Make a Diagrams Table and Graphs
According to question
1. Differentiation Between Marshall and Robbins’ Definitions of Economics:
Marshall’s Definition (Welfare Definition):
Focus: Marshall defines economics as the study of man in ordinary business life,
emphasizing the use of resources to achieve material welfare.
Key Point: It focuses on both wealth and human welfare.
Criticism: Limited scope as it only considers material well-being, ignoring non-
material aspects like leisure and relationships.
Robbins’ Definition (Scarcity Definition):
Focus: Robbins defines economics as the science of choice and scarcity,
emphasizing the allocation of scarce resources with alternative uses to satisfy
unlimited wants.
Key Point: It broadens the scope to include all aspects of resource allocation, not
limited to material welfare.
Criticism: It ignores the ethical and welfare aspects, focusing solely on resource
scarcity and choices.
Difference Table:
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2. Law of Diminishing Marginal Utility
and Its Limitations
Definition:
The law states that as a consumer consumes successive units of a commodity, the
additional utility (satisfaction) derived from each extra unit diminishes.
Diagram:
The X-axis represents the quantity of the commodity consumed.
The Y-axis represents the marginal utility.
The curve slopes downward, showing diminishing utility.
Limitations:
1. Assumes Rationality:
Consumers may not always act rationally.
2. Cardinal Measurement:
Utility is subjective and cannot always be measured numerically.
3. Homogeneous Units:
Assumes all units of the commodity are identical, which is not always true.
4. Ceteris Paribus: Assumes no change in preferences or other conditions.
5. Ignores Psychological Factors: Factors like habit and addiction can alter utility
perception.
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3. Properties of
Indifference Curves
1. Downward Sloping:
Represents the trade-off between two goods; to consume more of one good, less of
the other must be consumed.
2. Convex to the Origin:
Reflects diminishing marginal rate of substitution (MRS).
3. Do Not Intersect:
Each curve represents a distinct level of utility.
4. Higher Curve = Higher Utility:
A curve farther from the origin represents greater satisfaction.
5. Negatively Sloped:
Implies a consumer prefers more of both goods (positive marginal utility).
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4. Law of Demand and
Changes in Demand
Law of Demand:
States that other things being equal, as the price of a good decreases, the quantity
demanded increases, and vice versa.
Diagram:
X-axis: Quantity demanded.
Y-axis: Price.
The demand curve slopes downward.
Change in Demand (vs. Change in Quantity Demanded):
1. Change in Quantity Demanded:
Movement along the demand curve caused by a price change.
2. Change in Demand: Shift of the entire curve due to factors like income, tastes,
preferences, or price of related goods.
Factors Causing Change in Demand:
1. Income Change: Normal goods see increased demand with higher income;
inferior goods see decreased demand.
2. Tastes and Preferences:
Favorable changes increase demand.
3. Price of Related Goods:
Substitutes and complements affect demand shifts.
4.Expectations: Anticipation of future price changes can affect demand
Short QUESTION
AND ANSWER:
1. Economics:
The study of how individuals and societies allocate scarce resources to satisfy
unlimited wants.
Wealth: The stock of valuable resources, assets, or goods.
2. Classical School of Thought:
A school of economics emphasizing free markets, competition, and the idea of an
"invisible hand," associated with Adam Smith.
3. Books:
Adam Smith -
The Wealth of Nations,
Robbins - An Essay on the Nature and Significance of Economic Science.
4. Economic Law vs. Law of State:
Economic laws describe natural tendencies in economic behavior; laws of the state
are formal rules enforced by governments.
5. Microeconomics:
Studies individual units like households and firms.
Macroeconomics: Studies the economy as a whole, including inflation,
unemployment, and GDP.
6. Economic Wants: Desires for goods and services that require money
to satisfy.
Non-Economic Wants: Desires that do not involve monetary
expenditure (e.g., love, happiness).
7. Consumer Goods:
Goods for direct consumption.
Capital Goods:
Goods used to produce other goods.
8. Law of Equi-Marginal Utility:
Consumers allocate income so that the last unit of money spent on each good
provides equal utility.
Law of Diminishing /Marginal Utility: Additional satisfaction decreases as more
units of a good are consumed.
9. Indifference Curve: A curve showing combinations of goods
providing the same utility.
Budget Line: Represents combinations of goods a consumer can afford given
income and prices.
10. Consumer Equilibrium (Indifference Curve):
Achieved when the budget line is tangent to the highest possible indifference
curve.
11. Properties of Indifference Curve:
Downward sloping, convex to origin, higher curves represent higher utility, and
they never intersect.
12. Marginal Rate of Substitution (MRS):
The rate at which a consumer is willing to substitute one good for another while
maintaining the same utility level.
13. Demand:
Quantity of a good consumers are willing to buy at various prices.
Law of Demand: Inverse relationship between price and quantity demanded.
14. Elasticity of Demand:
Measures how demand responds to price changes.
15. Complementary Goods:
Goods consumed together (e.g., bread and butter).
16. Income Elasticity of Demand:
Measures demand change due to income changes.
17. Cross Elasticity of Demand:
Measures demand change for one good due to price changes of another good
