Economics World

 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 s...

 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 ...

 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. ...

 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.