Under certain circumstances, consumers buy more when the price of a commodity rises and less when its price falls. In such cases, the demand curve slopes upwards from left to the right, i.e., it has a positive sloppe. These cirumstances are known as exceptions are known as exceptions to the law of demand. The main exceptions are as follows:
Thursday, March 25, 2010
Friday, March 12, 2010
Law of Demand
It is a general experience that demand for a commodity is more at lower price than at a higher price. There is inverse relationship between price and quantity demanded. This inverse price-demand relation is known as the law of demand. Hence, the law of demand shows the direction in which quantity demanded changes with a change in price.
In Marshall's words,"The amount demanded increases with a fall in price, and diminishes with a rise in price."
In the words of Prof. Samuelsion, "Law of demand states that people will buy more at lower prices and buy less at higher price, other things remaining the same."
The phrase 'other things remaining the same' points towards certain important assumptions on which this law is based. These assumptions are:
In Marshall's words,"The amount demanded increases with a fall in price, and diminishes with a rise in price."
In the words of Prof. Samuelsion, "Law of demand states that people will buy more at lower prices and buy less at higher price, other things remaining the same."
The phrase 'other things remaining the same' points towards certain important assumptions on which this law is based. These assumptions are:
- No change in income of the consumer;
- No change in the price of related goods;
- No change in the taste, nature and fashion of the consumers;
- No change in climate and season;
- No change in size and composition of the population;
- No exception of further changes in the price of the commodity.
Kinds of Demand
The following are the types of demand:
- Price Demand
Price demand expresses a relationship between price and quantity demanded. It refers to the various quantities of a commodity that a consumer would purchase at its different prices at a given time, keeping all other things constant. The quantity demanded increases with the fall in price and falls with the rise in price.
- Income Demand
Income demand expresses the relationship between income and demand, keeping all other things constant. It refers to the various quantities of a commodity that would be purchased by a consumer at different level of income. The relationship between the income of the consumer and his demand is positive, i.e. the demand increases with the increase in demand and vice-versa.
- Cross Demand
Cross demand expresses the relationship between the demand for one commodity, say X and the price of the related commodity, say Y. It indicates how much quantity of X commodity will be demanded at different prices of Y commodity, without any change in the price of X commodity.
- Direct Demand
Direct demand refers to the demand for a commodity not for its direct consumption to satisfy a human want directly. For example, the demand for a car is a direct demand and it satisfies the final consumption demand.
- Derived Demand
Derived demand refers to the demand for a commodity not for direct satisfaction but making final product. It is also called indirect demand. Derived demand depends upon direct demand. For example, the demand for a building is a direct demand and the demand for bricks, cement, rod, wood, etc. required to make the building are known as the derived demands.
- Joint Demand
It is also known as complementary demand. Joint demand refers to that demand when two or more commodities are demanded together to satisfy a common want. For preparing tea, we need milk, sugar and tea leaves.
- Composite Demand
Composite demand refers to the demand for one commodity which can be put to several uses. For example, milk can be used for making sweet, tea, butter, etc. Therefore, demand for milk is a composite demand.
Sunday, February 14, 2010
Demand
Meaning of Demand
In common language, 'demand' and 'desire' are used as synonymous. But in economics, demand implies more than mare desire. The demand for a commodity is its quantity which consumers are able to willing to buy at various prices during a given period of time. A beggar's desires to travel by air from Dang to Kathmandu has no significance as he cannot pay for it. On the other hand, a businessman's desire to go to Kathmandu by an aeroplane is demand as he is able to pay for it, and willing to do so. Thus, demand means desire backed by willingness and ability to pay.
Both willingness and ability to pay are essentile for demand. If a man is willing to pay but he is unable to pay, his desire will not become demand. In the same way, if he is able to pay but is not willing to pay, his desire will not the same way, if he is able to pay but is not willing to pay, his desire will not be charged into demand. In order to change desire into demand, it is necessary that he should have both willingness and ability to pay for it. Thus, demand refers to effective desire which implies three things:
Different economists have defined the term demand in different ways. Some are as follows:
According to Prof. Marshall,"Demand refer to the quantities of a commodity that the consumers are able and willing to buy at each possible price during a given period of time, other things being equal."
In the words of Bober,"By the demand we mean the various quantities of a given commodity or services which consumer's would buy in one market in a given period of time at various prices."
In simple words, demand means the quantity of goods and services which consumers would buy in a market at given price and time.
Thus, there are necessary for demand to exist:
- Desire for a commodity;
- Willingness to pay for it; and
- Ability to pay for it.
Different economists have defined the term demand in different ways. Some are as follows:
According to Prof. Marshall,"Demand refer to the quantities of a commodity that the consumers are able and willing to buy at each possible price during a given period of time, other things being equal."
In the words of Bober,"By the demand we mean the various quantities of a given commodity or services which consumer's would buy in one market in a given period of time at various prices."
In simple words, demand means the quantity of goods and services which consumers would buy in a market at given price and time.
Thus, there are necessary for demand to exist:
- the price of the commodity;
- the amount of a commodity; and
- per unit of time.
Friday, January 29, 2010
Disadvantages or Demerits of Market Economy
Market economy has been severally criticized by many economists on the following grounds:
- Economic Instability
The main drawback of a market economic system is that it does not guarantee economic stability. In the lack of any external control, this economy is subject to the frequent ups and downs in the levels to production, income, employment, prices, trade, etc. As a result, prices, unemployment, etc. may increase and uncertainly may prevail in the economy.
- Class Struggle
Another defect of market economy is that it divides the entire society into two classes- the rich and the poor, or the owners (employers and employees) and workers, or haves and haves-not. These two classes always fight with each other because of the clash of their interests. There is always a struggle between those two distinct classes.
- Wasteful Competition
There is a wasteful competition in a market economy. A large sum of money is wasted on competitive advertising a product in a newspaper, on radio and T.V., in cinema, etc. Form a consumer as well as social point of view, selling costs are sheer wastage because the resources of the society are wastage and consumers have to bear the burden of selling costs in the form of higher prices.
- Failure to Market Mechanism
In an underdeveloped economy, market mechanism cannot guarantee rapid and sustained economic growth and removal of poverty and unemployment. Free market forces cannot guide infrastructure, capital goods industry, etc. Moreover, saving and investment which are essential for higher growth cannot be raised simply by free market forces of demand and supply.
- Monopoly Tendencies
A major defect of market economy is that the monopoly tendencies are developed in the country. Gradually competition declines and the large firms try their level best to eliminate the rival firms through various means and emerge as big monopoly houses. Labors are being exploited by the bog industrialists and consumers are charged higher prices.
- Business Fluctuations
All major countries of market economic system of the world are suffering from the problem of business fluctuations. In the lack of any control, booms and depressions occur very frequently in these economics. The resources of the economy are not fully utilized.
- Exploitation of Workers
Another defect of a market economy is that the workers or labors are exploited by the markets. Therefore, it causes a good deal of human misery and sufferings. The workers are paid less than their marginal productivity and are paid wages just sufficient for their bare survival. In this regard, Karl Marx has pointed out, "Market Economy contains the seed of its own destruction."
In brief, a market economic system gives more importance to the private ownership of property, competition, consumer's sovereignty, and least government interference in the economic activities. But at the same time, it contains certain evils too. Many welfare states have taken certain measures to curb these evils through certain welfare measure. In this way, the role of government is also increasing.
Thursday, January 28, 2010
Advantages or Merits of Market Economy
The following are the main features of market economy:
- Economic Efficiency
Competition is the o find out new techniques of production in order to reduce economic wastage and to increse economic main basis of market economy. The competition among producers inspires every producers to produce cheaper and better quality goods. This leads to economic efficiency. Every effort is made efficientcy.
- Better Living Standard
- Efficient use of Economic Resources
- Intensive to Work
- Economic Freedom
- Flexibility and Automatic Operation
- Rich Variety of Goods and Services
- Economic Growth
Basic Concept of Market Economy
Meaning of Market Economy
A market economy is an economic system which resolves basic economic problems mainly through the market mechanism. Market economy is also known as the capitalist or free enterprise economy. Mainly, there are three basic economic problems. What, how and for whom to produce. These economic problems are resolved by market mechanism. Market mechanism means the allocation of resources through the interaction between demand and supply.
According to Professor Loucks,"Capitalism is a system of economic organization featured by the private ownership and the use for private profit of men-made and nature-made capital." It is clear from this definition that under the capitalism or free market economic system all means of production such as firms, factories, mines, transport are owned and controlled by private individuals and firms. Those who own the means of production are free to use them in any way they like with a view of making profits. Everybody is free to choose any business or job he likes.
There is free market economic system in the advanced countries like USA, UK, Japan. The industrialization and economic development of these countries has taken place under the condition of free market of capitalism.
Features of Market Economy
The main features of market economy are as follows:
Freedom of choice means that workers are free to enter into any occupation for which they are qualified and consumers are also free to buy any type of goods and services which they feel appropriate for their wants.
According to Professor Loucks,"Capitalism is a system of economic organization featured by the private ownership and the use for private profit of men-made and nature-made capital." It is clear from this definition that under the capitalism or free market economic system all means of production such as firms, factories, mines, transport are owned and controlled by private individuals and firms. Those who own the means of production are free to use them in any way they like with a view of making profits. Everybody is free to choose any business or job he likes.
There is free market economic system in the advanced countries like USA, UK, Japan. The industrialization and economic development of these countries has taken place under the condition of free market of capitalism.
Features of Market Economy
The main features of market economy are as follows:
- Private Property:
- Freedom of Enterprise and Choice:
Freedom of choice means that workers are free to enter into any occupation for which they are qualified and consumers are also free to buy any type of goods and services which they feel appropriate for their wants.
- Competition:
- Consumers' Sovereignty:
- Self-interest:
- Market and Price
- Limited Role of Government
- Profit Motive
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