Economics

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SCALE OF PREFERENCE:-
The concept of scale of preference is the base of indifference curve analysis.
Now, we see what is meant by Scale of preference.
Suppose, a consumer is in a position to arrange the different combination of
two goods say X & Y, in order to buy or consume it, then he have to arrange the
combination in ascending or descending order of preference. He could tell us that
the satisfaction derived from the first combination is more than, equal to or less
than from the second combination but not the exact difference (in number) in
satisfaction derived from any two combinations.
Thus, every consumer arranges these combinations in order of preference.
“This conceptual arrangement of combination of goods set in order of level of
preference or importance is called the scale of preference.”
INDIFFERENCE CURVE:-
An Indifference curve is the locus of all those combination of any two goods which
give the same level of satisfaction to the consumer. (i.e.) He will be indifference
between that combination and he does not matter if any combination he gets.
Indifference Schedule:-
Combinations Goods (X) Goods (Y) Level of satisfactions
A 1 18 S
B 2 13 S
C 3 9 S
D 4 6 S
E 5 4 S
S = Same level of Satisfaction.

In the above schedule there are 5 combinations of 2 goods (X) and (Y)
But all are achieved combinations of (X) and (Y). The consumer is indifferent
between them. It can be explained in further detail as_
To get one more units of X the consumer prefer to give up 5 units or Y. The
gain in utility of one additional unit of X will exactly compensated the consumer by
the loss of 5 units of Y. Thus the total level of satisfaction from
(1X + 18Y) is equal to (2X + 13Y).
Similarly, the total utility or the level of satisfaction from (2X + 13Y) is equal
to (3X + 9Y) and so on. Since all these combinations gives the same level of
satisfaction they are also known as Iso-utility combination.
Indifference schedule in Indifference curve as shown below:

In the above figure, X-axis represents product X and Y –axis represents
product Y. IC1 is the Indifference curve. All combinations of the goods X & Y
represented by points A, B, C, D & E on the Indifferent curve will be equally
preferable to the consumer. As these goods gives him the same level of satisfactions.
OMTE X – CLAS SE S OMTE X

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INDIFFERENCE MAP:
An indifference map is consists of a set of indifference curve drawn
together. It shows the scale of preference of consumer for different combinations of
any two goods.
In the indifferent Map given above, all the combination of two goods represented by
the curve IC1 will give the consumer the same level of satisfaction. But the level of
satisfaction will be less than those given by IC2 and IC3 etc.
Higher and higher indifference curve represents higher & higher level of
satisfaction as compared to lower one.
Therefore Indifference curve in a indifference map are labeled in an
ascending order such as IC0, IC1, IC2, IC3, IC10, IC100 ……… ICn. Without actual
measurement of utility.
ASSUMPTION OF INDIFFERENCE CURVE ANALYSIS.
1. A consumer is assumed to buy any two goods in combinations.

2. A consumer can rank the alternative combinations and compare their level
of satisfaction, and he prefers a combination providing a higher level of
satisfaction.
3. It is assumed that utility can be measured in ordinal numbers but not in
cardinal measurements.
4. Consumer is rational and his choices are transitive.
5. The consumer behaviour is assumed to be constant, throughout the
analysis.
6. Indifference curve analysis assumes diminishing marginal rate of
substitution.
Properties of Indifference Curve

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The indifference curves possess certain characteristics which are also called as
properties. The important properties are:
1. Indifference curve must slopes downwards from left to right.
2. Indifference curve must be convex to the origin.
3. No two Indifference curves should intersect.
LET US SEE THE PROPERTIES ONE BY ONE

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Indifference curves slopes downwards from left to right indicating that as the
quantity of commodity X increases, the amount of commodity Y should fall in order
that the level of satisfaction from every combination should remain the same.
In the above figure, where the Indifference curve (IC1) slopes downwards
from left to right, shows that as the consumer moves from point A to B on (IC1),
consuming more of commodity X [(i.e.) from o-x1 to o-x2] and less of commodity Y
[(i.e.) from o-y1 to o-y2], level of satisfaction remains the same.
Let us see weather, the indifference curve can slope

upwards
from left to right or that it is horizontal or vertical
as shown in the following figure.
In the upward sloping Indifference curve_

When the consumer prefers (0 – x1) quantity of commodity X he prefers (0 – y1)
quantity of commodity Y at the point A. When the consumer tends to prefer
(0 – x2) quantity of commodity X he prefers (0 – y2) quantity of commodity Y at the
point B.
From the diagram it is very clear that,
(0 – x1) > (0 – x2) & (0 – y1) < (0 – y2)

Therefore, the satisfaction derived from the combination of goods X
and Y at point B is greater than the satisfaction derived from the
combination of goods X and Y at point A.
This is happening, because the consumer moves from A to B on
IC1 consuming more of commodity X [ (i.e.) 0 – x1 to 0 – x2 ] and more of
commodity Y [ (i.e.) from 0 – y1 to 0 – y2 ]
In the horizontal slopping of Indifference

curve_

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Y1
When the consumer prefers (0 – x1) quantity of commodity X as well as (0 –

x2) quantity of commodity X he prefers the same quantity of Y (i.e.) (0 – y1).
From the diagram, it is very clear that,
(0 – x1) < (0 – x2) & (0 – y1) = (0 – y1)
Therefore, the satisfaction derived from the combination of goods X and Y at
point B is greater than the satisfaction derived from the combination of goods X and
Y at point A.
This is because the consumer moves from A and B on (IC1) Consuming
more of commodity X (i.e. 0 – x1 to 0 – x2) and same level of commodity Y (i.e.)
from (0 – y1) to (0 – y1).
In the vertical sloping Indifference curve_
When the consumer prefers (0 – y1) quantity of commodity Y as well as

(0 – y2) quantity of commodity Y he prefers the same quantity of commodity X (i.e.)
(0 – x1)
From the diagram, it is very clear that,
(0 – x1) = (0 – x1) & (0 – y1) < (0 – y2)
Therefore, the satisfaction derived from the combination of goods X and Y at
point B is greater than the satisfaction derived from the combination of goods X and
Y at point A.

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This is because the consumer move from A to B on (IC1) Consuming same level
of commodity X {(i.e.) from 0 – x1 to 0 – x1} and more of commodity Y {(i.e.) from 0
– y1 to 0 – y2}.
Indifference curve must be convex to the

origin
The convexity of an Indifference curve is explained by the law of diminishing
marginal rate of substitution.
Marginal rate of substitution between X and Y is the quantity of good Y which
the consumer is willing to give up for every additional unity of X, so that the level of
satisfaction remains the same, from all the successive combinations.
Combinations Goods (X) Goods (Y) MRSxy Level of satisfactions

A 1 18 — S
B 2 13 5:1 S
C 3 9 4:1 S
D 4 6 3:1 S
e 5 4 2:1 S

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Convexity implies that the consumer is willing to give up less of good Y to

obtain a little more of good X. This means, a diminishing slope ( y/ x) of the
indifference curve.
A rational consumer gives less significance to an extra unit of a commodity
with a large stock and more significance to an unit of a commodity with a smaller
stock. As the consumer moves down the indifference curve, quantity or X becomes
larger and that of Y becomes smaller. In order to be at the same level of satisfaction,
the consumer will sacrifice less and less of Y in exchange of X. So MRS of X for Y
will diminish as the consumer gets more and more of X. Only then the subsequent
combinations will give the consumer an equal level of satisfaction. Hence
indifference curves are convex to the origin.
No two Indifference curve intercept with

each other.
In order to prove that two indifference curve do not intercept with each other.
Let us draw two Indifference curve (IC1 &IC2) intercepting with each other at point
A, As shown in the diagram.
Each indifferent curve represents a particular level of satisfaction to

the consumer, which is different from other Indifference Curve representing
different level of satisfaction. If two indifference curves intercepts (as shown in the
above diagram) it will corresponding to B and C, managed to equal at some other
point A. But is logically meaning less and unacceptable proportion.

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Consumer’s equilibrium: - “A consumer is said to be

equilibrium when he gets maximum level of satisfaction by spending his limited
income on purchase of any two goods”. A rational consumer will therefore attempt
to reach the highest possible indifferent curve and try to obtain maximum level of
satisfaction by spending his limited income.
The conditions or assumption of Consumer Equilibrium are _

Consumer equilibrium can be explained by making the following
assumption”:-
1. A consumer has a scale or preference for different combination of any two

goods and it remain constant throughout the analysis.
2. A consumer has a fixed amount of income to be spend on any two goods and
he is spent his entire income on the purchase of the two goods and does not
save any part of his income.
3. Prices per unit of two goods X and Y are given and remain constant
throughout the analysis.
4. The two goods are perfectly divisible and substitutable to some extent.
5. All the units of goods are homogeneous.
6. Consumer is a rational person & attempts to get maximum level of
satisfaction.
Budget line/Price line: Price line represents different

combination of any two goods X and Y which the consumer can actually purchase.
Assuming the fixed income of the consumer and price per unit of X and Y is given.
Explain how the consumer is reaches his equilibrium combination on his
indifference map. OR explain consumer equilibrium under Indifference curve
analysis.
In order to explain consumer equilibrium

under Indifference curve analysis, we have to
draw the Indifference Map and the Budget/price
line together as shown in the figure below.

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A rational consumer will try to reach the highest possible Indifference curve
given his income and price per unit of the two goods X and y.
The consumer will not be equilibrium below the Price line because he will not
be spending his entire income and he will not get maximum level of satisfaction. On
the other hand all the combination of X and Y represented by the IC2 and IC3 are
ruled out because his income is not sufficient to reach any point on the IC2 and IC3.
The consumer equilibrium should be some where n the Budget line neither
below nor above. ‘E’ is the equilibrium point. The consumer will not be equilibrium
at any point on the Budget line above the point E because MRSxy is greater.
Similarly, he will not be equilibrium at any point below Equilibrium point E on the
Budget line Because MRSxy is lesser.
Price Elasticity Demand or concepts of

Elasticity of Demand
The concept of Price elasticity of demand is introduced by “Alfred
Marshall”. According to Marshall, “Price elasticity of demand is the

ratio of percentage change in quantity demanded to the percentage
change in price.” This is stated in the form of a formula as,
Ep = Percentage change in quantity demand
Percentage change in price.
Ep =
Ep =
W her e: Ep = Price elasticity of demand.

= Change in demand.

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= Change in price.
Income Elasticity of Demand.
Income Elasticity of Demand refers to the “Degree of responsiveness of demand for a
commodity due to a change in consumer’s income”. The formula for measuring income elasticity
of demand is as follows.
Ey = Percentage change in the quantity demanded
Percentage change in income.
Ey =
Ey =
W her e: - Ey = Income elasticity of demand.

Q = original demand
Y = original income
= Change in Demand
= Change in Income
Practical uses of concept of elasticity of

Demand.
1. Useful to Businessman:- It guides the businessman in fixing the price of his
goods. He can raise the price of those goods having inelastic demand and
earn more profit. It is very helpful to monopolists to maximise their profit.
2. Government Taxation Policy: While imposing taxes on commodities, the
Finance Minister has to keep in mind the elasticity of demand for a
commodity. If he levies taxes on goods which have elastic demand, it is not
profitable for Government.
3. Price determination of joint products: In case of joint products like cotton
and cotton seeds, wool and mutton, etc. it is not possible to calculate the
cost of production separately as they are supplied together. Therefore, the
price of each product depends on the elasticity of demand.
4. Determination of wages: Industrial workers get higher wages, if the product
produced by them has inelastic demand. Because the producer is able to pay
higher wages by fixing higher price for the product which ha inelastic
demand. If the demand is elastic, trade unions cannot get their wages
raised.
5. Pricing under monopoly:-Under discriminating monopoly the monopolist
charges different prices in different markets on the basis of elasticity of
demand.

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Distinguish between Market economy and command

economy.
Market economy (Capitalism) Planned economy (Socialism)
1. Definition 1. Definition
2. The means of production are owned 2. The means of production are owned
by the private enterprises. The decisions by the state. All the decisions regarding
of production, distribution, exchange production, distribution and exchange
are controlled by the private are taken by the state.
entrepreneurs.
3. All economic activities are guided by 3. All activities are undertaken with a
self interest and profit motive. view to improve social welfare and to
deliver social justice.
4. The decisions of what to produce, 4. The decisions of what to produce,
how to produce & where to produce how to produce & where to produce
were mainly in the hands of Private were mainly in the hands of States.
enterprises.
5. Consumer is the king in a market 5. Here neither the consumer nor the
economy. He can choose whatever he producer is the king. They have no
likes and rejects what he doesn’t like. choice but to accept the decisions taken
The producers are free to invest by the planners.
wherever they desire.
6. Profit motive and private property 6. The major objective of planned
are the essential features. It leads to economy is to provide social justice and
growth of monopolies and high degree reduce in equality. It makes all possible
of inequality. attempts to eliminate monopoly.
Market economy (Capitalism) Mixed economy(Capital + Social)
1. Definition 1. Definition
2. The means of production are owned 2. The means of production are owned
by the private enterprises. The decisions by the private as well as Public
of production, distribution, exchange enterprises. The decisions of
are controlled by the private production, distribution, exchange are
entrepreneurs. controlled by both
the Private as well as Public
entrepreneurs.
3. All economic activities are guided by 3. All economic activities are guided by
self interest and profit motive. not only self interest and profit motive
but also service oriented.
4. The decisions of what to produce, 4. The decisions of what to produce,
how to produce & where to produce how to produce & where to produce
were mainly in the hands of Private were mainly there in the hands of
enterprises. government, which guides both Public
enterprises as well as Private
enterprises.
5. Consumer is the king in a market 5. Here both the consumer and the
economy. He can choose whatever he producer is the king. But, they have to
likes and rejects what he doesn’t like. follow the decisions (law) laid down by
The producers are free to invest the government bodies from time to
wherever they desire. time.
6. Profit motive and private property 6. Profit motive and private property
are the essential features. It leads to also Service motive and Public property
growth of monopolies and high degree are the essential features.

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of inequality.

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Scope and Meaning of Economics:-

The subject of economics is concerned with the satisfaction of human
materialistic wants. It also deals with economic problems that arise out of making a
choice. These are choice of goods and choice of technique. The problem of choice of
goods arises because of _ 1. Multiplicity of wants. 2. Wants can be arranged in the
order of their importance. 3. Resources are scarce.
Economic problems relating to choice of technique arise because factor of
production have alternative uses. The root cause of an economic problem is the
scarcity of resources and the study of economics is concerned with economizing
resources. How to make best uses of resources. Thus according to “Somuelson”. The
subject of economics is concerned with a following fundamental problem:-
1. What to produce:- This is the major problem in front of the nation. A

country has to decide the type of product and the amount of the product to
be produced by utilizing the limited resources as its disposal. Here the firm
need to decide between_
a. Choice between Consumption goods and Capital Goods.
b. Choice between Civil goods and War goods.
c. Choice between Mass goods and Luxury goods.
d. Choice between Private goods and Public goods.
2. How to produce:- How to produce is essentially a problem of choice of
technique. If the country is advanced in its technological knowledge then it
may produce more production with less fact0r of production and vice versa.
3. For whom to produce: - This is a problem related to distribution of national
income among different factors. In other words it is the problem of how
much share each factor should be provided in return of their services in the
process of production.
According to ‘Hipsey’ besides the above mentioned fundamental problems
other important problems are._
1. How to achieve full employment.
2. How to achieve faster growth.
3. How to achieve efficiency.
4. Productive efficiency.
5. Distributive efficiency.
Conclusion: Thus, Scarcity of resources is the root cause of all economic
problems. The subject economics is concerned with economizing resources.
Features of Free Market

Economy/Capitalism.
Free market Economy:- It a system of market mechanism refers to an economic
system in which all the means of production are privately owned. All economic
activities like production, distribution, consumption are very much influenced by
the decision taken by the Private entrepreneurs.
1. Free enterprise: A market economy is a free enterprise economy where an

individual enjoys maximum freedom in economic matters.

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2. Economic freedom: The consumers are allowed free to spend their income
in whatever manner they decide. The producer is also allowed free to choose
the products they produce and invest their capital whatever way they like.
But it should not be used opposed to public policy.
3. The role of Government: As the economy is based on free enterprise, the
government does not interfere in economic activities.
4. Profit motive: Profit motive is the central feature of capitalism. It acts as an
incentive and motivate the entrepreneurs to come forward and bear risks
and uncertainties.
5. Price mechanism: Since government interference is almost not there, the
entrepreneurs had to take decision of _
a. What to produce
b. How to produce
c. For whom to produce
6. Competition:- A market economy is characterized by competition.
Competition among entrepreneurs improves the efficiency in the
production of goods and services.
Features of Command economy/Socialism/

Planned economy
There is no specific definition of Command economy. However it can be explained
as “ A planned economy is one which is run by a single central planning authority
China is an example of a planned economy.”
1. Means of production: Means of production will be owned by the society as a

whole. They are managed by the state for the benefit of the society. Under
socialism, all labourers are employed by the state. So there is no scope for
exploitation of labour.
2. No private property: Means of production cannot be owned by private
individuals or associations or individuals.
3. Planning:-The state will decide what to produce where to produce and how
to produce. All the production like agriculture, industry, irrigation and
transport will be developed systematically according to a well prepared
plan.
4. Service motive: Since the production activities are practiced by the state on
behalf of the people. So the main aim is to provide service to the people.
5. No Competition: Since all the production activities are taken down by the
State there is no competition among the industries.
6. The role of Government: It is fully controlled by the Government.
Features of Mixed Economy:

Mixed Economy: It is a system in which both capitalist economy and
command economy exist. It means both private and public sectors co – exist and co
– ordinate. It covers the features of both Capitalism and Socialism.

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1. Co-existence of Private and public sectors: Both public and private sectors
exist in a mixed economy. Generally, the public sectors enter the areas of
infrastructure and capital goods industries which require huge capital and
long waiting. The private sectors enters those areas which are left free by
the public sector and particularly the consumer goods industries. There is
also joint sector in which the state joins hands with the private sectors.
2. Operation of Market Mechanism
3. Operation of Government control.
4. Economic freedom
5. Government regulations
6. Planned economy

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DISTINGUISH BETWEEN
Perfect Competition Monopoly
1. A type of market where there are 1. Monopoly is a type of market in which
large numbers of buyers and sellers there is only one seller producing a
and no buyer or seller influences the commodity having no close substitute.
market individually.
2. Under perfect competition there is 2. Under monopoly the entry of new
free entry and exist of all the firms. firms is strictly prohibited.
3. No Individual seller can influence
the price under perfect competition. 3. Under monopoly, the seller can
He is a price taker. determine the price and he is a price
maker & not a price taker.
4. A firm and in industry are different 4. There is a single firm which acts as
under perfect competition. the industry.
5. It is hardly exists in the market. 5. Monopoly exists in the market.

6. There is uniform price under perfect 6. There may or may not be practice
competition. uniform price by the monopoly.
7. All the consumers pay the same 7. All the consumers pay the different
price. price.
Perfect Competition Monopolistic Competition.

1. A type of market where there are 1. There are few sellers selling same but
large numbers of buyers and sellers differentiated product.
and no buyer or seller influences the
market individually.
2. There is no product differentiation 2. Product differentiation is the main
by the sellers feature of monopolistic competitions.
Products are differentiated on the basis
of brand name, shape, colour, design,
quantity and workmanship.
3. Sellers are price taker and not price 3. Sellers are price maker, Different
maters. All buyers follow uniform buyers pay different prices for the same
price. product.
4. It is hardly exist in the market. 4. It is exist in the market.
Pure competition Perfect competition.

1. Pure competition is said to exist in a 1. Perfect competition is much wider
market having the following features:- than pure competition. It‘s
a. There are large number of buyers features are_
and sellers a. There are large number of buyers and
b. Homogeneous product sellers
c. Free entry and exist. b. Homogeneous product
c. Free entry and exist
d. Perfect mobility of the factors of
production.
e. Perfect knowledge about the market
f. Absence of transport cost.

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g. No government restrictions.
2. Pure competition is much simpler 2. Perfect competition is more exclusive
and less exclusive concept than perfect concept involving many assumptions.
competition.
3. It is possible to come across pure 3. It is difficult to come across perfect
competition in fields like agriculture. competition in real life.
4. American economists attach greater 4. English economists generally
importance to pure competition. emphasis perfect competition.
Production cost Selling cost

1. Production cost refers to all the 1. Selling cost refers to only that cost
expenses met by the producer in order which is incurred to secure demand.
to produce and shift it to the For. eg. Expenses on demand,
consumer. advertisement, publishing, window,
display etc.
2. Production cost results in additional 2. Selling cost results in creation of
production which creates additional demand. Further it does not helps to
utility. satisfy existing demand.
3. Production cost helps to expand 3. Selling cost promotes demand

supply. thereby sales.
4. Production cost is met by all 4. Selling cost is incurred by only those
commodities which are produced and who produce and sell differentiated
sold. products.
5. Production cost is universal and it is 5. Selling cost is a peculiar feature of
faced by all markets including perfect monopolistic competition only.
competitions.
6. Production cost influences the 6. Selling cost influence the position and
position and shape of supply curve shape of demand curve.
Micro economics Macro economics

1. The concept of Micro economics 1. Macro economics is concerned with
deals with the study of individual units the study of aggregates like national
like consumers, firms etc. income, employment etc.
2. It is the traditional economic 2. It is the modern economic approach
approach followed by the neo-classical followed by modern economists like
economists. Keynes.
3. Micro economics analysis the 3. Macro economics analyses the
behaviour of micro variables such as behaviour of macro variables such as
individual demand, individual supply, national income, aggregate supply,
price of a particular product, wages for aggregate demand, aggregate savings
a particular worker etc. etc.
4. Micro economics is also called as 4. Macro economics is also called as
Price theory. Income theory.
5. The scope of micro economics is 5. Macro economics enjoys extensive
limited. It deals with theory of price scope. It is concerned with monetary
and theory of welfare. theory, income and employment theory,
public finance, international trade,
trade cycle, economic growth etc.

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Short Note on Micro economics.

“Micro economics is the study of particular firms, particular households,
individual prices, wages, income, individual industries and particular commodities.
The above definition gives an idea that, Micro economics is concerned with the
study of the behaviour of the individual units. The word ‘Micro’ is derived from the
Greek word ‘Mikros’ meaning small. Hence Micro economics means the study of
minute or small parts of the economy.
Short Note on Macro economics.
“ Macro economics deals not with individual income but with the national
income, not with individual prices but with the price levels, not with individual
prices but with the price levels, not with individual output but with the national
output”
Macro economics deals with the economic system as a whole. It
can be defined as that branch of economic analysis which studies the behaviour of
not one individual unit but all the units combined together. (i.e.) the study of
Aggregates.
The word ‘Macro’ is derived from the Greek word ‘Macros’ meaning large.
Hence macro economic is concerned with study of the entire economy. It makes a
telescopic approach to study the function of an economy. It deals with aggregates
like total output, total employment, total savings, total investment, general price
level etc. Since Macro economics studies the economy in aggregates (large units), it
is also known as lumping method.
Macro economics does not deal with the individual parts of the economy but
with the economy as a whole. It studies the forest as a whole and not the trees in it.

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Features of Perfect Competition.

Perfect Competition: - A type of market where there are large
number of buyers and sellers and no buyer or seller influences the market
individually.
Features of Perfect Competition are_
1. Large number of buyers and sellers:- Perfect competition is a market where
there are large number of buyers and sellers. This feature indicates that
both the buyers and sellers do n0t have any major control over the market
and they cannot individually influence the market. Thus, it means that
quantity supplied by a single seller is so small that it does not affect the
market supply and the price of the commodity produced by hid. Similarly,
quantity demanded by a single buyer does not influence the total demand
and the price of the commodity.
2. Homogeneous products. A commodity produced by different producers is
exactly identical in respect of quality, size, price, etc. So a seller has no
excuse to charge a higher price for his commodity. The buyer also need not
discriminate between the sellers.
3. Complete Market information:- According to this feature both the buyers
and sellers must have the complete knowledge of market, regarding price,
demand and supply situations in the market.
4. Free entry and exist:- Perfect competition allows free entry and exist for the
sellers of the commodity under consideration. The sellers are free to enter
the market at any time as per their wish and they also can quit the market
whenever they want. There are no legal restrictions on the closing down of
the firm.
5. Perfect mobility of factors of production:-It is an important feature of the
perfectly competitive markets that all the factors of production like labor
and capital are perfectly mobile, both geographically and occupationally. If
labor and capital are move from one place to another as per the
requirement of the market they are mobile geographically. If labor and
capital move from one type of job or occupation to other type of job easily
which means they are mobile occupationally.
6. No transport Cost:- Perfect competition assumes that there is a absence of
transport cost. This is mainly because the seller will have no excuse of
transport cost to charge a different price.
Features of Pure Competition.

1. Large number of buyers and sellers: - Pure competition is a market where
there are large number of buyers and sellers. This feature indicates that
both the buyers and sellers do n0t have any major control over the market
and they cannot individually influence the market. Thus, it means that
quantity supplied by a single seller is so small that it does not affect the
market supply and the price of the commodity produced by hid. Similarly,

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quantity demanded by a single buyer does not influence the total demand
and the price of the commodity.
2. Homogeneous products:- A commodity produced by different producers is
exactly identical in respect of quality, size, price, etc. So a seller has no
excuse to charge a higher price for his commodity. The buyer also need not
discriminate between the sellers.
3. Complete Market information: - According to this feature both the buyers
and sellers must have the complete knowledge of market, regarding price,
demand and supply situations in the market.
Features of Monopoly market.

Monopoly:- Monopoly is a type of market in which there is only one seller
producing a commodity having no close substitute.
1. Single Seller:- In this type of market, there is only one seller producing a
particular commodity.
2. No substitutes:-Monopoly not only implies a single seller but it also means a
single seller producing a commodity having no close substitutes. If the
substitutes are available, there will be a competition among the firms.
Monopoly means a complete absence of competition. So under monopoly,
the commodity has no close substitutes.
3. No distinction between a firm and industry:- Since there is only one seller of
a commodity, there is only one firm producing that commodity in the
market. So there is no distinction between the concepts of industry and firm
under monopoly.
4. No free entry and exist:- In the monopoly market, there are strong barriers
to the entry of a new firm in the market. This prevents new firms from
entering the market and so there is only one firm producing that
commodity.
5. Large number of buyers:- Under monopoly there are large number of
buyers in the market who compete with one another.
6. Downward sloping demand curve:- The demand curve of the monopoly firm
slopes downward indicating that the monopolist can maximize sales only by
reducing the price.
Features of Monopolistic Competition.

Monopolistic competition:- Monopolistic
competition refers to a market where many sellers sell similar but differentiated
product to a large number of buyers. In a monopolistic competition market, many
monopolistic firms compete with each other by producing same but differentiated
products.
For example, companies selling toothpaste products like Colgate, Pepsodent,
Close-up, etc. fall under Monopolistic competition.
1. Large number of Sellers:- In a monopolistic competition market, there are

large number of sellers. Hence no single seller can control the market

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OMTEX – CLASSES
supply. Each seller follows his own course of action. In other words each
seller is independent.
2. Product differentiation:- Product differentiation is the most important
feature of monopolistic competition. Since all sellers sell the products which
are perfect substitutes for each other, they go for product differentiation.
Every seller makes efforts to show that his product is superior to other
product. This differentiation is done through Advertisement, brands,
trademarks, designs, packaging, color etc. Thus the products are not
homogeneous under monopolistic competition.
3. Selling costs:- One of the unique features of monopolistic competition is its
selling cost. Selling cost is the cost incurred by the seller on sales promotion
activities like advertisement, salesman’s service etc. Selling cost enables the
seller to persuade buyers to buy their products than products from other
sellers.
4. Large number of buyers:- There are large number of buyers in a
monopolistic competition market. Thus the buyers purchase goods by
choice and not by chance.
5. Free exist and entry:- There is free entry and exist of firms under
monopolistic competition. There are no barriers for the firm to enter. Since
each firm produces a product which is little different from others, there is
no possibility of more firms entering the market.
6. Competition: - Competition under monopolistic market is more as all the
firms sell close substitutes. But the competition is in two dimensional:
1. Price Competition under which the firms were competing with each
other by reducing their products price.
2. Non-price competition under which they compete through
advertisement, and sales promotion activities, etc.
Features of Oligopoly.
Oligopoly: - Oligopoly is an important form of imperfect competition.
In the word Oligopoly ‘Oligo’ means few and ‘poly’ means seller. Oligopoly therefore
refers to the market structure representing few sellers or firms.
1. Few Firms: - Oligopoly is the market in which few firms compete with each
other. The simplest model of oligopoly is duopoly. Duopoly is the market
structure when only two firms produce and supply the product. For e.g.
Coke and Pepsi.
2. Nature of the product: In an oligopoly market, all the few firms produce an
identical product. Such an oligopoly market is called Pure Oligopoly. On the
other hand, firms with product differentiation constitute imperfect
oligopoly.
3. Interdependence of Firms: In an oligopoly market, there is Inter -
dependence among firms. Thus the move made by one firm to reduce price
attracts reaction from other firms.
4. Complex market structure: - The oligopolistic market structure is quite
complex. Cartel is an example of collusive oligopoly. The non-collusive
oligopoly is the other form of complex market structure.

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OMTEX – CLASSES
5. Selling cost: - Advertisement is an important method used by oligopolists to

gain larger share in the market. The costs incurred on advertisement are
selling costs.

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“ THE HOME OF TEXT ”

S = Same level of Satisfaction.

Indifference schedule in Indifference curve as shown below:

OMTE X – CLAS SE S OMTE X

ASSUMPTION OF INDIFFERENCE CURVE ANALYSIS.

1. A consumer is assumed to buy any two goods in combinations.

Properties of Indifference Curve

LET US SEE THE PROPERTIES ONE BY ONE

OMTE X – CLAS SE S OMTE X

Let us see weather, the indifference curve can slope

In the upward sloping Indifference curve_

(0 – x1) > (0 – x2) & (0 – y1) < (0 – y2)

In the horizontal slopping of Indifference

OMTE X – CLAS SE S OMTE X

When the consumer prefers (0 – x1) quantity of commodity X as well as (0 –

In the vertical sloping Indifference curve_

When the consumer prefers (0 – y1) quantity of commodity Y as well as

OMTE X – CLAS SE S OMTE X

Indifference curve must be convex to the

Combinations Goods (X) Goods (Y) MRSxy Level of satisfactions

OMTE X – CLAS SE S OMTE X

Convexity implies that the consumer is willing to give up less of good Y to

No two Indifference curve intercept with

Each indifferent curve represents a particular level of satisfaction to

OMTE X – CLAS SE S OMTE X

Consumer’s equilibrium: - “A consumer is said to be

The conditions or assumption of Consumer Equilibrium are _

1. A consumer has a scale or preference for different combination of any two

Budget line/Price line: Price line represents different

In order to explain consumer equilibrium

OMTE X – CLAS SE S OMTE X

Price Elasticity Demand or concepts of

Marshall”. According to Marshall, “Price elasticity of demand is the

W her e: Ep = Price elasticity of demand.

OMTE X – CLAS SE S OMTE X

W her e: - Ey = Income elasticity of demand.

Practical uses of concept of elasticity of

OMTE X – CLAS SE S OMTE X

Distinguish between Market economy and command

OMTE X – CLAS SE S OMTE X

OMTE X – CLAS SE S OMTE X

Scope and Meaning of Economics:-

1. What to produce:- This is the major problem in front of the nation. A

Features of Free Market

1. Free enterprise: A market economy is a free enterprise economy where an

OMTE X – CLAS SE S OMTE X

Features of Command economy/Socialism/

1. Means of production: Means of production will be owned by the society as a

Features of Mixed Economy:

OMTE X – CLAS SE S OMTE X

OMTE X – CLAS SE S OMTE X

5. It is hardly exists in the market. 5. Monopoly exists in the market.

Perfect Competition Monopolistic Competition.

Pure competition Perfect competition.

OMTE X – CLAS SE S OMTE X

Production cost Selling cost

3. Production cost helps to expand 3. Selling cost promotes demand

Micro economics Macro economics

OMTE X – CLAS SE S OMTE X

OMTE X – CLAS SE S OMTE X

Short Note on Micro economics.