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.
Demand Schedule

Difference between Demand and Quantity Demanded

Difference between Demand and Quantity Demanded
DemandQuantity 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 priceChange in quantity demanded - by price only and other factors remaining constant.
Change in demand is shown by increase or decrease in demandChange in quantity demanded is shown by expansion or contraction in demand.

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