Introduction to Economics and Demand: Meaning of Economics
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Economics
- Economics: A Queen of social sciences
- Economics = ‘Oikos’ + ‘Nomos’ (Greek words)
- ‘Oikos’ = ‘House’
- ‘Nomos’ = ‘Management’
- According to J. S. Mill , Economics is “The practical science of production and distribution of wealth.”
Meaning of Economics
- It is the study of how people produce and spend income.
- It talks about ‘Economic activities’ and ‘Economic problems’ .
- It is the study of logical choice between scarce resources and unlimited wants .
- It deals with the central problems of an economy such as , What to produce? , How to produce? and for Whom to produce? .
- Economics is the social science that is concerned with production , distribution and consumption of goods and services.
Demand
- Desire
- Ability to buy
- Willingness to buy at a given price and at a given time
- Demand is related to price.
- The relation between price and demand is inverse, when the price goes up of a particular commodity , its demand falls and vice-versa.
- A man may be willing to get a thing, but he is not able to pay the price , it is not the demand in the economic sense.
- But in exceptional cases the two variables may move in the same direction. Example: Griffin goods
Determinants of Demand
- Income
- Price
- Taste and preferences of consumers
- Supply
- Price of other goods
- Expectations about future
- Number of buyers
Demand Function
Demand function states the relationship between demand for a product (dependent variables) and its various determinants (the independent variables) affecting it.
A demand function may be expressed as follows:
- f ( , M, , , T, A)
- Where, is the quantity demanded of a product X
- is price of a commodity
- M is the money income of the consumer
- is the price of its substitutes
- is the price of its complementary goods
- T is consumers tastes and preferences
- A is advertisement expenditure
Law of Demand
- The law states the nature of relationship between the quantity demanded of a product and its price.
- According to law of demand , other factors being constant (cetris peribus) , if the price of commodity falls , the quantity demanded of it will rise and if the price of commodity rises , its quantity demanded will decline.
- Thus, there is inverse relationship between price and quantity demanded.
Assumptions to Law of Demand
- Income of people remain unchanged
- Tastes and habits of people remain unchanged
- Price of substitute and complementary goods remain unchanged
- There is no expectation of future change in price of commodity.
Difference between Demand and Quantity Demanded
Demand | Quantity demanded |
---|---|
Demand lists out quantities that would be purchased at various prices. | Quantity demanded is the actual amount of goods desired at a certain price. |
Change in demand -by factors other than price | Change in quantity demanded - by price only and other factors remaining constant. |
Change in demand is shown by increase or decrease in demand | Change in quantity demanded is shown by expansion or contraction in demand. |
✍ Manishika