Easy on Economics

Theory of Consumer Behaviour: Cardinal Utility Analysis As discussed, Economics deals with how economic units make decisions in order to maximize their welfare given the limited resources in hand. So, when studying consumer behaviour, we try to find out of the various goods and services available in the market which goods and services the consumer decides to buy and how much quantity of the goods and services the consumer buys, given his/her limited resources. Which goods and services the consumer decides to buy depends on the preferences of the consumers, and how much of the preferred goods and services the consumer buys depends upon the income of the consumer and prices of the goods and services. Consumers buy goods and services as the consumption of these goods and services gives consumers satisfaction or ‘utility’. Utility is a subjective concept and varies from consumer to consumer. Therefore, two consumers may have different preferences for a good. A person who likes tea ...

Let’s say I walk into a class of fifth graders, and start asking them their ages one by one and note them down. There are 20 students in the class and this is what my list looks like Roll. No.               Age 1.                           10 2.                           10 3.                           10 4.                            9 5.             ...

In the expenditure method, national income is estimated by adding up the expenditure incurred on the purchase of final goods and services by the various sectors of the economy in an accounting year. The main expenditure done in an economy is either on consumption or investment. Hence, the expenditure done in an economy is divided into consumption expenditure and investment expenditure.  The sectors of the economy which incur expenditure are the households, firms, government and external sector and their respective expenditures are Consumption expenditure, Investment expenditure, Government expenditure and expenditure on exports and imports. GDP = C + I + G + (X-M) The income generated in the economy falls into one of these four categories.This equation also represents an identity as the equation always holds because the variables are defined in such a way. Lets study each component individually 1. Consumption Expenditure (C) :  Includes the expenditure done by household...

As explained by the circular flow of income in an economy, every act of production of a good or service generates a corresponding flow of factor incomes to the factors of production who produce those goods and services.  The Income method measures the national income by adding up the factor incomes of the factors of production. To find the National Income all the factor incomes generated in the economy must be summed up. A factor income is basically a reward which a factor earns in exchange for providing his/her factor services. A labourer receives wages in return for the work he does for his employer.  The four main factors of production are: land, labour, capital and entrepreneurship and their corresponding remunerations are rent, wages, interest and profit . Adding up all the rent, wages, interest and profit generated in the economy in a given year, gives the total income in the economy for that year. Another type of factor income generated is the Mixed Income, which is al...