Economics World

 Meaning of Inflation.  Inflation is the rate at which the general level of prices for goods and services rises over time, resulting in a decrease in the purchasing power of money. In other words, as inflation increases, each unit of currency buys fewer goods and services.  Key Aspects of Inflation: 1. ** Measurement **: Inflation is typically measured using price indices, such as the Consumer Price Index (CPI) or the Producer Price Index (PPI). These indices track changes in the prices of a basket of goods and services over time. 2. ** Causes **:    - ** Demand-Pull Inflation **: Occurs when the demand for goods and services exceeds their supply, driving prices up.    - ** Cost-Push Inflation **: Results from an increase in the costs of production, such as wages and raw materials, which producers pass on to consumers in the form of higher prices.    - ** Built-In Inflation **: Also known as wage-price inflation, it happens when businesses increase prices to maintain profit margins aft

  Macroeconomics is the branch of economics that studies the behavior, performance, and structure of an economy as a whole. It focuses on aggregate measures and phenomena, including national income, gross domestic product (GDP), inflation, unemployment rates, national income, and the overall levels of output and prices. Macroeconomics aims to understand how an economy operates on a large scale and how economic policies can influence economic growth, stability, and well-being. Key areas of macroeconomics include: 1. ** Economic Growth **: Understanding the factors that drive long-term increases in the production of goods and services. 2. ** Business Cycles **: Studying the short-term fluctuations in economic activity, including periods of expansion and recession. 3. ** Inflation **: Analyzing the causes and effects of rising prices and the purchasing power of money. 4. ** Unemployment **: Examining the levels and causes of joblessness and its impact on the economy. 5. ** Fiscal Policy

 MEANING OF ECONOMIC DEVELOPMENT...  The term ' economic development' extend the scope of economic theory in modern times. Every country wants to achieve higher rate of economic development. Various economists defined the term 'economic development' in different y. So it's very difficult to define the term ' economic development'. However, economic development is the process of improving standard of living, reducing poverty, inequality, unemployment, expanding employment opportunities and increasing per capita income over a long period of time.     According to classical economists, economic development means to increase in per capita GNP by the rate of 5% to 7% or more over a time. It means economic development refers only to the increase in National income over a long period of time. But according to some classical economists like Prof. Meier, economic development is a process whereby the real per capita income increases over a long period of time.      Mo

Market Equilibrium...   In common sense, equilibrium refers to the situation of rest or relaxation or free from tension. It also refers to the situation in which the two opposite forces are equal to each other. In economics, market equilibrium refers to the situation in which market demand for the commodity is equal to the market supply of the commodity. The point where market demand is equal to the market supply of the commodity is called equilibrium point which determines equilibrium price and quantity in the market. The process can be explained with the help of following schedule and diagram: The table shows that when the price is Rs. 6 per unit, Qty. Demand is equal to Qty. Supply. So the equilibrium price is Rs. 6 and equilibrium quantity is 30 units.  If we present the following schedule in the form of diagram, we will get a curve and we can easily understand the meaning of market equilibrium.  Demand curve (DD) and supply curve (SS) intersect at point Exactly, which is the equil

Law of Demand...  It is another important theory in micro-economics. It is als the basis of consumption, production, exchange and distribution of goods and services. It was als introduced and developed by the neoclassical economist Alfred Marshall in his book "Principle of Economics" published in 1890 AD. This law is based on the functional relationship between price and quantity supplied of a particular commodity.        According to this law, if other factors remaining the same, when price increases, quantity supplied of a particular commodity also increases and vice versa. In other words, quantity supplied of a commodity increases along with increase in price and vice versa, other factors remaining the same . It means there is direct relationship between price and quantity supplied of a particular commodity.  Assumptions...  The law of supply is based on several assumptions which may not be applicable in real life. They are as follows: 1. No change in price of related comm

  Difference between movement along the demand curve and Shift in demand curve....  The main difference between movement along the demand curve and Shift in demand curve are as given below: 1. When the commodity experience change in both the quantity demanded and price, causing the curve to move in specific direction, is known as movement along the demand curve. But when the price of a commodity remains constant but there is a change in quantity demanded due to some other factors, causing the curve to shift in a particular side, it is called Shift in demand curve.  2. Movement in demand curve occurs along the curve, whereas the shift in demand curve changes its position due to change in original demand relationship.  3. Price is the main determinant of movement along the demand curve whereas other factors except price are the determinant of shift in demand curve.  4. Movement along the demand curve indicates the change in quantity demanded whereas Shift in demand curve indicates the ch

 Movement along demand curve Movement along the demand curve is based on the principle of law of demand. According to this principle, demand increases when price decreases and vice versa versa vice versa versa ,other factors determining the same . Therefore, movement along the demand curve may be defined as a nature of Extension and contraction in demand due to change in price other characters remaining the same. In other words , the moment of the consumer up and down on the same demand curve due to change in price, other factors remaining the same is also defined as movement along the demand curve . It can be explained with the help of following figure: In the above figure initially, consumer is in equilibrium at point 'a' on the demand curve DD when price is OP and quantity is OQ. When price of the commodity increases from OP to OP1, the quantity demanded for the commodity by a consumer decreases from OQ to OQo and the consumer moves from point a to b, it is known as construc

Derivation of Individual Demand Curve...  Individual demand curve can be derived with the help of individual demand schedule. In case of individual consumer also, demand increases when price decreases and vice versa other factors remaining the same. It may be defined as tabular presentation of various units of price and quantity demanded for a commodity by a consumer during a certain period of time, other factors remaining the same. It is presented in the following schedule: Schedule of Individual demand..  In the above schedule, it is seen that a consumer demanded 1 kg of a commodity when price of the commodity is Rs. 10 per kg. When price decreases from Rs. 10 per kg to Rs. 8,Rs.6, Rs. 4 and Rs. 2 per kg, the quantity demanded for the commodity increases from 1 kg to 2 kg, 3 kg, 4 kg and 5 kg respectively. The table clearly shows the inverse relation between price and quantity demanded for a commodity. If we present the schedule in the form of diagram, we will get individual demand c

 Supply....  In common sense, supply is same as sale. Quantity sold is said to be quantity supplied. But in economics, quantity oa a particular commodity that would be offered for sale at all possible prices during a particular period of time is called supply. The term ' offered for sale' means ability to sale and willingness to sale. Both are most essential to be a supply.  Determinants of Supply...  The quantity supplied of a particular commodity either increases or decreases with the passes of time due to change in several factors which are called determinants of supply. Some common determinants which affect the quantity supplied of various commodities are as follows: 1. Price of goods and services : Price of the commodity is considered as main determinant of the quantity supplied in the market. Other things being equal, when price rises, supply also rises and vice versa.  2. Price of related commodities : In case of substitute goods, when the price of a commodity increases

 Causes of downward sloping of demand curve.... We know that there is inverse relation between price and quantity demanded for a particular commodity. Therefore, demand increases when price decreases and the demand curve will be downward sloping. There are several factors which establish inverse relation between price and demand. They are as follows: 1. Law of diminishing marginal utility : The law of demand is based on the law of diminishing marginal utility. Therefore, demand increases when price decreases and the demand curve will be downward sloping. 2. Income effect : When price of a particular commodity decreases, the real income or purchasing power of consumer increases. As a result, demand increases when price decreases and the demand curve will be downward sloping. 3. Substitute effect: When price of a commodity decreases, it will become relatively cheaper than its substitutes. As a result, demand increases when price decreases and the demand curve will be downward slopi

 Demand Function... We know that demand for any goods and services is affected by various factors which are called determinants of demand. It means there is technical relationship between demand for a commodity and its various determining factors which is defined as demand function. It is expressed as follows: Qdx= F(Px, You, Py, CT, Wc, To, F, A... etc.) Where, Qdx= quantity demanded for a commodity ‘x'. F= functional relation Px= price of ‘x' Py = price of related commodities Y = income of consumers Ct= custom and tradition Wc = weather and climatic condition Tp = taste and preference of consumers F = fashion A = advertisement    Out of various determinants, price of the commodity is considered as main determinant of demand, so in short, demand is the function of price. Therefore, Qdx = F(Px), if other factors remaining the same.

 Law of Demand... It is one of the most well-known and most applied theory in microeconomics. It is the basis of consumption, production, exchange and distribution of goods and services. It was first introduced and developed by Alfred Marshall in his book “Principles of Economics” published in 1890 AD. It is based on functional relationship between price and quantity demanded for a particular commodity i.e Qdx=F(Px).      According to this law, when price of a commodity decreases, quantity demanded for the commodity increases and vice versa, if other factors remaining the same. It means there is inverse relationship between price and quantity demanded for a particular commodity. According to Alfred Marshall, “The amount demanded increases with a fall in price and decreases with a rise in price, other things being equal . “ Assumptions of Law of Demand : The law of demand is based on several assumptions which may or may not be true in real life. Some of them are as follows: 1. No chan

 Shift in Production Possibility Curve... The shift of production possibility curve upward and downward due to various reasons is called shift in production possibility curve. It’s of two types:- A. Upward shift in PPC : The shift in PPC from its initial position to upward is called upward shift in PPC. It’s due to the following reasons: 1. Increase in capital : Capital is the major factor of production. If the stock of capital increases, the economy will be able to increase the production of both commodities and PPC will shift upward. 2. Increase in labour force : It is an another important factor of production. If there is increase in labour force and their efficiency output can be increased and PPC will shift upward to the right. 3. Technological development : When the economy makes progress in the development of technology, the economy will be able to produce more of both goods with the given and fixed amount of resources and the PPC will shift upward to the right. B. Dow

 PPC- Transformation Curve...  PPC is also called transformation curve because it shows the nature of transformation of one commodity into other with the shift of resources from one use to others. Production with given resources and technology are being fully utilized and employed. The combination of two commodities produced can lie anywhere on the PPC but inside and outside it as shown in the following figure:     In the above figure, point ‘H' lies below the PPC is inefficient because the available resources and technology aren’t fully utilized. Similarly point ‘G' lie above the PPC is unattainable due to limited stocks of resources and technology.