Tamilnadu Samacheer Kalvi 11th Economics Notes Chapter 2 Consumption Analysis Notes
→ “Consumption is the sole end and object of economic activity” – J M Keynes.
→ Consumption is the beginning of economic science.
→ Wants are unlimited: Human wants are countless, in number and various in kinds.
→ Wants become habits: Wants become habits; for example, when a man starts reading newspaper in the morning, it becomes a habit. Same is the case with drinking tea or chewing pans.
→ Wants are Satiable: Though we cannot satisfy all our wants, at the same time we can satisfy particular wants at a given time.
→ Wants are Alternative: There are alternative ways to satisfy a particular want eg. Idly, dosa or chappathi.
→ Wants are Competitive: All our wants are not equally important. So, there is competition among wants. Hence, we have to choose more urgent wants than less urgent wants.
→ Wants are Complementary: Sometimes, satisfaction of a particular want requires the use of more than one commodity. Example: Car and Petrol, Ink and Pen.
→ Wants are Recurring: Some wants occur again and again. For example, if we feel hungry, we take food and satisfy our want. But after sometime, we again feel hungry and want food.
→ H H Gossen, an Austrian Economist was the first to formulate this law in Economics in 1854. Therefore, Jevons called this law as “Gossen’s First Law of Consumption”. But credit goes to Marshall, because he perfected this law on the basis of Cardinal Analysis. This law is based on the characteristics of human wants, i.e., wants are satible.
→ Definition: Marshall states the law as, “the additional benefit which a person derives from a given increase of his stock of a thing, diminishes with every increase in the stock that he already has”.
→ Consumer’s Surplus: The concept of consumer surplus was originally introduced by classical economists and later modified by Jevons and Jule Dupuit, the French Engineer Economist in 1844.
→ “Demand in economics means desire backed up by enough money to pay for the good demanded” -Stonier And Hague
→ Definitions: The Law of Demand says as “the quantity demanded increases with a fall in price and diminishes with a rise in price” – Marshall
“The Law of Demand states that people will buy more at lower price and buy less at higher prices, other things remaining the same”. – Samuelson
→ Levels or Degrees of Price Elasticity of Demand: The Price Elasticity of Demand is commonly known as the elasticity of demand, which refers to the degree of responsiveness of demand to the change in the price of the commodity.
→ The theory of indifference curve was given by J R Hicks and RJD Allen, ‘A reconsideration of the theory of value,’ Economics in 1934.
→ Marginal Rate of substitution: According to Leftwich “The Marginal rate of substitution of.x for y (MRSxy ) is defined as the maximum amount of y the consumer is willing to give up for getting an additional unit of x and still remaining on the same indifference curve”.
→ Conclusion: An understanding of consumer behaviour is an important part of comprehending the allocation resources by individuals.
→ Consumption: The use of goods and services for satisfying one’s wants.
→ Demand: Demand is desire backed by sufficient purchasing power and willingness to spend on it.
→ Needs: It is defined as goods or services that are required. This would include the needs for food, clothing, shelter and health care.
→ Utility: Utility is the capacity of a commodity to satisfy human wants.
→ Marginal Utility: Marginal utility is the utility derived from the last or Marginal unit of consumption.
→ Elasticity of Demand: The Elasticity of Demand refers to the rate of change in demand due to a given change in price.
→ Consumer’s Surplus : The difference between the potential price and actual price.
→ Indifference Curves: ICs means all those combinations of any two goods which give equal satisfaction to the consumer.
→ Indifference Map: A set of indifference curves upper ICs denoting higher and lower ICs lesser level of satisfaction.
→ Price line or Budget lines: The line joining various combination of the two goods which the consumer can buy at given prices and income.