Quench Your 'Economics' Query!

Law of Diminishing Marginal Utility: Definition of the Law: "Other things remaining the same when a person takes successive units of a commodity, the marginal utility diminishes constantly". The marginal utility of a commodity diminishes at the consumer gets larger quantities of it. Marginal utility is the change in the total utility resulting from one unit change in the consumption of a commodity per unit of time. Assumptions: Following are the assumptions of the law of  diminishing marginal utility . The utility is measurable and a person can express the utility derived from a commodity in qualitative terms such as 2 units, 4 units and 7 units etc. A rational consumer aims at the maximization of his utility. It is necessary that a standard unit of measurement is constant A commodity is being taken continuously. Any gap between the consumption of a commodity should be suitable. There should be proper units of a good consumed by the consumer. It is assume...

How to get edge in National Income Accounting How to determine National Income by Value Added Method The first step is to determine Gross Value added at market Price. GVAmp =Value of Output - Intermediate Consumption  Value of Output = Sales + Change In stock Intermediate Consumption = Purchase of Raw material. So  GVAmp =Sales + Change in Stock-Intermediate Consumption Few things to remember -: Sales = Domestic Sales+ Exports Purchase of Raw material = Domestic Purchase + Imports If Sales is given then no need to add exports as sales include Exports. or the Expanded Farmula may be GVAmp =Sales + Change in Stock-Intermediate Consumption GVAmp = ( Domestic Sales + Exports) + Change in Stock-Intermediate Consumption GVAmp = [( Domestic Sales + Exports) + Change in Stock] -(domestic purchase of raw material + Imports)     Purchase of machinery  is not considered as intermediate consumption as it is not for resale. If GVAmp of all the firms is determin...

Concept of Private Income, Personal Income and Personal Disposable Income. The first requirement to understand this concept isto know how Net Domestic Product is Divided between Private sector and Government. NDPfc can be divided in to two parts :- Part of NDPfc accruing to Private sector and Part of NDPfc accruing to Government Sector. NDPfc = Part of NDPfc accruing to Private sector + Part of NDPfc accruing to Government Sector. Part of NDPfc accruing to Government Sector = Savings of Non Departmental enterprises + Income of Government from Property and Entrepreneurship Part of NDPfc accruing to Private sector = NDPfc - Part of NDPfc accruing to Government Sector. Part of NDPfc accruing to Private sector = NDPfc – (Savings of Non Departmental enterprises + Income of government from Property and Entrepreneurship) After getting through this concept now private Income can be calculated easily. In order to determine Private Income you need to remember Private Income= Part of NDP...

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  - Co...

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 ...