MICRO ECONOMICS: KEY CONCEPTS

MICRO ECONOMICS: KEY CONCEPTS

Q. What is demand? What is demand curve?

Ans.    

             A demand is that want backed by adequate purchasing power.

A demand curve represents a functional and behavioral relationship between the determinants of demand (price or P, consumers’ income or Y etc.) and the quantity demanded (Q).

Thus,

Q=f(P,Y) is a demand curve for two determinants P and Y.

Q=f(P,Y₀) is the price demand curve while Y remains constant.

Q=f(P₀,Y) is the income demand curve or Engel’s curve.

Q. What is supply? What is a supply curve?

Ans. 

            Supply represents disposal of a specific quantity of a good at a given price in a market made by the seller for maximizing profit.

            A supply curve is the locus of all possible combinations of price (P) and quantity supplied (Q) of a given commodity for given technology, factor combination, factor prices etc.

Under the assumption of diminishing marginal productivity the supply curve is of positive slope.

Q. What are the laws of demand and supply?

Ans.    Law of demand: Other things (income of the consumer, tastes and preferences etc.) remain constant, the unit price of a commodity and quantity supplied of that commodity are inversely related.

Law of supply: Other things (nature and quantity of factors, factor prices, state of technology etc.) remain constant, the price and quantity supplied of a commodity are positively or directly related.

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