Economics Class 12 Revision Notes Microeconomics Chapter 2 Consumer Equilibrium and Demand
Utility is the want satisfying power of the commodity.
The marginal utility of a commodity is the change in total utility which results from a unit increase in consumption.
Total utility is the sum of marginal Utilities obtained from the consumption of different units of a commodity.
It refers to attainable combinations of a set of I wo goods, given prices of goods and income of the consumer.
It is a line showing different possible combinations of Good-1 and Good-2, which a consumer can buy, given his budget and the prices of Good-1 and Good-2.
A consumer preferences ar. monotonic if and only if btween any two bundles. Th consumer prefers the bundles, which has more of at least on of the goods and no less of the other good as compared to tin other bundle.
A curve which is a diagrammatic presentation of an indifference set. It shows differem combinations of two commodities between which a consumer h indifferent. Each combination offers him the same level ol satisfaction.
8.Marginal Rate of Substitution
It refers to the rate which the consumer is willing to substitute Good-x for Good-y or 3 refers to the number of units of Good-y which the consumer n willing to sacrifice for an additional unit of Good-x, it is
9.Diminishing Rate of Substitution
The law states that a good-1 is substitution for good-2, the marginal rate cl substitution of good-1 for good-2 goes on diminishing.
The collection of indifference curve is called indifference map.
11.Properties of Indifference Curve
(i) Indifference curves are negatively sloped.
(ii) Indifference curves are convex to the point of origin.
(iii) Indifference curves never touch or intersect each other.
(iv) Indifference curve touches neither A-axis nor Y-axis.
12.Conditions for Consumer’s optimum
(i) Budget line shoud be tangent to the IC.
(ii) Slope of IC = Slope to the budget line (MRS = Price ratio)
Demand refers to the desire to buy a commodi backed by willingness and ability to purchase that commode at a given point of time.
According to Prof RG Lipsey, “The amount of a commodi: that households wish to purchase is called the quanta! demanded of that commodity”.
15. Demand Schedule
Tabular presentation of relationship between price and demand of a commodity is called Demand schedule.
Graphical presentation of relationship between price and demand of a commodity is called Demand curve.
18.Law of demand
The law states that other things remaining I lie same, the demand for a commodity expands with fall in its price and contracts with a rise in its price.
19. Exceptions to the Law of Demand
(i) Expectations of further changes in price
(ii) Prestige goods
(iii) Giffen goods
20.Determinants of Demand
(i) Price of the commodity (i i) I ncome of the consumer
(iii) Price of related goods
(iv) Taste and preference
It is a good whose demand increases with rise in income and decreases with fall in income of the consumer, e.g., full-cream milk, wheat.
It is a good whose demand decreases with rist* in income and increases with fall in income of the consumer, e.g., bajra, toned milk.
Giffen goods are those inferior goods in case of which there is a positive relationship between price and quantity demanded and inverse relationship between income and quantity demanded.
24.Cross Price Effect
It refers to change in demand for one commodity owing to change in price of other commodity.
25. Substitute Goods
These are those goods which can be interchanged for use. If price of the substitute goods increase, the demand for the concerned goods increase and vice-versa e.g., tea and coffee.
These are those goods which are used simultaneously. If price of one good increases, demand for its complementaries will decrease and vice-versa, e.g., pen and ink.
27.Price Elasticity of Demand
It is the degree of responsiveness of quantity demanded of a commodity to the change in its price.
28.Methods of Measuring Elasticity of Demand
(i) Percentage Method
(ii) Total Expenditure Method
(iii) Geometric or Print Method
29.Degrees of Price Elasticity of Demand
(i) Pefectly Elastic Demand (ed = ° °)
(ii) More than unit elastic or elastic demand (ed > 1)
(iii) Less than unit elastic or inelastic demand (ed < 1)
(iv) Unit elastic demand (ed = 1)
(v) Perfectly inelastic demand (ed = 0)
30. Factors Influencing the Elasticity of Demand
(i) Substitute goods
(ii) Postponement of consumption
(iii) Proportion of expenditure
(iv) Nature of the commodity
(v) Uses of the commodity
(vi) The time period