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.

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Difference between Demand and Quantity Demanded

-Manishika