Learn Economics by Dr. Swati Gupta

Supply Analysis and The Law of Supply: Supply can be defined as a schedule of the amount of a good that would be offered for sale at all possible prices during any one period of time. Thus supply means the quantity of goods offered for sale at a given price. According to Thomas, " The supply of goods is the quantity offered for sale in a given market at a given time at various prices ." Supply is different from stock. Stock is the total volume of a commodity that can be brought into the market for sale at a short notice and supply means the quantity which is actually brought into the market. For perishable commodities, supply and stock are the same because it can not be stored. In short, the stock is a potential supply. Supply Function: It is a set of determinants of supply. A supply function can be stated as follows: Sx = f(Pf, T, Cp, Gp, N.......etc.) Where, Sx = Supply of a good x Pf = Price of factor input T  = Technology Cp = Cost of production Gp = Government Policy N =...

Revealed Preference Theory Revealed preference theory was given by Paul A. Samuelson.  According to him, utility analysis and indifference curve analysis are based on unrealistic assumptions as neither utility can be measured nor preferences of an individual can be obtained. The main merit of the revealed preference theory is that the 'law of demand' can be directly derived from the revealed preference axioms without using indifference curves and most of the restrictive assumptions. It only records the observed behavior of the consumer in the market. The consumer reveals his behavior by the bundle of goods, that he buys at different prices. Revealed preference theory is based on observable and testable hypotheses. Thus, there is a shift from the psychological to the behavioristic explanation of consumer behavior. According to this theory, the consumer is supposed to reveal the nature of his preferences. Assumptions: 1. Rationality-   The consumer is rational in behavior w...

Consumer surplus and Producer surplus The concept of consumer's surplus was  originally stated by  Jules Dupuit in 1844.  Later on,  it was properly    elaborated  by  Dr. Alfred Marshall i n his book ‘Principles of Economics.' Consumer surplus is the difference between what we are willing to pay and what we actually pay.  According to Prof. Marshall “The excess of the price which he (consumer) would be willing to pay rather than go without the thing over that which he actually does pay, is the economic measure of this surplus satisfaction... It may be called “Consumer’s Surplus”. According to Penson – “The difference between what we would pay and what we have to pay is called Consumer’s Surplus.” Example: Suppose a consumer is willing to pay Rs.10 for a pen but the cost of that pen is only Rs.5, so the consumer actually pays only Rs.5 for it. Consumer's surplus= the price which the consumer is willing to pay- the price that he actually pays ...

Indifference Curve Analysis This theory was propounded by Hicks and Allen. The ordinal approach assumes that utility is not measurable.  The ordinal approach employs the device of indifference curves for the purpose of determination of the consumer's equilibrium. A prudent consumer seeks to maximize his satisfaction from the purchases he makes, i.e., reach an equilibrium position. For this, a consumer must build up a scale of preferences on which all objects of desire or pursuit find their place, and which registers the terms on which they would be preferred one to the other. He builds up his scale of preferences from the commodities he consumes. A set of indifference curves plotted in an 'indifference map' determines the consumer's order of preferences. According to Leftwich: “A single indifference curve shows the indifferent combination of X and Y that yield equal satisfaction to the consumer.” According to Hicks: “It is the locus of the points representing parts of q...