After the basic concept of Production Function and Production Decision. We now move on to Production techniques with one variable or you can also name it as Production Techniques in the Short-Run. One of the Most basic Example of Inputs of Production used is the Capital and Labor, considering Labor as a variable input and Capital as fixed. To increase the amount of Production in the Short Run...
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Network Externalities
Tell me at the first instance how can you comprehend the Work NETWORK EXTERNALITY ? By Network, we mean Individuals. And Externality is a cost or benefit that is incurred not on your choice. In Economics, Network Externality is a case when people’s demand is dependent upon the purchases of other people. Many times there are cases when you are influenced at buying something just because Others...
The Giffen Good
The Giffen Good is although a rare case yet still has valid possibilities. By definition: Giffen Good is a special case where the Demand Curve Slopes Upward because the Income effect is greater than the Substitution Effect In this case, the Income effect is Negative and outweighs the Substitution effect. Which is why the Demand Curve Slopes Upwards. So a Rise in Prices sometimes rises the...
Production Decisions of a firm
Originally written at Mba-tutorials Now we have demand side of the market and the supply side. From the word supply we do understand very easily that we are going to discuss about the or examine the behavior of Producers. We will see how firms can produce efficiently and how their costs change with the change in their input prices and the level of output. This all is a part of Theory of a...
Production Function
Originally posted in Mba-tutorials A production function indicates the highest output Y that a firm can produce for specific combination of input. We have many factors of production used as inputs but for simplicity we will focus only on labor and capital as a factor of production. Keeping this assumption we can write the production function as : Y=F(K,L) This equation shows that the...
Income and Substitution Effects – Complete Explanation
Income and Substitution Effects Let us assume there is a decrease in the price of a product. This will have two effects: Consumer will prefer buying more of that good because it has become cheaper and he/she will decrease the demand for those goods which are now comparatively more expensive. This effect is also called the Substitution Effect Since the price of that particular product has...
Income and Subs. Effect: Price Consumption Curve
We have been discussing about Demand curve of product with changes in its price and Quantity Demanded depending on different Situation. Let us now be more concerned about Individual Consumer Demand Curve whose decision are affected by the limited budget it has. So let me explain how and why ! Such Demand Curves have two Important Characteristics: The status or position of Utility Change as...
Demand and Supply: Changes in Market Equilibrium
From our last Lectures we now do know that Equilibrium prices are determined by the relative level of supply and demand. And that changes in supply and/or demand will cause change in the equilibrium price and/or quantity in a free market. Let us provide some example to prove this: 1. Fall in Raw material Prices A fall in the Raw Material Prices means an input of production now costs less. Which...
Supply and Demand: Elasticity and Linear Demand Curve
We described one of the most important concerning topics of Principles of Microeconomics that is ELASTICITY . But what happened as we move along a demand curve ? Since its downward Sloping, what consequences does it has for the elasticity that we just studied? Here comes comes the part where we need to know that Elasticity is so very much affected by the Slope as well as the Price and...
Supply and Demand: Elasticity
Not only are we concerned with what direction price and quantity will move when the market changes, but we are concerned about how much they change. Elasticity is a tool to measure by how much a variable will change with there is change in another variable. We do have such usual questions in our daily life like: How much will the price of Coffee Change if Coffee beans Price rises or falls? Will...
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