an increase in demand for the other products as well as that product will become
relatively less expensive. For instance, if the price of LG products will increases, few customers
will shift to its substitute in spite to change in price of other product.
 Changes in population:
 Changes in advertisement:
4.Movement along the demand curve, and shift:
Most often during study of consumer behaviour, we confuse change in demand and change in quantity
demanded and extension or contraction with rise and fall. The relation between price and quantity that
is described by the demand curve is valid only when it is the price of the product itself that changes
(change in quantity demanded or extension and contraction in demand). If instead, something else,
changes then the demand curve will shift (change in demand or rise and fall in demand).

1.SUPPLY
The counterpart of the demand curve is the supply curve. In study of behaviour, the most important
element which is needed to understand what to produce and sell in a market to maximize profit?
 INDIVIDUAL SUPPLY.
 MARKET SUPPLY.
2.LAW OF SUPPLY
Ceteris paribus, as price rises, the quantity supplied rises; as price falls, the quantity supplied falls”. In
economic theory this relationship is known as law of supply.
3. Changes in Quantity Supplied or Extension and Contraction in Supply
Distinction between change in supply and change in quantity supplied are alike distinction between
change in demand and change in quantity demanded. Change in supply mean shift in supply curve due
to change in factors other than own price. In contrast, change in quantity supplied is the movement
from one point to another point along the existing supply curve. The cause of such changes is only the
price of the product under consideration.
  Rise and Fall in Supply or Shift in Supply Curve
The supply of a good may alter although there has been no change in price. There are several
factors which may cause a change in supply.
4.DETERMINENTS OF SUPPLY
 Resource cost/Input prices: Resources are important factors required during production
process. Prices of resources also determine the cost of production incurred by the firm.
Increasing resource cost raises the cost of production of a particular product, assuming a
particular price of a product constrict profits, which dishearten the firms to produce more. Input
prices or prices of raw material also contribute the overall cost production. If price of raw
material will increase, it will increase the cost of production and the profit margin of the firm will
get smaller.
 State of technology: use in production: Another important determinant of production cost is
technological advancements, which consist of changes that lower the quantity of inputs needed
to produce the same quantity of output. Improved technology or techniques of production
facilitate firms to produce units of output with less resource. This way the profit margin for the
firms increases without changing the price of product to be sold in the market.
 Taxes and subsidies: Business decisions are sensitive to government policies. Government policy
such as Taxes and Subsidies (fiscal policy) also has an impact on the supply curve as they
significantly contribute to overall cost of production. Taxes will increase cost of production and
reduce supply while in the case of subsidies it is reverse.
 Prices of other goods: Some time firms are able to produce different goods such as ladies hand
bags or school bags by using same plant and equipment. If profit margin increases in production
of school bags, the firms will switch resources from ladies bags to school bags. This substitution
in production results in decline in the supply of ladies bags in the market.

1.MARKET EQUILIBRIUM
The market will be in of equilibrium or sate of rest where these both forces intersect each other. This
shows that supply and demand interact to produce an equilibrium price and quantity, or a market
equilibrium. The market equilibrium comes at that price and quantity where the forces of supply and
demand are in balance.
1.Government-Set Prices
 Price ceilings
 Set below equilibrium price
 Rationing problem
 Black markets
 Example: Rent control
 Price floors
 Prices are set above the market price
 Chronic surpluses
 Example: Minimum wage laws.

“SYEDA NOOR-UL-SEHER”