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Cause and Effect Relationships Concepts of Economics S.No Cause Effect Reasoning/Explanation 1 When price of a good increases Quantity demanded falls Law of demand 2 When price of a good increases Quantity supplied rises Law of supply 3 When price of a good decreases Quantity demanded rises Law of demand 4 When price of a good decreases Quantity supplied falls Law of supply 5 When demand increases Price also increases Competition among buyers take place 6 When demand decreases Price also decreases Competition among sellers take place 7 When supply increases Price falls Competition among sellers take place 8 When supply decreases Price rises Competition among buyers take place 9 Technology improves Cost of production falls Advance technology is cost saving 10 Price of inputs (raw material, wages) falls Cost of production falls Raw material become cheaper 11 Rate of tax falls

Equilibrium in Economics S.No Concept Conditions Explanation 1 Consumers Equilibrium Single commodity MUx =price If  MUx > Px  consumer is in gains, he will increase consumption.     MUx < Py   consumer is in loss, he will reduce consumption 2 Consumers Equilibrium Two commodity (utility analysis) MUX/Px= MUy/Py If MUX/Px >  MUy/Py   - utility per rupee from Goodx is more than utility per rupee of Goody. So consumption of Goodx is increased and consumption of Goody is reduced.. MUX/Px <  MUy/Py utility per rupee from Goodx is less than utility per rupee of Goody. So consumption of Goodx is reduced and consumption of Goody is increased. 3 Consumers Equilibrium Indifference curve approach MRSxy =Px/Py If MRSxy > Px/Py  - Consumer is willing to give up more but he has to give up less amount of other good. MRSxy  < Px/Py  - Consumer is willing to give up less but he has to give up more amount o

Budget Set/ Budget Line Indifference curve Analysis THERE ARE TWO GOODS       GOOD 1 AND GOOD 2   PRICES OF TWO GOODS ARE       P1 AND P2   QUANTITIES OF TWO GOODS CAN BE REPRESENTED BY       X1 AND X2          INCOME OF THE CONSUMER IS M   ANY COMBINATION OF GOOD 1 AND GOOD 2 IS KNOWN AS BUNDLE.    (GOOD 1,GOOD 2)    IN THE SAME WAY (1,2) (3,4) (5,4)  (7,8) (4,3) ARE KNOWN AS BUNDLES. BUDGET SET     IT COMPRISES OF SETS OF BUNDLES WHICH A CONSUMER CAN PURCHASE FROM HIS INCOME.      EQUATION FOR BUDGET SET         P1 X1 + P2 X2 <= M BUDGET LINE     IT COMPRISES OF ALL THOSE BUNDLES WHICH COST THE CONSUMERS EXACTLY EQUAL TO HIS INCOME.     EQUATION FOR BUDGET LINE             P1 X1 + P2 X2  = M IT CAN BE DRAWN WITH THE HELP OF HORIZONTAL INTERCEPT AND VERTICAL INTERCEPT.     HOROZONTAL INTERCEPT -:  WHEN A CONSUMER SPENDS HIS ENTIRE INCOME ON THE PURCHASE OF GOOD I.