Professional Documents
Culture Documents
“A study of mankind in the ordinary business of life, it examines that part of individual and
social action which is most closely connected with the attainment and with the use of material
requisties of wellbeing.Thus it is on one side a study of wealth and on the other side and more
important side a part of the study of man.”
Resources:
Land:
all free gifts of the nature. For example. Oil, Gass, Fishes, Water, Dew and Air etc.
Capital:
Human Capital:
Physical Capital:
Labour :
Organization:
is an combines that input all (land, labour, human , capital) and convert it into final output.
Positive statement:
Claims that attempt to describe the world as it is.For example Sun rises,
Normative Statement:
Claims that attempt to describe how the world should be. For example, Student could not come
in jeans.
Imperical Study:
Deficit:
The amount by which a governmnet, company or individual`s spending exceeds its income over
a period of time.
Surplus:
Being more than or in excess of what is needed or required an amount of quantity in excess of
what is needed.
Trade off:
Inflation:
Stagflation :
Efficiency:
Opportunity Cost:
Cost of a product is a amount of second product that a person/firm/ nation sacrifices in order to
attain an additional unit of first product, is called opportuinty cost.
It can be:
A PPF shows all possible combinations of two goods that can be produced simultaneously during
a given period of time, ceteris paribus. Commonly, it takes the form of the curve on the right.
For an economy to increase the quantity of one good produced, production of the other good
must be sacrificed. Here, butter production must be sacrificed in order to produce more guns.
PPFs represent how much of the latter must be sacrificed for a given increase in production of
the former.
The Market Forces of Supply and Demand
R&D +ve
Supply Function
Qs = f (p,c,tec,Tp,R&D,E&T,T,Ei,E,W,LO,HF,NF,Nd,Pi)
Price Factors
Price (P)
Other than price all the rest factors are non-price factor.
Movement along Supply Curve
It will take place if all the Non-price Factor remains unchanged and only price factor change
such as
P
S
A
P1
B
P
Q Q2 Q
It will take place if the price factor remains unchanged and all non-rice factors change.
S1 S2
P P
S2 S1
Q Q
Movement along Demand Curve
It will take place if all the Non-price Factor remains unchanged and only price factor change
such as
P D S2
S1
P1D B
P
P1 P D S2
S1
A
P
D
P1
Q1 Q Q
P
D
D
Q1 Q
Q Q1 Q Q
Shifting of the Demand curve
It will take place if the price factor remains unchanged and all non-rice factors change.
D1
D
P P
D D1
D1
D
Q
Equilibrium
It will take place a point where both supply curve and demand curve intersect each other such as
P D S
D
P D1
P
P
P1
S
D
Q Q
Case No 1 S
When price goes up Quantity demanded goes down and this called Surplus / excess supply
When price decrease Quantity demanded Increases and this call Deficit / Excess demand/
Shortage
P
Surplus S
D
B A
P1
P2
Shortage
S
D
Q1 Q Q2 Q
Case No2
Case No 3
D S1 D S1
P P
S2 S2
P P
P1 P1
D D
Q Q1 Q Q1 Q Q
P D S2
S1
Elasticity of Demand
P1
Definition
P
P D S2
Elasticity is a measure of how much buyers and sellers respond to changes in market
S1
conditions
Type of Elasticity D
P1
Price Elasticity Q1 Q Q
P
Price elasticity of demand is the percentage change in quantity demanded given a percent
change in the price.
The price elasticity of demand is computed as the percentage change in the quantity demanded
D
divided by the percentage change in price.
Q1 Q Q
Percentage change in quatity demanded
Price elasticity of demand=
Percentage change in price
Example: If the price of an ice cream cone increases from $2.00 to $2.20 and the amount you
buy falls from 10 to 8 cones then your elasticity of demand would be calculated as:
(10−8 )
×100
10 20 percent
= =2
(2 . 20−2 . 00) 10 percent
×100
2. 00
Inelastic Demand
P D
P1
Q Q1 Q
Elastic Demand
P D
P1
Q Q1 Q
Perfectly Inelastic Demand
P1
Q Q
Q Q1 Q
Cross Price Elasticity
Elasticity measure that looks at the impact a change in the price of one good has on the
demand of another good.
Income Elasticity
Income elasticity of demand measures how much the quantity demanded of a good
responds to a change in consumers’ income. It is computed as the percentage change in the
quantity demanded divided by the percentage change in income.
Types of Goods
Normal Goods
o Income Elasticity is positive.
Inferior Goods
o Income Elasticity is negative.
Higher incomeraises the quantity demanded fornormal goodsbut lowers the quantity
demanded forinferior goods.
From the origin to point A, the firm is experiencing increasing returns to variable inputs:
As additional inputs are employed, output increases at an increasing rate. Both marginal
physical product (MPP, the derivative of the production function) and average physical
product (APP, the ratio of output to the variable input) are rising. The inflection point A
defines the point beyond which there are diminishing marginal returns, as can be seen
from the declining MPP curve beyond point X. From point A to point C, the firm is
experiencing positive but decreasing marginal returns to the variable input. As additional
units of the input are employed, output increases but at a decreasing rate. Point B is the
point beyond which there are diminishing average returns, as shown by the declining
slope of the average physical product curve (APP) beyond point Y. Point B is just tangent
to the steepest ray from the origin hence the average physical product is at a maximum.
Beyond point B, mathematical necessity requires that the marginal curve must be below
the average curve (See production theory basics for further explanation.