1. Industrial Economics and Telecommunication Regulations IETR Banshri Raichana1

2. 2 CHAPTER NO. 1 Basic Concepts of ECONOMICS

3. What is Economics? Definitions: Economics tells us how a man utilizes his limited resources to satisfy his unlimited demands Economics is the study of scarce resources and of determination of income and employment Economics is the science which studies human behaviour as a relationship between demands and scarce means. Banshri Raichana3

4. Needs of Man Food Clothing and Shelter To get his basic needs he needs MONEY To Earn Money he needs to work or put efforts WORK Money NEEDS Banshri Raichana4 Life Cycle

5. Economic Problems Banshri Raichana5 Unlimited Wants Unending chain of Human wants Efforts can never satisfy all wants 1 need is satisfied there awaits 1 more Scarcity of means Means: Money, Energy, Time, Physical and Intellectual capacity Scarcity: Availability is less than Need Alternative uses of means Money or time, One can satisfy either this want or that want but not both Eg: Family Time inc.. Rate of Income reduces.. And vice versa..

6. Topics under this chapter Demand Supply Elasticity of demand and supply Competition Monopoly Oligopoly Monopolistic competition Causes creating Monopoly Price determination under perfect competition and monopoly Price discrimination Equilibrium of firm under competition and Monopoly Function of Money Demand and supply for money Price level and inflation Black Money Meaning Consequences Magnitude Banshri Raichana6

7. Demand Supply Pricing and Equilibrium Law of demand and assumption Price Elasticity of demand Factors determining Elasticity Law of supply and its assumption Features of perfect competition Features of monopoly Price discrimination Banshri Raichana7

8. DEMAND and SUPPLY “Demand for anything means the quantity of that commodity which is bought, at a given price, per unit of time” “Supply is the amount of good that would be offered for sale at all prices at any one instant of time” Banshri Raichana8

9. Law of Demand Law of demand states that “ With other factors remaining constant Demand EXTENDS at Lower Price & Contracts at Higher Price” Demand inversely proportional to Price Banshri Raichana9

10. Law Of Demand Unit Price Of Commodity X (Rupees) Qty Demanded Of Commodity X (Units) 5010 4020 3030 2040 1050 560 Graph Price Qty Demanded Banshri Raichana10

11. Assumptions Of Law of Demand Climate Population Taste Taxes Income Prestige Banshri Raichana11

12. Elasticity of Demand Elasticity of Demand: The change in demand for a commodity in response to a change in its price is called elasticity of demand. Types of Elasticity of Demand: Price Elasticity (Inelastic, Unitary elasticity, Perfectly Elastic) Income Elasticity (Income of consumers) Cross Elasticity (one commodity to another) Banshri Raichana12

13. Factors determining Elasticity Durability and Nature of Commodity Urgency of commodity Advertising Effect Proportion of Expenditure (news paper) Consumer capability Price and Change in price Other substitute availability Complementary goods Banshri Raichana13

14. Law of Supply It states that “ With other things being constant supply varies directly with its price”. When the price of a commodity rises its supply expands and when the price falls its supply reduces. A rise in price induces the producers to supply more because he can make more profits and vice versa Banshri Raichana14

15. Supply Curve Unit Price Of commodity X (Rupees.) Quantity Supplied Of commodity X (units) 510 1020 1530 2040 2550 Price Quantity supplied Banshri Raichana15

16. Market and Market Structure Perfect competition Monopoly Oligopoly Monopolistic competition Banshri Raichana16

17. Features of Perfect Competition Perfect knowledge Free entry and exit No government interference No non-price competition Large number buyers and sellers Banshri Raichana17

18. Monopoly and its Merits Monopoly: Control of single manufacturer over the entire market for a particular product. Merits of Monopoly: Price maker Large number of consumers Single manufacturer in Market Entry to the market Restricted Banshri Raichana18

19. Oligopoly and Monopolistic competition Oligopoly: Oligo means few and poly means sellers The market form in which there are only a few sellers is called oligopoly (homogeneous(physically similar products Eg Pen) ) Monopolistic competition In this system the number of dealers is quite large but not as large under perfect competition. (not homogeneous products) The same price does not rule in the market throughout. Banshri Raichana19

20. Features of Monopoly Only one seller or producer Monopolists enjoy supernormal profits No free entry to the seller in the market Monopolists decides pricing and service conditions No close substitute for the product or services provided by the monopolist Method of marketing: The monopolist’s needs to Brand and Advertise his product depending on the threat of competition rather than actual competition Banshri Raichana20

21. Price determination Under Perfect Competition depends on demand as well supply Eg: Equilibrium Price of footwear Price Demand/supply Banshri Raichana21 DemandPriceSupply 1000100 800200300 600300600 300400800 1005001000

22. Price determination Under Perfect Competition The above graph shows that the price under competitive conditions is the result of total demand for commodity and the total supply of the industry Banshri Raichana22

23. Definitions Marginal revenue It is the extra revenue that an additional unit of product will bring It is the additional income from selling one more unit of a good; sometimes equal to price Marginal Cost It is the change in total cost that arises when the quantity produced changes by one unit Banshri Raichana23

24. Definitions Average Cost Is equal to the total cost divided by the total no of goods produced Average revenue The revenue for selling a good per unit of output sold, found by dividing total revenue by the quantity of output Banshri Raichana24

25. Price Discrimination A practice of charging different prices to different groups of consumers is known as Price Discrimination Forms of Price Discrimination Personal Discrimination Local Discrimination Trade Discrimination Quality Discrimination Special Service Discrimination Time Discrimination (Trunk Calls Day and Night charges) Banshri Raichana 25

26. Price Discrimination Price discrimination depends on Elasticity of demand Banshri Raichana26

27. ECONOMICS CHAPTER NO. 3 Functions of Money Banshri Raichana27

28. Functions of Money Standard of deferred payments Liquidity of wealth Basis of credit Transfer of wealth Measure of value Store of value Medium of Exchange Distribution of national income Banshri Raichana28

29. Significance of money Avoids Inconvenience and difficulties Economic Instability Financial Accounting Systems Public Sector Price mechanism Avoids double co-incidence of goods Link between Future and present Banshri Raichana29

30. Money Demand and supply for money Transaction Motive Precautionary Motive Speculative Motive Inflation Causes of Inflation Measures to control money Black money Creation of Black Money Magnitude of Black money Causes and consequences of Black money Banshri Raichana30