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ECONOMICS

DEF economics is a social science that study’s human behavoirs as a relationship between ends and scares means which have alternative uses.

TYPES OF ECONOMICS

Macro- and microeconomics, and their wide array of underlying concepts, have been the subject of a great deal of writings. The field of study is vast; here is a brief summary of what each covers:

Microeconomics is the study of decisions that people and businesses make regarding the allocation of resources and prices of goods and services. This means also taking into account taxes and regulations created by governments. Microeconomics focuses on supply and demand and other forces that determine the price levels seen in the economy. For example, microeconomics would look at how a specific company could maximize it's production and capacity so it could lower prices and better compete in its industry. (Find out more about microeconomics in Understanding Microeconomics.) 

Macroeconomics, on the other hand, is the field of economics that studies the behavior of the economy as a whole and not just on specific companies, but entire industries and economies. This looks at economy-wide phenomena, such as Gross National Product (GDP) and how it is affected by changes in unemployment, national income, rate of growth, and price levels. For example, macroeconomics would look at how an increase/decrease in net exports would affect a nation's capital account or how GDP would be affected by unemployment rate. (To keep reading on this subject, see Macroeconomic Analysis.)

While these two studies of economics appear to be different, they are actually interdependent and complement one another since there are many overlapping issues between the two fields. For example, increased inflation (macro effect) would cause the price of raw materials to increase for companies and in turn affect the end product's price charged to the public.

The bottom line is that microeconomics takes a bottoms-up approach to analyzing the economy while macroeconomics takes a top-down approach. Regardless, both micro- and macroeconomics provide fundamental tools for any finance professional and should be studied together in order to fully understand how companies operate and earn revenues and thus, how an entire economy is managed and sustained. 

If you are interested in learning more about economics, take a look at Economics Basics Tutorial and Economic Indicators To Know. 

BASIC CONCEPTS OF ECONOMICS

scarcity

choise

scale of prefernce

opportunity cost

margin

utility

externalities

UTILITY

defination it is the satisfaction derived from the consumption of a good or service at a given time-period.for example, are greatly desired for food and thus possess great utility. Diamonds are greatly desired because of their beauty and on that account possess utility.

2. Kinds of utility.—For convenience economists classify utilities in relation to time, form and place. Ice, for example, possesses greater value in summer than in winter. Hence we may say that an ice house serves to increase the time utility of ice. Cold storage houses preserve utilities from decay, besides keeping them until they possess greater time utility. Manufacturers in general increase the value of raw materials by increasing their form utility, wood being more valuable in the form of a chair than in the form of a board. Merchants of all classes increase the place utilities of the goods they handle, and hence are the joint producers of their value along with the farmers and manufacturers.

Utility and usefulness are not synonyms. American Beauty roses can scarcely be said to be useful, yet they are greatly desired and therefore possess great utility. No one doubts that the potato is a useful vegetable. Yet a peck of comparatively use-less diamonds could possess greater utility than several million bushels of potatoes, since men are willing to give much more for a single diamond than they are for many bushels of potatoes. The word usefulness implies the attainment of some practical and desired end. A crutch under the arm of a lame man is properly called useful; to him also it possesses utility. The slender canes which young men sometimes carry nobody would call useful, yet to the young man they may possess perhaps as much utility as the crutch does to the lame man.

Sometimes economists use the word utility in a substantive sense. For example, if a thing possesses utility they sometimes speak of it as being a utility, by which they merely mean that it is something desired by man, something capable of gratifying a human want. It is well to note at the outset that the economist sometimes thinks of commodities as being a mass of utilities.

3. Value.—Some objects possessing utility are sup-plied by nature so generously that man has to make no effort ordinarily to get all he wants. Air and water, except in cities; are utilities of this sort. So often in many country districts are apples and berries. Economists are not concerned about things of this kind. They are interested only in those articles which are not freely available for those who want them and for the production of which a certain amount of labor is necessary. Articles of this kind are said to possess value or exchange power because they combine utility and scarcity. Of course, utility is the first pre-requisite of value, for nobody will give anything in exchange for what nobody wants. An article can possess value only on condition that it possesses utility and exists in a quantity insufficient to satisfy the de-sires of those who want it.

Value and income are probably the two most important words in political economy. Men toil in order that they may get things possessing value, for from the possession of such things they derive the psychic income or mental satisfaction which each regards as most desirable.

Popularly the word value is used in many different senses. Men speak of the value of a good name, for example. A business concern values its reputation and good will. A fine singer will think of 'his voice as having great value. If Paderewski thru the negligence of a corporation should lose one of his fingers a court would be called on to pass on its value, yet he could not sell one of his fingers. Most economists use the word in the sense of purchasing power, ex-change power.

4. Economic goods, or wealth.—In. order to escape from the confusion of thought into which the English classical economists fell thru the use of the word "wealth," modern economists employ it sparingly and use in its stead the phrase "economic goods," meaning thereby any commodity or material thing which possesses value. Desirable things that possess no value are called "free goods," because they are supplied by nature gratuitously. The great mass of goods which are bought and sold in the market are economic goods and these are the things in which the economist is especially interested. He wants to know why they differ in value, why they fluctuate in value, what are their costs of production, how they are marketed, and why they are wanted.

As I have said, in the English classical school of political economy all these economic goods were called wealth, that word being defined as including every-thing that has value or exchange power. But the word "wealth" is very broadly used in common speech, and hence the conclusions of the economists with regard to wealth are often misunderstood by the public. For example, Mr. Carnegie is known to be a man of great "wealth," owning as he does a large number of the bonds of the United States Steel Corporation. These bonds give him a claim upon a certain portion of the earnings of the corporation, but they are not wealth in the economic sense. The economist would not call them economic goods. They are merely legal claims on the income produced by certain economic goods owned by the stockholders of the United States Steel Corporation. To be technically correct, these bonds should be called property, not wealth. In the same way a share of Pennsylvania Railroad stock is property, not wealth; it is the holder's legal evidence that he has an ownership interest in the railroad and is entitled to share in the distribution of its earnings.

Welfare.—Again the word wealth is often used as if it were related to, if not synonymous with, welfare. A man of wealth is often spoken of as "well-to-do," yet wealth and welfare are independent of each other. The word welfare implies happiness and contentment. Great wealth may bring neither of these to a man or to a nation. Indeed, it is quite possible that a social census, if one could be taken, would find more misery and discontent among the rich than among those people who are obliged to work every day for their living.

6. The producer.—The economist thinks of the human family as producers and consumers. All are consumers, for otherwise they would perish, and the vast majority of them are also producers, for by their daily labor they must earn their income. Since the problems of production and consumption are entirely different, the economist studies them separately, sometimes to such an extent that the unwary reader gets an idea that in economics certain classes of society are consumers and others are almost exclusively producers. This is of course an erroneous conception. In a civilized country, like the United States or Canada, there are very few people who are not both producers and consumers. The so-called idle rich are numerically almost negligible. So are the other non-producing classes, such as the sick, the defectives, the aged and such criminals as are not given employment.

A producer is a person who creates utility or helps bring it into existence. The earliest producers known in the history of the human race were herders and farmers, and in the popular mind the farmer is still thought of as being the greatest of all producers, for he coaxes from the soil the grains and fruits and vegetables which support human life. He also supplies us with most of the meat we eat. The earth is, of course, the real producer. The farmer by his labor merely manipulates and directs natural forces. Economically he is in no greater degree a producer than the conductor of the freight train who hauls his crop to market, or any one of the wholesalers and retailers who pass it on to consumers.

Let us trace a bushel of wheat from Dakota until it appears in New York City in loaves of bread. The railroad hauls it to Minneapolis, where it possesses greater utility than in Dakota and therefore greater value, because the millers want it. The miller, who is a manufacturer, converts the wheat into flour, thus adding to its utility and value. The railroad hauls it to New York, where it possesses more utility than in Minneapolis, being more in demand. The baker turns it into bread, adding thereby both to its utility and value, for it is now in the form demanded by the so-called ultimate consumers. Some of the loaves may be sold to consumers by grocers who have, like the railroad, merely increased their place utility, for they have saved the consumer the labor of going to the more distant bakery.

7. Intangible utilities.—We have been considering thus far only the producers of tangible goods, that is, economic goods. How about the producers of intangible utility Is there such a thing as an intangible utility, one not embodied in a material commodity? If not, we certainly cannot call lawyers, doctors, teachers, preachers, actors and artists producers unless we can show that their services are somehow helpful in the production of material goods. ` This can easily be done, as the reader will see later in this volume, in the case of bankers, teachers and physicians, and a pretty strong argument could be made in the preachers' favor, but we will not stop now to discuss this phase of the question.

From the economic point of view all these classes of men are producers of utility, for their services give positive satisfaction to the persons from whom they get their income. When you are sick the services of a physician possess greater utility to you than almost any material good. When you are well and have the means and necessary leisure, you may wish to hear Caruso sing or see Sarah Bernhardt on the stage. One artist thru the ear, the other thru the eye as well, appeals to your esthetic sense and gives you greater satisfaction than you could possibly get from a farmer's potatoes and cabbages. To many devout people the services of the clergyman possess greater utility than the services of any other single class of workers; they would gladly turn farmers and produce their own food and clothing rather than see the church disappear.

We may sum up, then, as follows: In an economic sense every man or woman is a producer whose labor tends to the gratification of human wants or to the increase of utilities, whether thru a service which increases the supply of economic goods or thru a service which in itself gives pleasure to the consumer.

8. The consumer.—We consume a utility when we get pleasure or gratification from it. In many cases the consumption Of a utility means the destruction of the commodity in which it is embodied. This is true of all kinds of food and beverages, as is illustrated in the old adage, "We cannot eat our cake and have it too." In the ease of clothing the period of consumption is much longer, depending upon the habits and occupation of the wearer. Many people consume a straw hat in one summer, yet a certain city editor in Chicago was distinguished, among other things, be-cause of his attachment to an old straw hat, which he wore for twenty summers and constantly in the office during the winter months.

A period of consumption is popularly known as the "life" of the commodity. In New York City, for instance, the life of a house is commonly estimated at twenty years, it being assumed that its utility in its existing form will disappear at the end of that period and that a new house will be wanted on the site. The life of a steel rail depends upon the amount of traffic hauled over it. The life of a book depends upon the care given it and the charm of its content. We consume an oil painting when we get pleasure from contemplating it. The life of the canvas depends upon the care given it. Marbles and bronzes, humanly speaking, last forever. They may be daily consumed but never destroyed.

9. Exchange.—No exposition is necessary to make the reader understand the necessity for the exchange of economic goods. Nothing in business is more obvious than the fact that few people produce the goods which they consume. At the present time nearly every man is a specialist. In the production of some articles the labor of thousands of men is employed; each receives his compensation in the form of money and then buys the articles which he desires to consume. Thus exchange has become the most conspicuous feature of our modern civilization. Nearly all producers expect to market their product.

10. Barter.—It is fair to assume that in prehistoric times, as is the case today in some savage tribes, there was little division of labor, each family being able to produce enough to satisfy its own needs. The first exchange was doubtless in the form of barter, a fortunate fisherman being perhaps glad to give up part of his catch in return for berries and goat's milk. This exchange of goods for goods is known as barter and is obviously awkward and inconvenient.

11. Money.—Not until money appeared was it possible for men to specialize in their labor and to begin the development of an exchange civilization, each man devoting himself to the task which gave him the greatest pleasure or in which he was most proficient. Money is the medium which made this advance possible. It is a thing wanted not for itself but because with it one can buy what one wants. In a sense it may be called a third commodity, standing between the thing we have and wish to sell and the thing we wish to get in exchange.

Money may be defined as an economic good which is universally desired in any community and which is universally acceptable as a means of payment for goods or services.

12. Credit.—As modern business is conducted in most civilized countries, actual money is very little used. Men are satisfied to accept in lieu of it a mere promise to pay money. This promise is known as credit and it is founded on the rock of confidence.

If business men of the United States should lose confidence in one another, or in the government, or in the courts of law, the great credit system by which gigantic totals of wealth are daily exchanged would collapse, business would be at a standstill and great distress would ensue, the rich suffering as well as the poor. Just how money and credit do their work we shall discuss in later chapters.

13. Price.—The universal use of money and credit in modern business gives great importance to the word price. Popularly this word is confused with value. Yet they have different meanings. The price of a thing is the amount of money it exchanges for or that is asked for it. The price of wheat shows the value of a bushel of wheat with respect to money. It gives us no idea of the value of wheat unless we know the prices of many other articles and thus can make comparison.

14. Distribution of income.-The subject matter to be touched on in this section is usually called "distribution of wealth," but that phrase is misleading, for the problem before us relates, not to the distribution of all of the country's wealth, but solely to the distribution or sharing of the new wealth daily created.

Into a nation's markets there is constantly pouring a stream of new commodities and out of the proceeds of their sale various people who have aided in their production must get their compensation, the laborer his wage, the landlord his rent, the capitalist his interest, the business man or entrepreneur his profit. Roughly speaking the total of new wealth produced in the country in any year, sometimes called the national income, is divided among those four classes of society.

What determines the amount that each class shall get?

Does the landlord arbitrarily fix the rent which his tenants shall pay? Or is the amount determined by forces which the landlord cannot control?

Is the rate of wages fixed by the will of employers or by the insistent demands of trade unions or by forces beyond the immediate control of both employer and employe?

Why does the rate of interest on borrowed money fluctuate? Is it a product of unseen forces too powerful to be overcome by conventions and agreements?

Why do profits vary, some business men amassing fortunes while others go into bankruptcy?

Important questions of this sort are all related to the distribution of income and are treated in the chapters on Wages, Interest, Rent and Profits.

In economics, utility is a measure of relative satisfaction. Given this measure, one may speak meaningfully of increasing or decreasing utility, and thereby explain economic behavior in terms of attempts to increase one's utility. Utility is often modeled to be affected by consumption of various goods and services, possession of wealth and spending of leisure time.

The doctrine of utilitarianism saw the maximization of utility as a moral criterion for the organization of society. According to utilitarians, such as Jeremy Bentham (1748–1832) and John Stuart Mill (1806–1876), society should aim to maximize the total utility of individuals, aiming for "the greatest happiness for the greatest number of people". Another theory forwarded by John Rawls (1921–2002) would have society maximize the utility of the individual initially receiving the minimum amount of utility.

Utility is usually applied by economists in such constructs as the indifference curve, which plot the combination of commodities that an individual or a society would accept to maintain a given level of satisfaction. Individual utility and social utility can be construed as the dependent variable of a utility function (such as an indifference curve map) and a social welfare function respectively. When coupled with production or commodity constraints, under some assumptions, these functions can represent Pareto efficiency, such as illustrated by Edgeworth boxes in contract curves. Such efficiency is a central concept in welfare economics.
Contents
[hide]

    * 1 Quantifying utility
    * 2 Cardinal and ordinal utility
    * 3 Expected utility
          o 3.1 Additive von Neumann–Morgenstern utility
    * 4 Money
    * 5 Discussion and criticism
    * 6 References and additional reading
    * 7 External links

[edit] Quantifying utility

It was recognized that utility could not be measured or observed directly, so instead economists devised a way to measure actual behavior and assume that, in a perfectly competitive equilibrium, this behavior reveals the underlying relative utilities. These 'revealed preferences', as they were named by Paul Samuelson, were revealed in price:

    Utility is taken to be correlative to Desire or Want. It has been already argued that desires cannot be measured directly, but only indirectly, by the outward phenomena to which they give rise: and that in those cases with which economics is chiefly concerned the measure is found in the price which a person is willing to pay for the fulfilment or satisfaction of his desire. (Marshall 1920:78)[1]

[edit] Cardinal and ordinal utility
For more details on this topic, see cardinal utility.

Economists distinguish between cardinal utility and ordinal utility. When cardinal utility is used, the magnitude of utility differences is treated as an ethically or behaviorally significant quantity. On the other hand, ordinal utility captures only ranking and not strength of preferences.

Utility functions of both sorts assign a ranking to members of a choice set. For example, suppose a cup of orange juice has utility of 120 utils, a cup of tea has a utility of 80 utils, and a cup of water has a utility of 40 utils. When speaking of cardinal utility, it could be concluded that the cup of orange juice is better than the cup of tea by exactly the same amount by which the cup of tea is better than the cup of water. One is not entitled to conclude, however, that the cup of tea is two thirds as good as the cup of juice, because this conclusion would depend not only on magnitudes of utility differences, but also on the "zero" of utility.

It is tempting when dealing with cardinal utility to aggregate utilities across persons. The argument against this is that interpersonal comparisons of utility are suspect[clarification needed] because there is no good way to interpret how different people value consumption bundles.

When ordinal utilities are used, differences in utils are treated as ethically or behaviorally meaningless: the utility index encode a full behavioral ordering between members of a choice set, but tells nothing about the related strength of preferences. In the above example, it would only be possible to say that juice is preferred to tea to water, but no more.

Neoclassical economics has largely retreated from using cardinal utility functions as the basic objects of economic analysis, in favor of considering agent preferences over choice sets. However, preference relations can often be represented by utility functions satisfying several properties.

Ordinal utility functions are equivalent up to positive monotone transformations, while cardinal utilities are equivalent up to positive linear transformations.

Although preferences are the conventional foundation of microeconomics, it is often convenient to represent preferences with a utility function and analyze human behavior indirectly with utility functions. Let X be the consumption set, the set of all mutually-exclusive baskets the consumer could conceivably consume (such as an indifference curve map without the indifference curves[clarification needed]). The consumer's utility function u : X \rightarrow \textbf R ranks each package in the consumption set. If the consumer strictly prefers x to y or is indifferent between them, then u(x) = u(y).

For example, suppose a consumer's consumption set is X = {nothing, 1 apple,1 orange, 1 apple and 1 orange, 2 apples, 2 oranges}, and its utility function is u(nothing) = 0, u(1 apple) = 1, u(1 orange) = 2, u(1 apple and 1 orange) = 4, u(2 apples) = 2 and u(2 oranges) = 3. Then this consumer prefers 1 orange to 1 apple, but prefers one of each to 2 oranges.

In microeconomic models, there are usually a finite set of L commodities, and a consumer may consume an arbitrary amount of each commodity. This gives a consumption set of \textbf R^L_+, and each package x \in \textbf R^L_+ is a vector containing the amounts of each commodity. In the previous example, we might say there are two commodities: apples and oranges. If we say apples is the first commodity, and oranges the second, then the consumption set X =\textbf R^2_+ and u(0, 0) = 0, u(1, 0) = 1, u(0, 1) = 2, u(1, 1) = 4, u(2, 0) = 2, u(0, 2) = 3 as before. Note that for u to be a utility function on X, it must be defined for every package in X.

A utility function u : X \rightarrow \textbf{R} rationalizes a preference relation \preceq on X if for every x, y \in X, u(x)\leq u(y) if and only if x\preceq y. If u rationalizes \preceq, then this implies \preceq is complete and transitive, and hence rational.

In order to simplify calculations, various assumptions have been made of utility functions.

    * CES (constant elasticity of substitution, or isoelastic) utility
    * Exponential utility
    * Quasilinear utility
    * Homothetic preferences

Most utility functions used in modeling or theory are well-behaved. They are usually monotonic, quasi-concave, continuous and globally non-satiated. However, it is possible for preferences not to be representable by a utility function. An example is lexicographic preferences which are not continuous and cannot be represented by a continuous utility function.[2]
[edit] Expected utility
Main article: Expected utility hypothesis

The expected utility theory deals with the analysis of choices among risky projects with (possibly multidimensional) outcomes.

The expected utility model was first proposed by Nicholas Bernoulli in 1713 and solved by Daniel Bernoulli in 1738 as the St. Petersburg paradox. Bernoulli argued that the paradox could be resolved if decisionmakers displayed risk aversion and argued for a logarithmic cardinal utility function.

The first important use of the expected utility theory was that of John von Neumann and Oskar Morgenstern who used the assumption of expected utility maximization in their formulation of game theory.
[edit] Additive von Neumann–Morgenstern utility
Main article: Von Neumann–Morgenstern utility theorem
	This section needs attention from an expert on the subject. See the talk page for details. WikiProject Economics or the Economics Portal may be able to help recruit an expert. (February 2010)

In older definitions of utility, it makes sense to rank utilities, but not to add them together. A person can say that a new shirt is preferable to a baloney sandwich, but not that it is twenty times preferable to the sandwich.

The reason is that the utility of twenty sandwiches is not twenty times the utility of one sandwich, by the law of diminishing returns. So it is hard to compare the utility of the shirt with 'twenty times the utility of the sandwich'. But Von Neumann and Morgenstern suggested an unambiguous way of making a comparison like this.

Their method of comparison involves considering probabilities. If a person can choose between various randomized events (lotteries), then it is possible to additively compare the shirt and the sandwich. It is possible to compare a sandwich with probability 1, to a shirt with probability p or nothing with probability 1 - p. By adjusting p, the point at which the sandwich becomes preferable defines the ratio of the utilities of the two options.

A notation for a lottery is as follows: if options A and B have probability p and 1 - p in the lottery, write it as a linear combination:

        L = p A + (1-p) B \,

More generally, for a lottery with many possible options:

        L = \sum p_i A_i, \,

with the sum of the p is equalling 1.

By making some reasonable assumptions about the way choices behave, von Neumann and Morgenstern showed that if an agent can choose between the lotteries, then this agent has a utility function which can be added and multiplied by real numbers, which means the utility of an arbitrary lottery can be calculated as a linear combination of the utility of its parts.

This is called the expected utility theorem. The required assumptions are four axioms about the properties of the agent's preference relation over 'simple lotteries', which are lotteries with just two options. Writing B\preceq A to mean 'A is preferred to B', the axioms are:

   1. completeness: For any two simple lotteries \,L\, and \,M\,, either L\preceq M, \,L=M\,, or M\preceq L.
   2. transitivity: if L\preceq M and M\preceq N, then L\preceq N.
   3. convexity/continuity (Archimedean property): If L \preceq M\preceq N, then there is a \,p\, between 0 and 1 such that the lottery \,pL + (1-p)N\, is equally preferable to \,M\,.
   4. independence: if \,L=M\,, then \,pL+(1-p)N = pM+(1-p)N\,.

In more formal language: A von Neumann–Morgenstern utility function is a function from choices to the real numbers:

        u : X \rightarrow \textbf{R}

which assigns a real number to every outcome in a way that captures the agent's preferences over both simple and compound lotteries. The agent will prefer a lottery L2 to a lottery L1 if and only if the expected utility of L2 is greater than the expected utility of L1:

        L_1\preceq L_2 \; \mathrm{iff} \; u(L_1)\leq u(L_2).

Repeating in category language: u is a morphism between the category of preferences with uncertainty and the category of reals as an additive group.

Of all the axioms, independence is the most often discarded. A variety of generalized expected utility theories have arisen, most of which drop or relax the independence axiom.

    * CES (constant elasticity of substitution, or isoelastic) utility is one with constant relative risk aversion
    * Exponential utility exhibits constant absolute risk aversion

[edit] Money

One of the most common uses of a utility function, especially in economics, is the utility of money. The utility function for money is a nonlinear function that is bounded and asymmetric about the origin. These properties can be derived from reasonable assumptions that are generally accepted by economists and decision theorists, especially proponents of rational choice theory. The utility function is concave in the positive region, reflecting the phenomenon of diminishing marginal utility. The boundedness reflects the fact that beyond a certain point money ceases being useful at all, as the size of any economy at any point in time is itself bounded. The asymmetry about the origin reflects the fact that gaining and losing money can have radically different implications both for individuals and businesses. The nonlinearity of the utility function for money has profound implications in decision making processes: in situations where outcomes of choices influence utility through gains or losses of money, which are the norm in most business settings, the optimal choice for a given decision depends on the possible outcomes of all other decisions in the same time-period.[3]
[edit] Discussion and criticism

Cambridge economist Joan Robinson famously criticized utility of being a circular concept: "Utility is the quality in commodities that makes individuals want to buy them, and the fact that individuals want to buy commodities shows that they have utility" (Robinson 1962: 48)[4]

Different value systems have different perspectives on the use of utility in making moral judgments. For example, Marxists, Kantians, and certain libertarians (such as Nozick) all believe utility to be irrelevant as a moral or at least not as important as other factors such as natural rights, law, conscience and/or religious doctrine. It is debatable whether any of these can be adequately represented in a system that uses a utility model.

Another criticism comes from the assertion that neither cardinal nor ordinary utility are empirically observable in the real world. In case of cardinal utility it is impossible to measure the level of satisfaction "quantitatively" when someone consumes/purchases an apple. In case of ordinal utility, it is impossible to determine what choices were made when someone purchases, for example, an orange. Any act would involve preference over infinite possibility of a set choices such as (apple, orange juice, other vegetable, vitamin C tablets, exercise, not purchasing, etc). 

Utility is an abstract concept rather than a concrete, observable quantity. The units to which we assign an “amount” of utility, therefore, are arbitrary, representing a relative value. Total utility is the aggregate sum of satisfaction or benefit that an individual gains from consuming a given amount of goods or services in an economy. The amount of a person's total utility corresponds to the person's level of consumption. Usually, the more the person consumes, the larger his or her total utility will be. Marginal utility is the additional satisfaction, or amount of utility, gained from each extra unit of consumption.

Although total utility usually increases as more of a good is consumed, marginal utility usually decreases with each additional increase in the consumption of a good. This decrease demonstrates the law of diminishing marginal utility. Because there is a certain threshold of satisfaction, the consumer will no longer receive the same pleasure from consumption once that threshold is crossed. In other words, total utility will increase at a slower pace as an individual increases the quantity consumed.

Take, for example, a chocolate bar. Let's say that after eating one chocolate bar your sweet tooth has been satisfied. Your marginal utility (and total utility) after eating one chocolate bar will be quite high. But if you eat more chocolate bars, the pleasure of each additional chocolate bar will be less than the pleasure you received from eating the one before - probably because you are starting to feel full or you have had too many sweets for one day.

This table shows that total utility will increase at a much slower rate as marginal utility diminishes with each additional bar. Notice how the first chocolate bar gives a total utility of 70 but the next three chocolate bars together increase total utility by only 18 additional units.

The law of diminishing marginal utility helps economists understand the law of demand and the negative sloping demand curve. The less of something you have, the more satisfaction you gain from each additional unit you consume; the marginal utility you gain from that product is therefore higher, giving you a higher willingness to pay more for it. Prices are lower at a higher quantity demanded because your additional satisfaction diminishes as you demand more.

In order to determine what a consumer's utility and total utility are, economists turn to consumer demand theory, which studies consumer behavior and satisfaction. Economists assume the consumer is rational and will thus maximize his or her total utility by purchasing a combination of different products rather than more of one particular product. Thus, instead of spending all of your money on three chocolate bars, which has a total utility of 85, you should instead purchase the one chocolate bar, which has a utility of 70, and perhaps a glass of milk, which has a utility of 50. This combination will give you a maximized total utility of 120 but at the same cost as the three chocolate bars.

Total Utility
What Does It Mean?
What Does Total Utility Mean?
The aggregate level of satisfaction or fulfillment that a consumer receives through the consumption of a specific good or service. Each individual unit of a good or service has its own marginal utility, and the total utility is simply the sum of all the marginal utilities of the individual units. Classical economic theory suggests that all consumers want to get the highest possible level of total utility for the money they spend.
Investopedia Says
Investopedia explains Total Utility
To better understand total utility, one must understand the law of diminishing marginal utility, which states that as more of a single good or service is consumed, the additional (marginal) satisfaction drops. The first good consumed provides the highest marginal utility, the second good has a lower marginal utility, and so on. Therefore, total utility grows less rapidly with each additional unit of the same good or service.  

In order to maximize total utility (which is the inherent goal of all consumers), consumers will look to combine different combinations of goods and services. Given their limited resources (money), consumers will make choices in an attempt to increase their total utility with each additional unit of consumption.

Economies of scale

As quantity of production increases from Q to Q2, the average cost of each unit decreases from C to C1.

Economies of scale, in microeconomics, refers to the cost advantages that a business obtains due to expansion. There are factors that cause a producer’s average cost per unit to fall as the scale of output is increased. “Economies of scale” is a long run concept and refers to reductions in unit cost as the size of a facility and the usage levels of other inputs increase.[1] Diseconomies of scale are the opposite. The common sources of economies of scale are purchasing (bulk buying of materials through long-term contracts), managerial (increasing the specialization of managers), financial (obtaining lower-interest charges when borrowing from banks and having access to a greater range of financial instruments), marketing (spreading the cost of advertising over a greater range of output in media markets), and technological (taking advantage of returns to scale in the production function). Each of these factors reduces the long run average costs (LRAC) of production by shifting the short-run average total cost (SRATC) curve down and to the right. Economies of scale are also derived partially from learning by doing.

Economies of scale is a practical concept that is important for explaining real world phenomena such as patterns of international trade, the number of firms in a market, and how firms get “too big to fail”. The exploitation of economies of scale helps explain why companies grow large in some industries. It is also a justification for free trade policies, since some economies of scale may require a larger market than is possible within a particular country — for example, it would not be efficient for Liechtenstein to have its own car maker, if they would only sell to their local market. A lone car maker may be profitable, however, if they export cars to global markets in addition to selling to the local market. Economies of scale also play a role in a “natural monopoly.”

Contents

Natural monopoly

A natural monopoly is often defined as a firm which enjoys economies of scale for all reasonable firm sizes; because it is always more efficient for one firm to expand than for new firms to be established, the natural monopoly has no competition. Because it has no competition, it is likely the monopoly has significant market power. Hence, some industries that have been claimed to be characterized by natural monopoly have been regulated or publicly-owned.

[edit] Economies of scale and returns to scale

Economies of scale is related to and can easily be confused with the theoretical economic notion of returns to scale. Where economies of scale refer to a firm’s costs, returns to scale describe the relationship between inputs and outputs in a long-run (all inputs variable) production function. A production function has constant returns to scale if increasing all inputs by some proportion results in output increasing by that same proportion. Returns are decreasing if, say, doubling inputs results in less than double the output, and increasing if more than double the output. If a mathematical function is used to represent the production function, and if that production function is homogeneous, returns to scale are represented by the degree of homogeneity of the function. Homegeneous production functions with constant returns to scale are first degree homogeneous, increasing returns to scale are represented by degrees of homogeneity greater than one, and decreasing returns to scale by degrees of homogeneity less than one.

If the firm is a perfect competitor in all input markets, and thus the per-unit prices of all its inputs are unaffected by how much of the inputs the firm purchases, then it can be shown[2][3][4] that at a particular level of output, the firm has economies of scale if and only if it has increasing returns to scale, has diseconomies of scale if and only if it has decreasing returns to scale, and has neither economies nor diseconomies of scale if it has constant returns to scale. In this case, with perfect competition in the output market the long-run equilibrium will involve all firms operating at the minimum point of their long-run average cost curves (i.e., at the borderline between economies and diseconomies of scale).

If, however, the firm is not a perfect competitor in the input markets, then the above conclusions are modified. For example, if there are increasing returns to scale in some range of output levels, but the firm is so big in one or more input markets that increasing its purchases of an input drives up the input’s per-unit cost, then the firm could have diseconomies of scale in that range of output levels. Conversely, if the firm is able to get bulk discounts of an input, then it could have economies of scale in some range of output levels even if it has decreasing returns in production in that output range.

DEMAND AND SUPPLY

Supply and demand is an economic model of price determination in a market. It concludes that in a competitive market, price will function to equalize the quantity demanded by consumers, and the quantity supplied by producers, resulting in an economic equilibrium of price and quantity.

Contents

* 1 The graphical representation of supply and demand

o 1.1 Supply schedule

o 1.2 Demand schedule

* 2 Micro Economics

o 2.1 Equilibrium

* 3 Changes in market equilibrium

o 3.1 Demand curve shifts

o 3.2 Supply curve shifts

* 4 Elasticity

o 4.1 Vertical supply curve (perfectly inelastic supply)

* 5 Other markets

* 6 Empirical estimation

* 7 Macroeconomic uses of demand and supply

* 8 History

* 9 Criticism

The graphical representation of supply and demand

The supply-demand model is a partial equilibrium model representing the determination of the price of a particular good and the quantity of that good which is traded. Although it is normal to regard the quantity demanded and the quantity supplied as functions of the price of the good, the standard graphical representation, usually attributed to Alfred Marshall, has price on the vertical axis and quantity on the horizontal axis, the opposite of the standard convention for the representation of a mathematical function.

Determinants of supply and demand other than the price of the good in question, such as consumers’ income, input prices and so on, are not explicitly represented in the supply-demand diagram. Changes in the values of these variables are represented by shifts in the supply and demand curves. By contrast, responses to changes in the price of the good are represented as movements along unchanged supply and demand curves.

Supply schedule

The supply schedule, depicted graphically as the supply curve, represents the amount of some good that producers are willing and able to sell at various prices, assuming ceteris paribus, that is, assuming all determinants of supply other than the price of the good in question, such as technology and the prices of factors of production, remain the same.

Under the assumption of perfect competition, supply is determined by marginal cost. Firms will produce additional output as long as the cost of producing an extra unit of output is less than the price they will receive.

By its very nature, conceptualizing a supply curve requires that the firm be a perfect competitor—that is, that the firm has no influence over the market price. This is because each point on the supply curve is the answer to the question “If this firm is faced with this potential price, how much output will it be able to sell?” If a firm has market power, so its decision of how much output to provide to the market influences the market price, then the firm is not “faced with” any price, and the question is meaningless.

Economists distinguish between the supply curve of an individual firm and the market supply curve. The market supply curve is obtained by summing the quantities supplied by all suppliers at each potential price. Thus in the graph of the supply curve, individual firms’ supply curves are added horizontally to obtain the market supply curve.

Economists also distinguish the short-run market supply curve from the long-run market supply curve. In this context, two things are assumed constant by definition of the short run: the availability of one or more fixed inputs (typically physical capital), and the number of firms in the industry. In the long run, firms have a chance to adjust their holdings of physical capital, enabling them to better adjust their quantity supplied at any given price. Furthermore, in the long run potential competitors can enter or exit the industry in response to market conditions. For both of these reasons, long-run market supply curves are flatter than their short-run counterparts.

Demand schedule

The demand schedule, depicted graphically as the demand curve, represents the amount of some good that buyers are willing and able to purchase at various prices, assuming all determinants of demand other than the price of the good in question, such as income, personal tastes, the price of substitute goods, and the price of complementary goods, remain the same. Following the law of demand, the demand curve is almost always represented as downward-sloping, meaning that as price decreases, consumers will buy more of the good.

Just as the supply curves reflect marginal cost curves, demand curves are determined by marginal utility curves.[2] Consumers will be willing to buy a given quantity of a good, at a given price, if the marginal utility of additional consumption is equal to the opportunity cost determined by the price, that is, the marginal utility of alternative consumption choices. The demand schedule is defined as the willingness and ability of a consumer to purchase a given product in a given frame of time.

As described above, the demand curve is generally downward-sloping. There may be rare examples of goods that have upward-sloping demand curves. Two different hypothetical types of goods with upward-sloping demand curves are Giffen goods (an inferior but staple good) and Veblen goods (goods made more fashionable by a higher price).

By its very nature, conceptualizing a demand curve requires that the purchaser be a perfect competitor—that is, that the purchaser has no influence over the market price. This is because each point on the demand curve is the answer to the question “If this buyer is faced with this potential price, how much of the product will it purchase?” If a buyer has market power, so its decision of how much to buy influences the market price, then the buyer is not “faced with” any price, and the question is meaningless.

As with supply curves, economists distinguish between the demand curve of an individual and the market demand curve. The market demand curve is obtained by summing the quantities demanded by all consumers at each potential price. Thus in the graph of the demand curve, individuals’ demand curves are added horizontally to obtain the market demand curve.

Equilibrium

Equilibrium is defined to the price-quantity pair where the quantity demanded is equal to the quantity supplied, represented by the intersection of the demand and supply curves.

Changes in market equilibrium

Practical uses of supply and demand analysis often center on the different variables that change equilibrium price and quantity, represented as shifts in the respective curves. Comparative statics of such a shift traces the effects from the initial equilibrium to the new equilibrium.

[edit] Demand curve shifts

Main article: Demand curve

An outward (rightward) shift in demand increases both equilibrium price and quantity

When consumers increase the quantity demanded at a given price, it is referred to as an increase in demand. Increased demand can be represented on the graph as the curve being shifted to the right. At each price point, a greater quantity is demanded, as from the initial curve D1 to the new curve D2. In the diagram, this raises the equilibrium price from P1 to the higher P2. This raises the equilibrium quantity from Q1 to the higher Q2. A movement along the curve is described as a “change in the quantity demanded” to distinguish it from a “change in demand,” that is, a shift of the curve. In the example above, there has been an increase in demand which has caused an increase in (equilibrium) quantity. The increase in demand could also come from changing tastes and fashions, incomes, price changes in complementary and substitute goods, market expectations, and number of buyers. This would cause the entire demand curve to shift changing the equilibrium price and quantity. Note in the diagram that the shift of the demand curve, by causing a new equilibrium price to emerge, resulted in movement along the supply curve from the point (Q1, P1) to the point Q2, P2).

If the demand decreases, then the opposite happens: a shift of the curve to the left. If the demand starts at D2, and decreases to D1, the equilibrium price will decrease, and the equilibrium quantity will also decrease. The quantity supplied at each price is the same as before the demand shift, reflecting the fact that the supply curve has not shifted; but the equilibrium quantity and price are different as a result of the change (shift) in demand.

[edit] Supply curve shifts

Main article: Supply (economics)

An outward (rightward) shift in supply reduces the equilibrium price but increases the equilibrium quantity

When the suppliers’ unit input costs change, or when technological progress occurs, the supply curve shifts. For example, assume that someone invents a better way of growing wheat so that the cost of growing a given quantity of wheat decreases. Otherwise stated, producers will be willing to supply more wheat at every price and this shifts the supply curve S1 outward, to S2—an increase in supply. This increase in supply causes the equilibrium price to decrease from P1 to P2. The equilibrium quantity increases from Q1 to Q2 as consumers move along the demand curve to the new lower price. As a result of a supply curve shift, the price and the quantity move in opposite directions.

If the quantity supplied decreases, the opposite happens. If the supply curve starts at S2, and shifts leftward to S1, the equilibrium price will increase and the equilibrium quantity will decrease as consumers move along the demand curve to the new higher price and associated lower quantity demanded. The quantity demanded at each price is the same as before the supply shift, reflecting the fact that the demand curve has not shifted. But due to the change (shift) in supply, the equilibrium quantity and price have changed.

Elasticity (economics)

Elasticity is a central concept in the theory of supply and demand. In this context, elasticity refers to how strongly the quantities supplied and demanded respond to various factors, including price and other determinants. One way to define elasticity is the percentage change in one variable (the quantity supplied or demanded) divided by the percentage change in the causative variable. For discrete changes this is known as arc elasticity, which calculates the elasticity over a range of values. In contrast, point elasticity uses differential calculus to determine the elasticity at a specific point. Elasticity is a measure of relative changes.

Often, it is useful to know how strongly the quantity demanded or supplied will change when the price changes. This is known as the price elasticity of demand or the price elasticity of supply. If a monopolist decides to increase the price of its product, how will this affect the amount of their good that customers purchase? This knowledge helps the firm determine whether the increased unit price will offset the decrease in sales volume. Likewise, if a government imposes a tax on a good, thereby increasing the effective price, knowledge of the price elasticity will help us to predict the size of the resulting effect on the quantity demanded.

Elasticity is calculated as the percentage change in quantity divided by the associated percentage change in price. For example, if the price moves from $1.00 to $1.05, and as a result the quantity supplied goes from 100 pens to 102 pens, the quantity of pens increased by 2%, and the price increased by 5%, so the price elasticity of supply is 2%/5% or 0.4.

Since the changes are in percentages, changing the unit of measurement or the currency will not affect the elasticity. If the quantity demanded or supplied changes by a greater percentage than the price did, then demand or supply is said to be elastic. If the quantity changes by a lesser percentage than the price did, demand or supply is said to be inelastic. If supply is perfectly inelastic;that is, has zero elasticity, then there is a vertical supply curve.

Short-run supply curves are not as elastic as long-run supply curves, because in the long run firms can respond to market conditions by varying their holdings of physical capital, and because in the long run new firms can enter or old firms can exit the market.

Elasticity in relation to variables other than price can also be considered. One of the most common to consider is income. How strongly would the demand for a good change if income increased or decreased? The relative percentage change is known as the income elasticity of demand.

Another elasticity sometimes considered is the cross elasticity of demand, which measures the responsiveness of the quantity demanded of a good to a change in the price of another good. This is often considered when looking at the relative changes in demand when studying complements and substitute goods. Complements are goods that are typically utilized together, where if one is consumed, usually the other is also. Substitute goods are those where one can be substituted for the other, and if the price of one good rises, one may purchase less of it and instead purchase its substitute.

Cross elasticity of demand is measured as the percentage change in demand for the first good divided by the causative percentage change in the price of the other good. For an example with a complement good, if, in response to a 10% increase in the price of fuel, the quantity of new cars demanded decreased by 20%, the cross elasticity of demand would be -2.0.

In a frictionless economy, the price and quantity in any market would be able to move to a new equilibrium position instantly, without spending any time away from equilibrium. Any change in market conditions would cause a jump from one equilibrium position to another at once. In real economic systems, markets don’t always behave in this way, and markets take some time before they reach a new equilibrium position. This is due to asymmetric, or at least imperfect, information, where no one economic agent could ever be expected to know every relevant condition in every market. Ultimately both producers and consumers must rely on trial and error as well as prediction and calculation to find the true equilibrium of a market.

Vertical supply curve (perfectly inelastic supply)

When demand D1 is in effect, the price will be P1. When D2 is occurring, the price will be P2. The equilibrium quantity is always Q, and any shifts in demand will only affect price.

If the quantity supplied is fixed no matter what the price, the supply curve is a vertical line, and supply is called perfectly inelastic.

As a hypothetical example, consider the supply curve of land. No matter how much someone is willing to pay for additional parcels, more land cannot be created. Even if no one wanted any of the land, there would still be a supply of land. Therefore, land has a vertical supply curve, with zero elasticity.

Other markets

The model of supply and demand also applies to various specialty markets.

The model is commonly applied to wages, in the market for labor. The typical roles of supplier and demander are reversed. The suppliers are individuals, who try to sell their labor for the highest price. The demanders of labor are businesses, which try to buy the type of labor they need at the lowest price. The equilibrium price for a certain type of labor is the wage rate.[3]

A number of economists (for example Pierangelo Garegnani[4], Robert L. Vienneau[5], and Arrigo Opocher & Ian Steedman[6]), building on the work of Piero Sraffa, argue that that this model of the labor market, even given all its assumptions, is logically incoherent. Michael Anyadike-Danes and Wyne Godley [7] argue, based on simulation results, that little of the empirical work done with the textbook model constitutes a potentially falsifying test, and, consequently, empirical evidence hardly exists for that model. Graham White [8] argues, partially on the basis of Sraffianism, that the policy of increased labor market flexibility, including the reduction of minimum wages, does not have an “intellectually coherent” argument in economic theory.

This criticism of the application of the model of supply and demand generalizes, particularly to all markets for factors of production. It also has implications for monetary theory[9] not drawn out here.

In both classical and Keynesian economics, the money market is analyzed as a supply-and-demand system with interest rates being the price. The money supply may be a vertical supply curve, if the central bank of a country chooses to use monetary policy to fix its value regardless of the interest rate; in this case the money supply is totally inelastic. On the other hand,[10] the money supply curve is a horizontal line if the central bank is targeting a fixed interest rate and ignoring the value of the money supply; in this case the money supply curve is perfectly elastic. The demand for money intersects with the money supply to determine the interest rate.[11]

[edit] Empirical estimation

Demand and supply relations in a market can be statistically estimated from price, quantity, and other data with sufficient information in the model. This can be done with simultaneous-equation methods of estimation in econometrics. Such methods allow solving for the model-relevant “structural coefficients,” the estimated algebraic counterparts of the theory. The Parameter identification problem is a common issue in “structural estimation.” Typically, data on exogenous variables (that is, variables other than price and quantity, both of which are endogenous variables) are needed to perform such an estimation. An alternative to “structural estimation” is reduced-form estimation, which regresses each of the endogenous variables on the respective exogenous variables.

[edit] Macroeconomic uses of demand and supply

Demand and supply have also been generalized to explain macroeconomic variables in a market economy, including the quantity of total output and the general price level. The Aggregate Demand-Aggregate Supply model may be the most direct application of supply and demand to macroeconomics, but other macroeconomic models also use supply and demand. Compared to microeconomic uses of demand and supply, different (and more controversial) theoretical considerations apply to such macroeconomic counterparts as aggregate demand and aggregate supply. Demand and supply are also used in macroeconomic theory to relate money supply and money demand to interest rates, and to relate labor supply and labor demand to wage rates.

History

The power of supply and demand was understood to some extent by several early Muslim economists, such as Ibn Taymiyyah who illustrates:

“If desire for goods increases while its availability decreases, its price rises. On the other hand, if availability of the good increases and the desire for it decreases, the price comes down.”[12]

The phrase “supply and demand” was first used by James Denham-Steuart in his Inquiry into the Principles of Political Economy, published in 1767. Adam Smith used the phrase in his 1776 book The Wealth of Nations, and David Ricardo titled one chapter of his 1817 work Principles of Political Economy and Taxation “On the Influence of Demand and Supply on Price”.[13]

In The Wealth of Nations, Smith generally assumed that the supply price was fixed but that its “merit” (value) would decrease as its “scarcity” increased, in effect what was later called the law of demand. Ricardo, in Principles of Political Economy and Taxation, more rigorously laid down the idea of the assumptions that were used to build his ideas of supply and demand. Antoine Augustin Cournot first developed a mathematical model of supply and demand in his 1838 Researches into the Mathematical Principles of Wealth, including diagrams.

During the late 19th century the marginalist school of thought emerged. This field mainly was started by Stanley Jevons, Carl Menger, and Léon Walras. The key idea was that the price was set by the most expensive price, that is, the price at the margin. This was a substantial change from Adam Smith’s thoughts on determining the supply price.

In his 1870 essay “On the Graphical Representation of Supply and Demand”, Fleeming Jenkin in the course of “introduc[ing] the diagrammatic method into the English economic literature” published the first drawing of supply and demand curves therein,[14] including comparative statics from a shift of supply or demand and application to the labor market.[15] The model was further developed and popularized by Alfred Marshall in the 1890 textbook Principles of Economics.[13]

[edit] Criticism

At least two assumptions are necessary for the validity of the standard model: first, that supply and demand are independent; and second, that supply is “constrained by a fixed resource”; If these conditions do not hold, then the Marshallian model cannot be sustained. Sraffa’s critique focused on the inconsistency (except in implausible circumstances) of partial equilibrium analysis and the rationale for the upward-slope of the supply curve in a market for a produced consumption good[16]. The notability of Sraffa’s critique is also demonstrated by Paul A. Samuelson’s comments and engagements with it over many years, for example:

“What a cleaned-up version of Sraffa (1926) establishes is how nearly empty are all of Marshall’s partial equilibrium boxes. To a logical purist of Wittgenstein and Sraffa class, the Marshallian partial equilibrium box of constant cost is even more empty than the box of increasing cost.”[17].

Aggregate excess demand in a market is the difference between the quantity demanded and the quantity supplied as a function of price. In the model with an upward-sloping supply curve and downward-sloping demand curve, the aggregate excess demand function only intersects the axis at one point, namely, at the point where the supply and demand curves intersect. The Sonnenschein-Mantel-Debreu theorem shows that the standard model cannot be rigorously derived in general from general equilibrium theory[18].

The model of prices being determined by supply and demand assumes perfect competition. But:

“economists have no adequate model of how individuals and firms adjust prices in a competitive model. If all participants are price-takers by definition, then the actor who adjusts prices to eliminate excess demand is not specified”[19].

The problem is summarized in the Ackerman text: “If we mistakenly confuse precision with accuracy, then we might be misled into thinking that an explanation expressed in precise mathematical or graphical terms is somehow more rigorous or useful than one that takes into account particulars of history, institutions or business strategy. This is not the case. Therefore, it is important not to put too much confidence in the apparent precision of supply and demand graphs. Supply and demand analysis is a useful precisely formulated conceptual tool that clever people have devised to help us gain an abstract understanding of a complex world. It does not - nor should it be expected to - give us in addition an accurate and complete description of any particular real world market.”

THIS SECTION COMPRISES GCE QUESTIONS EXTRACT

1. distinguish between nationalism and privatisation(4mrks)

2. state and explain four arguments in favour of nationalism(4mrks)

3. state and explaine four arguments against privatisation(8mrks)

1. what are « diseconomics of scale »? explaine with examples(8mrks)

2. why do small firms survive in some industries despite the advantages which accrue from large scale production?(12marks)

1. with the aid of appropriate diagrams clearly defrienciate, clearly diffrenciate between a change in demand and a change in quantity demanded(12marks)

2. state and explaine four factors that will affect the elasticity of supply(8marks)

3. state and explaine 2 sources of gorvernment revenue(4marks)

4. state and explaine 2 advantages and disadvantages each of direct and indirect taxes(16marks)

5. state three reasons why the gorvernment of cameroon may place restrictions on the importation of goods and services(6marks)

6. explaine anythree methods by which the flow of imports and exports are restricted in a country(6marks)

7. state and explain four sources of economic growth(8marks)

8. state and explain four differences between BICEC and BEAC as a bank operating in cameroon (10marks)

9. explain clearly five ways by wich supply of money in an economy can be controlled by the gorvernment (10 marks)

10. state the first law of demand and supply(4mrks)

11. why does a normal demand curve slope downward from left to right (8marks)

12. define the following – auction scales, price mechanism, rationing and price(6marks)

13. what did you understand to be?

growing population,ageing population,give the positive and the negative effects of a country experiencing the 2 above(20marks)

1. write short notes on the following

1 opyimumpopulation

2 under population

3 over population

4 geographical distibution of population

5 occupation distribution of a population.

1. Study the table below and answer the following questions that follow

DEMAND SCHEDULE FOR GARRI
PRICE(FCFA)	QUANTITY DEMANDED(KG)
400	2
350	3
300	6
250	8
200	10
150	12
100	14
50	16

A, calculate the elasticity of demand when the price rises 300 francs cfa to 350 per kg of garri(5marks)

B, calculate the elasticity of demand when prises drops from 300 francs cfa to 250 francs per kilogram of garri(5marks)

C,state and explain two ways by wich the concept of elasticity of the demand guides a buisnessman in the production and the distribution of goods and services(10marks)

1. what do economics descripe as labour

2. define the term « division of labour »

3. explain clearly how the practice of labour results in increased output of goods and services in a production process. Give three reasons only

4. trade fairs in some cameroon towns such as yaounde and limbe are fast becoming a yearly and regular economic phenomen. State and explain five economic effects on the cameroon country

25 why is economics called a social science?
26 what is opportunity cost
27 what is the defination of scarcity in economics
28 how did ricardo define land
29 why do we make choises of our wants 
30 who define economics as  "a study of making in his ordinary buisiness of life
31 define a firm and a plant
32 define an industry with an example what is private sector in an economy
33 what is a buisiness firm34 what is economics in your ownsense
35 what are some characteristics of capital system
36 explain what is a scale of relative preference
37 define the following terms 
a an optimum population
b a diclining population 
38 what are the economice effects of under population for cameroon
39 define the terms
a scarcity
b choise
c scale of preference
40 show how opportunity cost is applicable in cameroon
41 write shorts notes on the following
a birth rate 
b death rate 
c migration
d active population
e the malthasians theory
42 list some problems encountered during a census
43 give the factors affecting birth rate and death rate
44 what is production
45 defrentiate with examplesthe tree stages of production
46 what is your house made up of
47 examples of free goods 
48 defrentiate between public and free goods with examples
49 what brings about scarcity 
50 name the economic system of your country
51 which is the most important characteristic of public goods
52 give an example of a public good that will increase quasi public good in the society
53 a consumer of a particular good gets to his maximum satisfaction when .....................
54 agood is considered a free good in economics when........................
55 a good that the society desires more than the individual consumer is ......................
55 a good that no one will be willing to pay for it is a .............................good
56 which stage of production involves a change of place
57 bring out the characteristics that is common with all goods 
58 which of the following can help to make a difference between ecoomic goods  and free goods 
59 give the meaning of "ENDS" in Robbin's defination of economics
60 which of the following make the science of economics similar to the science of  baptiste chemistry
61 the provision of banking services is an example of...............
62 a man bought timber from a saw mill and produces his bed only.Such is an example of ...........................
63 goods which are not scares are called.....................
64  a personal car can be considered as ...........
65 a buisness man tried to calculate the money value of all he has.What type of wealth was he calculating
67 the place where production is actualy carried out is described as 
68 an economic system where income is distributed according to the sweat of every one is called .....................
69 which of the following would be described  to be the consequences of an ageing population
70 which of the following is an economic  implication of an expanding population
71 if the population of a country is growing at a high rate than the rate of expansion in the country's output of goods and services, this situation called
72 what are those of population that a country at pc stage will always neglet 
population density refers to
73 to calculate the annual natural growth rate of a country's population, one's  has to know the country annual crude birth rate 
74 which factor is most responsible for the concentration of population in major town in the cameroon
75 net migration is defined as 
76 birth rate is best defined as
77 death canbest be defined as 
78 for an increase in population to take place what must hapen between bith and death rate
79 the age distribution of a given population is defined as 
80 the grouping of population into males and females is known as 
81 when is optimum population attened 
82 when a nation is making the fullest and best use of its resources it is said to be at it's 
83 list five economic effects of an over populated experienceing  large scale imigration
84 a suitiation where money is used in exchanged for a good is called 
85 Show how the terms utility and usefulness differ. How do economists classify utilities?
86 Give some examples of the popular use of the term value. How does the economist understand the term?
87 Distinguish between free goods and economic goods.
88 How would you define a producer? Indicate some various classes of producers and the kind of goods they create.

89 Discuss what is meant by the consumption of a utility.

90 What is meant by the distribution of income and what classes share in it?

91What does the economist mean by land; by extractive industries?

92 Define rent: (a) as usually applied; (b) as understood in an economic sense.

93 Discuss the evolution of capital. Define capital. What would you include under it?
94 What is the capital fund as understood by the business man?
95 Explain the fundamental importance of capital to a nation. Distinguish between a demand for commodities and a demand for labor.
98 answer this baptist MCQ
Question 1 - Who is considered to be the "father of modern economics"?
A) Karl Marx
B) Abraham Lincoln
C) Adam Smith
D) Barack Obama
Question 2 - The tension between limited resources and unlimited wants and needs, is referred to as?
A) Elasticity
B) Market Economy
C) Utility
D) Scarcity
E) None of the above
Question 3 - What are the two primary branches of study within economics?
A) Macroeconomics and Nanoeconomics
B) Nanoeconomics and Intra-economics
C) Microeconomics and Nanoeconomics
D) Macroeconomics and Microeconomics
E) Intra-economics and Microeconom
Question 4 - What model is used to represent the point at which an economy is most efficiently producing its goods or services?
A) IS/LM model
B) The Invisible Hand
C) Production Possibilities Frontier
D) Marginal Allocation Model
E) Efficient Economy Index
Question 5 - A country that can produce more of a good or service than another country with the same amount of inputs is said to have a/an:
A) Comparative Advantage
B) Output Advantage
C) Production Advantage
D) Competitive Advantage
E) Absolute Advantage
Question 6 - The value of the next best alternative foregone by making another decision is known as?
A) Stop loss
B) Opportunity cost
C) Utility
D) Elasticity
E) Comparative Advantage
Question 7 - Movement along the demand curve denotes:
A) A shift in demand unrelated to price
B) A shift in supply
C) A change in demand in relation to price
D) A change in economic theory
E) None of the above
Question 8 - Which of the following is not a factor which affects demand elasticity?
A) The availability of substitutes
B) Income
C) Absolute advantage
D) Time

 The availability of substitutes - This is probably the most important factor influencing the elasticity of a good or service. In general, the more substitutes, the more elastic the demand will be.
2. Amount of income available to spend on the good - This factor affecting demand elasticity refers to the total a person can spend on a particular good or service.
3. Time - The third influential factor is time
Question 9 - Marginal utility will usually __________ with each additional increase in consumption of a good.
A) Increase
B) Decrease
C) Remain unchanged
D) Move inversely to the invisible hand
E) None of the above 
"Although total utility usually increases as more of a good is consumed, marginal utility  usually decreases with each additional increase in the consumption of a good. This decrease demonstrates the law of diminishing marginal utility. Because there is a certain threshold of satisfaction, the consumer will no longer receive the same pleasure from consumption once that threshold is crossed. In other words, total utility will increase at a slower pace as an individual increases the quantity consumed."
Question 10 - A market structure in which an industry is comprised of only a few firms is known as?
A) Monopoly
B) Perfect competition
C) Fewopoly
D) Oligopoly
E) None of the above
"In an oligopoly, there are only a few firms that make up an industry. This select group of firms has control over the price and, like a monopoly, an oligopoly has high barriers to entry. The products that the oligopolistic firms produce are often nearly identical and, therefore, the companies, which are competing for market share, are interdependent as a result of market forces."

BIBIOGRAPHY

1. WIKIPEDIA – WWW. WIKIPEDIA.ORG

2. TO ALL MY CLASS MATES OF SAPACOL

3. YAMATCHUI JOHAN BAPTISTE

4. AMAH JOHNAS

5. SANY BRICE

6. AMIN TANKENG

7. HAMZA MONKARE

8. MUNJI FABRICE

9. TAKWO ARIS

10. FUSUH CALEB – BISCOCO

11. MOTEHO PEGGY

12. AYUH VERA

13. JOMETSA SHARON

14. YANOU AUDREY

15. LUM GHISLAINE

BYEEEEE publish by yamatchui

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9-COMMENT S’ HABILLER

nous nous habillons:pour protéger notre corps contre les intempéries -pour cacher notre nudité et enfin pour pour nous parer dans le choix de notre habillement , nous devons tenir compte avant tous des deux premiers critères ,,,,

A RETENIR:

- Quels que soient votre age ,votre sexe et votre race ,la toute première pièce de votre habillement c’est le caleçon il doit toujours êtreo propre ,par conséquent vous devez le changer chaque jour le caleçon est un sous vêtement et à ce titre ,vous le laisserez toujours caché sous votre habit

- mettez des vêtements amples qui vous permettent de vous mouvoir librement tous en vous laissant respirer et transpirer aisément

- Notre corps a des parties intimes qu’il n’est pas commode d’exposer à la vue de tous LES jeunes filles doivent éviter le port des mini-jupes , mini-robes ,corsages sautés qui laissent à découvert leur quasi nudité

• Quand il fait frais , habiller_vous chaudement et quand il fait chaud ,mettez un habit moins chaud Vous etes fort ridicule lorsque en plien seson seche, vous êtes noyé dans une robe ou un veston en cuir. Ce vetement trempe de seur sent mauvais et gene votre entourage , ne aller point sous la pluie en decolte, vous tomberez malade

• ne mettez jamais une veste pour sortir si vous navez pas de chessure ferme

• ne laiser pas pendre vos chamisse sur le pantalon ou la jupe au desus de la veste

• ne mettez point la cravatte sur une chemmise qui pend

• les colier et boucles d’oriel sont fais pour les femmes

• eviter de paraître idiot a vouloir a tout prix suivre la mode …. les habits doivent etre simples convertable

• respectez les marriages des couleurs et eviter celles qui sont trop forte.

RESUME

sachons choisir les vetement qui protegent notre corp, dans decence evitons le redicule en nous parant

saisi par a. sophie et rediger par yohan b.

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LES EFFETS COMMUNAUTAIRES

Il compare  les cultures par rapport à leurs éfficacité dans la gestion de l’entreprise.C’est avant tout  une affaire de culture:aussi certaines sociétés ont la culture du management et d’autres pas.
C’est une préoccupation importante dans les milieux universitaires et d’affaires africains. Le succès indéniable de cretains pays du sud est asiatique,tant au plan économique qu’a celui de l’expérimentation avec succès de nouvelles appproches de management, n’a pas manqué d’interpeller les différents acteurs du developpement de l’Afrique . A u centre de toutes ces préoccupations ,on trouve toujours le probleme central du role des facteurs culturels dans les stratégies de développement.
Parallèlement à ce courant emergent actuel qui préconise la recherche et la réhabilitation,dans les organisations africaines ,des normes et pratiques sociales empruntées aux traditions nationales.

le pardoxe culturel
quelques indications du procès des cultures traditionnelles apparaissent en filigrane dont l’analyse jette un éclairage sur les principales zones de contracditions entre les cultures africaines traditionnelles et la culture occidentale moderne. Sa reflexion s’insère dans une approche cmoparative dont la finalitéest de procéder à une reévaluation de la culture africaine traditionnelle, dans un contexte d’interaction avec la modernité occidentale. L’auteur souligne bien la difficulté d’une telle démarche qui souligne un cruel dilemme:
Aujourd’hui ,nos cultures traditionnelles se dressent comme un seul homme face  à la culture occidentale qui,ell aussi du moins en ce qui concerne l’essentiel ,présente un front monolithique.En effet,la culture occidentale dans ses différents élements parfois contradictoires ,s’est historiquement présentée chez nous comme une forme ou un mode de vie humain ,assujetit à elle d’autres formes ou modes de vie
Quels sont donc ces ces caractéristiques dominantes des cultures africaines  traditionnelles qui, bien que fortement valorisées ,parce que facteurs de cohésion sociale et de developpement personnel ,sont susceptibles en meme temps d’etre de sérieux obstacles à l’insertion en milieu industriel, ?  L’auteur en voit principalement trois.C’est d’abord le culte excessif de la vie et de la nature, qui confère à toute activité humaine une dimension fondamentale existencielle et conaturelle ,c’est -a-dire la recherche d’une communion totale entre l’individu ,la vie et la nature. Dans ces conditions,peut-on ajouter ,la vie tout court prend le dessus sur la vie économique dont on connait par ailleurs la place centrale dans le developpement des sociétés contemporaines
La vie économique ne s’impose pas à la vie;le travail,loin de constituer le principe de différenciation entre les hommes par la distribution des taches et des roles sociaux ,suit ,au contraire ,un clivage que  la vie en s’instaurant , en ce différenciant ,établir parmi les hommes . Le constat ici fait suscite quelques reserves dès lors que l’on intègre la dimension temporelle dans l’analyse  du changement en afrique .A  l’analyse du fonctionnement actuel des sociétés africaines , surtout en milieu urbain on peut bien se demander ce que représente encore la dimension essentielle et conaturelle de la vie.
L a seconde caractéristique des cultures africaines traditionnelles relevée est la prédominance de la vie communautaire. Cette dernière peut devenir une source considerable d’inhibition  des efforts et de l’ambition de réalisation (de soi ) . Aussi, l’auteur n’hésite pas d’ ailleurs à voir dans cette vie communautaire le cadre d’émergence d’une tentation totalitaire dangereuse pour l’exprssion du potenciel de chaque individu.

L’AUTEUR EN QUESTION

Un autre courant beaucoup plus critique se développe pour remettre en cause, parfois de maniere radicale ,les cultures africaines dans leur ensemble et qui sont en grande partie rendu responsable des echecs économiques .Aussi s’ il faut priviligié la famille  et la tribu ,on attient pas le but fixé par l’ organisation parce que les règles du management et de la gestion n’ ont  pas été respectés.Cependant ,bien qu’etant une affaire de culture ,certaines sociétés en occurence la société “bamiliké” pour l’ expérience camerounaise possède en effet une culture manageriale par rapport aux autres

Michel Crosier et Erthard Freidberg  definissent ce livre comme un manuel, non pas de sociologie des organisations , mais de sociologie de l’action organisée. Cette méthode ,basée sur l’analyse strategique, se positionne sur le plan des relations de pouvoir entre acteureset des règles implicites qui gouvernent leurs interactions,et qui sont appelées ici “jeux”.L’analyse stratégique utilise les attitudes ici comme”un outil de recherche commode et imparfait” pour découvrir ces jeux.(p 471).L’organisation est vue ici comme “le royaumme des relations de pouvoir ,de l’influence du marchandage et du calcul”et comme “unconstruit humain qui n’a pas de sens en dehors des rapports de ses menbres” (p 50)
Il s’agit de mieux comprendre comment fonctionnent les organisations pour mieux les gérer.c livre intéresse le lecteur car il propose un travail plus en profondeur et non une recrtte rapide .Il propose comment écouter au sens large :car ,on écoute pas parceque les gens ne parlent pas:ils ne parlent pas parcequ’on n’écoute pas.Mais enréalité,si l’on écoute bien quelqu’un ,il parle.Le problème réside dans la tete de l’écouteur et non dans le manque de parole.La sociologie donne ensuite les capacités d’analyser. Elle offre des rprésentations imparfaites de l’ensemble des rapports humains,mais des représentations tout de meme.L’orsque l’on a découvert comment fonctionne l’ensemble,l’action a alors un sens :le management est important il permet de developper le changement ,qui apparait comme cette capacité a à tolérer une diversité ,une ouverture plus grande une incohérence et à gérer les tensions inévitables et qui permet auc hommes de conquérir des capacités plus grandes.Pour eux ,contrairement aux idées qui circulent,les acteurs ne sont pas attachés à leurs routines et sont prets à changer rapidement s’ils sont capables de trouver un intéret dans le jeu qu’on leur propose.(P 386).Seulement,le changement, apprentissage de nouvelles formes d’actions collectives de nouveaux jeux néccessitent cependant une rupture avec les anciens jeux .C’est ainsi que les autuers parlent de “finnanciarisation”. C’est -a dire le “financier joue un role déterminant :il s’est ajouté à l’analyse du fonctionnement .En cela, il doit beaucoup faire attention à l’image de son entreprise car elle conditionne sa situation sur le marché boursier;Il doit gérer un système ayant les memes fondement mais avec une rapidité et une subtilité extraordinnaire.

QUELQUES PRINCIPES DE L’ANLYSE STRATEGIQUE

“L’acteur n’existe pas en dehors du système, lequel définit la liberté qui la sienne et la rationnalité qu’il peut utiliser dans son action .Mais le système n’existe que par l’acteurqui seul peut le porter et lui donner vie et qui seul peut le changer.De la juxtaposition de ces deux logiques naissent les contraintes de l’action organisée et se réalisent les conditions qui la rendent possible.L’inévitabilité des crises est donc soulignée tout comme le risque qu’elle produisent l’effet inverse:le renforcement des mécanismes d’adaptations voire de regréssion. (p 382,401). Cel dit, l’action collective n’est pas un phenomène naturel:c’est un construit socialelle imposent aux acteursleurs contraintes ,mais aussi,leur laissent une marge de libertéet de capacité d’actionsqui,en vue de la réalisation d’objectifscommuns, rendent la coopération entre eux possible.De cette coopération découlent  les résultats et pour eux et pour l’organisation.Le reformateur est donc dans une situation de pouvoir,mais il n”il ne peut en aucun cas imposer son modèle en croyant tenir la vérité pour l’approche préconisée” (p 406).

Action collective et organisation sont complémentaire.car ce sont deux faces d’un meme problème:celui de structuration plus ou moins formalisée des champs à l’intérieur  à l’intérieur des quels toutes action se deeloppesans pour autant la guarantirdes effets perversou contre intuitifs  ou encore des effets du système qui la ménacent.

Toutes analyses un peu poussées de la vie réelle des organisations revèlent la complexité des comportements humains: par conséquent la conduite de l’acteur n’est pas le produit de sa soumissin ou de la pesanteur des données structurelles.Elle est toujours l’expression et la mise en oeuvre d’une liberté si minime soit-elle et d’une rationalité de son point de vue à lui.Elle n’est donc jamais présivisible car elle n’est pas déterminées mais au contraire toujours contingente.Elle traduit un choix à travers lequel l’acteur  se saisit des opportunités défensives  et offenssives qui s’offrent à lui dans le cadre des contraintes qu’il subit ,mais dont il s’efforcede se dégager. Les omportements de l’acteur ont toujours un sens :ils résultent des réactions affectives mais surtout des stratégies qui visent à accroitre le plus possible la marge de liberté dont il dispose et à exploiter à son profit les zones d’incertitudes  et les interstices ( zones d’incertitudes )

que comporte le système social aussi reglementéset controlés soient-ils

Les relations de pouviors sont aux coeur de toutesde toutes actions organisées ,laquelle implique à tous les niveaux négociations et intégration. Le pouvoir est défini comme une relation structurante caractérisée par le déséquilibre d’une relation qui est réciproque et par la possibilité de certains individus ou groupes d’individus d’agir  sur d’autres individus ou groupes. Il n’est pas seulement d’effets représsifs et négatifs ,aussi donc l’acteur en joue dans la mesure ou il saffirme comme un etre humain relativement autonome au lieu d’en etre seulement un moyen.

Toutes relations de pouvoirs a des limites: les acteurs ne peuvent aller aller trop loin dans leurs actions car ils sont ammenés à respecter un certains nombres de “règles du jeux”dans les conflits entre divers participants en interaction

Le changement est un phénomène systémique, le propre de tout système etant ‘ètre toujours ouvert .Il vise la transformation d’un système d’action .C’est aussi un processus de création collective selon lequel les membres d’une collectivité donné inventent et fixent de nouvelles facons de joure le jeux social de la coopération et du conflit,bref, une une nouvelle facon de faire .

CONCLUSION

La liberté des acteurs est un fait l’existence d’un système organisé et cohérent en est une autre comment ces réalitées s”articulent -elles ?MICHEL CROZIER associé à ERHRAL FRIEDBREG montrent contrent toutes les les mirages d’une rationalité totalitaire le caractère éssentiellement opportuniste des stratégies humaines et la part irréductible de liberté qui existe dans toutes les relations de pouvoir
En bref, rien n’est figé, toutes les interactions entre acteurs ,la poursuite de leurs stratégies ,l’utilisation des zones d’incertitudes aboutissent à la constitution d’un système d’action ,plus ou moins stable. l’objectif de l’analyse strategique est de révéler toutes ces constructions sociales.

saisi par solange et rediger par baptiste

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1. water in ponds does not freezes completly through out it’s debth in wimter therfore aquatic animals may survive the temperature of water which is not freezen

2.when water at the surface of ponds cools downat 4°c it sinks to the botom as it is les dense than the wormless water at the bottom now rises to the surface at a lower temperature permitting the existance of some aquatic life

3.when the water at the surface of ponds freezes into ice, relative worm water at 4°c stays at the bottom permiting the survival of aquatic life

4.the minimum volume and maximum density at 4°c is a fortune for skatters and pond life. It is important to aquatic life because temperature at the bottom of a deep pond is likely to fall below 4°c

5.it enebles aquatic life to survive in water at 4°c beneath frozen ice in servere winters or cold weather. The frozen floating  ice insulates the life beneath

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