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The document provides an overview of key concepts in economics, including types of markets, demand and supply dynamics, and equilibrium. It explains the determinants of demand and supply, as well as the concepts of price floors and ceilings. Additionally, it discusses consumer behavior theories, focusing on utility and the law of diminishing marginal utility.

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2 views

Document (1)

The document provides an overview of key concepts in economics, including types of markets, demand and supply dynamics, and equilibrium. It explains the determinants of demand and supply, as well as the concepts of price floors and ceilings. Additionally, it discusses consumer behavior theories, focusing on utility and the law of diminishing marginal utility.

Uploaded by

logoxin5455
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Economics Notes

1. Market and Its Types


A market is a system where buyers and sellers interact to exchange goods and services.

Types of Markets

1. Perfect Competition – Many sellers, identical products, free entry


and exit (e.g., agricultural markets).
2. Monopoly – A single seller dominates the market (e.g., Pakistan
Railway).
3. Oligopoly – Few large sellers control the market (e.g., telecom
companies like Jazz, Zong, Telenor).
4. Monopolistic Competition – Many sellers offer differentiated
products (e.g., clothing brands).
5. Factor Market – Where factors of production (land, labor, capital) are
traded.
6. Product Market – Where final goods and services are sold to
consumers.

2. Demand
Demand refers to the quantity of a good that consumers are willing and able to buy at different
prices.

a. Demand Schedule

A table showing how much quantity consumers will buy at different prices.

Price Quantity Demanded


(Rs.) (Units)

10 100

20 80

30 60
Price Quantity Demanded
(Rs.) (Units)

40 40

b. Demand Curve

A demand curve is a downward-sloping graph showing the inverse relationship between price
and quantity demanded.

c. Law of Demand

"Other things being equal, when the price of a good increases, the quantity demanded decreases,
and vice versa."

Example: If the price of sugar increases from Rs. 50/kg to Rs. 80/kg, consumers will reduce
their sugar consumption.

d. Determinants of Demand

1. Price of the Good – Higher price, lower demand.


2. Income of Consumers – Higher income leads to higher demand.
3. Price of Related Goods –
o Substitutes (tea and coffee) – If tea price rises, demand for
coffee increases.
o Complements (car and petrol) – If petrol price rises, demand for
cars may decrease.
4. Consumer Preferences – Change in taste affects demand.
5. Future Expectations – If prices are expected to rise, people buy more
now.
6. Number of Buyers – More buyers increase demand.
e. Shift in Demand vs. Movement Along the Demand Curve

 Movement Along the Demand Curve → Change in price leads to


movement up or down the curve.
 Shift in Demand Curve → Change in non-price factors (income,
preferences) shifts the entire curve left (decrease) or right (increase)

3. Supply
Supply refers to the quantity of a good that producers are willing and able to sell at different
prices.

a. Supply Schedule
Price Quantity Supplied
(Rs.) (Units)
10 40
20 60
30 80
40 100

b. Supply Curve

A supply curve is an upward-sloping graph showing a direct relationship between price and
quantity supplied.
c. Law of Supply

"Other things being equal, when the price of a good increases, the quantity supplied also
increases, and vice versa."

Example: If the price of tomatoes rises from Rs. 50/kg to Rs. 100/kg, farmers will grow and sell
more tomatoes.

d. Determinants of Supply

1. Cost of Production – Higher costs reduce supply.


2. Technology – Better technology increases supply.
3. Taxes and Subsidies –
o Higher taxes decrease supply.
o Government subsidies increase supply.
4. Price of Related Goods – If wheat price rises, farmers may grow
more wheat and less rice.
5. Future Expectations – If firms expect prices to rise, they reduce
current supply.
6. Number of Sellers – More sellers increase supply.

e. Shift in Supply vs. Change in Quantity Supplied

 Movement Along the Supply Curve → Price change leads to


movement up or down the curve.
 Shift in Supply Curve → Change in non-price factors shifts the entire
curve left (decrease) or right (increase).
4. Equilibrium
Equilibrium occurs where demand and supply intersect.

 Equilibrium Price – The price where quantity demanded equals


quantity supplied.
 Equilibrium Quantity – The quantity exchanged at the equilibrium

price.

. Disequilibrium (Shortage and Surplus)

1. Shortage – Demand exceeds supply → Prices rise.


2. Surplus – Supply exceeds demand → Prices fall.

5. Definitions
a. Price Floor

The minimum legal price set by the government above equilibrium (e.g., minimum wage).

b. Price Ceiling

The maximum legal price set by the government below equilibrium (e.g., rent control).

c. Tax Incidence

The burden of tax shared between buyers and sellers depending on price elasticity.
6. Theory of Consumer Behavior
Studies how consumers make choices to maximize satisfaction.

a. Utility

The satisfaction a consumer gets from consuming a good.

b. Approaches to Consumer Behavior

1. Cardinal Approach – Assumes utility can be measured numerically.


2. Ordinal Approach – Consumers rank preferences without assigning
numbers.

c. Total Utility (TU)

The total satisfaction from consuming multiple units of a good.

d. Marginal Utility (MU)

The additional satisfaction from consuming one more unit of a good.

Law of Diminishing Marginal Utility – As a consumer consumes more units, additional


satisfaction (MU) decreases.

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