Taxmann's Business Economics | CA-Foundation by Taxmann

Contents PAGE

CHAPTER 1 Introduction to Business Economics

CHAPTER 2 Theory of Demand and Supply

CHAPTER 3 Theory of Production and Cost

165

Price Determination in Different Markets

263

CHAPTER 5 Business Cycles

327

Solved Paper : December 2021 (Memory Based)

I-5

343

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CHAPTER 4

. g n i h t y n a e v a h o t h s i w a y l n o s i e r i s e D

. E C I R P a o t e c n e r e f e r h t i w s y a w l a s i d n a m e D . 1

. E M I T F O D O I R E P N E V I G A N I o t d e r r e f e r e b o t s i d n a m e D . 2

k c a b o t r e w o p g n i s a h c r u p y r a s s e . y ct ei nd eo hm t em vo ac he th s t ur mo f re e r ms i ue sd ns oi Ch . 3

e h t r o f y e n o m s i h e g n a h c x e o t y d a e r e. bs e or ss i l a e td s ue mh y ri t e d mo u sm nm oo Cc . 4

e v a h t s u m m r fi a , s t c u d o r p s t i r o f d n a m e d t e k r— a t mu o gb na i t e a g md ie t l s e w ro on Fk

d n a , t c u d o r p s t i r o f d n a m e d f o s t n a n i m r e t e d e h t ) (

. s t n a n i m r e t e d s i d n a d n a m e d n e e w t e b p i h s n o i t a l e r f o e r u t a n e h t ) (

2 THEORY OF DEMAND AND SUPPLY

Determinants of Demand

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: s e r u t a e f g n i w o l l o f e h t s w o h s d n a m e d m r e t e h t , d e n i f e d , s u h T

E.g. Mr. A’s demand for sugar at ` 15 per kg. is 4 kgs. per week.

a ng on ci r tu a hd t s ee ci c i v r r p e t s n re or e df f oi od gt aa e fs o a yh t c i t r n u ap uo qt el e hb t a od t n sa r e g f e n i r l. l di e nwm aei t mr f eao dsd r ,e s o i umr hue Ts p u

. yi t t i r d o of my ’ ma op co t as s re on f g en r i i l s l i e w d‘ ed vn i t a c ’ ey f a f p e o nt ay si t ni l ab ea m‘ e sh c t i y mb od ne ok cc ea nb i e dr i ns ae md e D u

. e r i s e d e r e m n a h t e r o m s n a e m d n a m e d s c i m o n o c e n I u

h t i w d e s u f n o c s e m i t y n a m s i d n a m e d m r e t e h t , h c’ . et en pa sw y‘ r r a o n’ i e d r rs i oe nd I ‘ u

R E T P A H C

LAW OF DEMAND AND ELASTICITY OF DEMAND Meaning of Demand

i.e.

y t i d o m m o c / t c u d o r p a r o f d n a m e d e h t h c i h w — n: os w so r ol l t o c f as f a se ur oa i s r d a vn e ep he Td

l l a f t u o b a s g n i r b y t i d o m m o c a f. o e c i r p n i e s d i r n aa td a n ha t sm ne ad es t mi n ti I . 2 . s t c e f f e n o i t u t i t s b u s d n a e m o c n i f o e s u a c e b s n e p p a h s i h T . 3

f o s e c i r p e h t n o s d n e p e d o s l a y t i d o m m os . ce i ai t rd oo f dm nm ao mc ed dt e el a he Tr . 1 — y l e m a n s e p y t o w t f o e r a s e i t i d o m m o c d e t a l e R . 2 & , s d o o g e v i t i t e p m o c r o s e t u t i t s b u S n

. s d o o g y r a t n e m e l p m o C

l a u q e h t i w d e s u e b n a c h c i h w s d o. or ge h et s oo hn t a ee r n a o f o e c a l p n i e s a e n

Substitute goods

. 3

; i s p e P d n a e k o C ; d r a C. c ct i e g ; ae e Mf f lo e t c r i d A n da na ae t d; rn a e Cp dk en ei pd Sn ra a n s s e Ep l l a b . 4

f o e c i r p e h t f i d e t c e f f a s i y t i d o m m o. cs e rs a i l r u r co i t r s l a l pa f ae rt ou f t i ds t nb au ms es t Di . 5 n i l l i d wn da nl l af a md el du so t w i ,d s l r l a a f C dd re a e cp cS i g r a as Ms lE e r t o r i f A d fn o a em ce i r d pd en ha t e fs I a .e r c E.g

f o e c i r p n e e w t e bs . Pt e I u Ht i St Ns Ob Iu Ts s At Li r Eo Rf Ed Vn Ia Tm Ie S Od d Pn aa sy i t i ed r o e hm t ,m s uo hc Ta . 7 versa.

vice

. 6

sd de ns eu p ee db o yt t i e l i r t a u h et s o ob hs wa ss dd oo oo gg e eh s ot hh t t o eb r a f o y t i l i b a l i a v a . er he t h t ne og po ut

. 8

e n o h p d n a t e s d n a h a ; l o r t . e c pt e d, ne as r ro a ch ;d l l n fi ea r a g dn no at na e; pn li o l a t bc e an .n g o . E c . 9

E S R E V N I n . as ed vo ao hg d se dt oa l oe gr f yo r a e t c n i er mp ee l h p t mh t oi cw rP oI f H dS nN aO mI eT dA eL hE TR . 0 1

e s a e r c n i l l i w d n a m el . do r st t e i ,p s r l l o a f f d sn r a e t m o oe cd Sn i fe o s a ee cr i r c pn i eo ht t g fn I i d .a g . e E l . 1 1

fe o m do ec dn ni ae h mt eo dt yP t i I t H n aS uN qO eI hT t A yL l l E a R r e nT eC gE ,R l a uI qD ea r ga ne i e b by si t g d no i h m t rm e o hc t Oa . 1

Income of the consumers

Price of the related commodities: u

Price of the commodity: u

n i s i y t i d o m m o c a r o f d n a m e d ee . hc t i ,r l p a ut s qi eh gi t nw i e d be st g a l ne i r h t y l re e s hr t e Ov . 1 E.g.

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Y L P P U S D N A D N A M E D F O Y R O E H T

vice versa

Complementary good

Y L P P U S D N A D N A M E D F O Y R O E H T

d n a m e d e h t , e m o c n i n i e s a e r c n i n a h t i . we s s i r y rt e i md uo sm n om co ec ha t r fo o f

s et hr t o nf om po uc sr do ns ei e pr ea ds s te I c .e e un r t d l s o g hn : os sl y d e ab o wy o lt g a ir d to o o i r nme y f m n ao i mc r sho i s c h i e t h i ,w r r u e x vou etl s ws d ol a n Hc a . 2

;ser s eho r i tf e t nifd odon o i ea t mm i d m nmoe oocd n Cci e -fe r o h i h t A pt ss . ;uh, o e r t e s a ri s a Cgwe a ePre .s r eIcc hHnn (tSii f Neo o ml s dO a o eIc s dTn e nAi i r aLeu mEh x eRtu dTsl yCAd t E n . i s t a Rr n s aIet uDmr o Qauf esm )v . n c aoo t hcc e -

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.a ln h Eg d ecdS. a n i m mh aRErh . ot mwmEr i nw ireVe( k sodNm ) ;f Iukd l s y h s t nio n t i dt o o aomg l on c c o e mr hgaveao g uahei r ueQ tre H f c os o e f l rol se l n e ;hb u i t n ( aimf t i l i e i a ogl d k a r r ci ni a von g esamimm s eud demh r or a otse n ooach n oo Cgsft . reoicte w t s ou fm t i p o r r P t u a o (ei I t e t f oH c s c n n br sa I i ugSrl e N .s p n ) sO . m i i c h r n e t otIuis T e s i a )e ;rfAnd e o o L k r oc p l Eco i dR ue n ms Agi Necessaries E.g.

Comforts and Luxurious E.g

Inferior goods E.g.

, e c u d o r p y e h t d o o g f o e r u t a n e h t ) (

d e d n a m e d s e i t i t n a u q d en ha t , ne em eo wc tn e i bs ’ pr i e h sm nu os i n t o a l c e r n i fs o e eg r n ua t h a nc d en ha t ) (

f o s e m o c n i e h t n i s e g n a h c t u o b a g n i r b d l u o c ts . a r he t sm r u os t n c o ac f ee h ht t ) (

roi p e h vps omn eoo i gct nya al l e hir m ca t c yf e l ,r l e a i gd r a e ,a ns s et r gia b sae r b h e ,y s mt t i und seo nmm oe cs m io fr t o c sea. v e rt s cdo a n n, fa en dn r oni e i am f h e smr r a e et pf e doDd . ntc aete e u s sd ,o e h ent t o s i mt a o it is Tt . 1

n a h t d n . an mo i eh ds a ef r of mo et vu ao hd sn da on g oi gs e ed l b d al no of i o h se a r f ra oh c si dh o ow s gd no ro e dg oe h Mt . 2

. r e t o o c S a v i t c A y a s r o f r e t o o c S j a j a B g n i d r a c s i d e r a e l p o e P . g . E

e s . vnr aoe hch t olo a t suf d t o i n v n ai d o wn i yri t p be nm dyau euts nba n i aho ms t rn sc e ane t eat h e dmey tmb sI i t I d s.. e d t n o io o ei v g a t i d n hn i so a r t c e r h e s c ti o d f e n o sa d um n ae a cd mres b ’ eodr d o e e om h gu T as . 3

‘bandwagon

‘demonstration effect’

effect’

se he s t i i a wre ,ac r s y s l l n e a i c i t en i nad . n ,e I rt . i ) o t r mc f e e t di lf l ntf e haaa s hn dmtu nedd n ado n gey a h nt em i h Be , t e .d o t mi l e c omh , cit d onle oiev Fema h o e t sl l nt oi l i (e pw sue a esm e r s o i c c nrn i o i sn nl aa i — w o n k t s u m s r e g a n a m s s e n i s u b t a h t l a i t n e s s e s i t i , e r o f e r e h T

Tastes and Preferences of the consumers

i.e.

s ni eh hs we s a ee gr nc an hi cd o ao . ogc gat r e f, e s dor nna uo c iy otc p sm l n a a uf ys, ans d mon c to sa m e cha nti r ee D r . vg e o. f e cE r s i pd dr ne am u es t n s a o Tc . 4 PRESTIGE.

o t e u d r e h t i e e g n a h c e l p o e p f o s e c n e r e f e r p d nr ao s e t s a T . 7

. tss n er ai ce t vm r oru pes msn ido n s c i a s e e sh t cc t nu f ed o r s e oe f rc e pn r p e dwe r nef ane sgr n e p t i s n d a gn t i a s t e u s ode t b,s ag a n ei t gn g dn n ea i l g ln wp o a nnh koc i t ,c e e r h ut od f t oi e r ru e ps hno Ti t . 8 internal causes.

Weather conditions:

external

causes

‘ostentatious consump-

‘conspicuous consumption’ ‘VEBLEN EFFECT’ THORSTEIN VEBLEN tion’

d e s u y l n o m m o c a s e m o c e b t i n e h w

s n i a h c T i r . e y l m n o A s r d e o t o f g a d d e e c m i r a p n r( yo l ) h g i h y u b e l p o e p h c i r g d n e i l k l t e a s e ci s fsm soi o um n t o a r c t o e S f . 6 prestige ‘snob effect’.

d e l l sa t i c ss e i s s oh i l dT od . oo go Ag . 5

, l te r s s e e d y a ’ i e o o h h n d r t i kh f y t t t i t l c a r r t o n , d o i s e a m d h d e u sa n b e m m e e o n o a l n t s d i l , c fi m u m o u n m r . o w b po . r eh e o as m i t i u g d h h r e r e t n o ft i t i t g sa eh ae o c s i e e h i c i d h n h . a c e g i t nd d nu . ds s n s ,b r d i e mis oo o h y e e e o i e e s e m l p l r l t l , g l f u r c , n i e e e a r i l e d e m a e t w l d d f v a mr n e u vb h n o n. l n . t o d s i u e o p l o c e c s a , l s e i i n c t s i o o d t l t i e m o e r s n n w a u t ph e a s i r t e— , aid l t ld sg n s e s s f u l u k t d: a s i e d a r a d o f b po gi lr oc o o n a y i o a s m v o a o s r e r o p o n o n b o d ut p t d t z i g m e s g o m i t o qc n y n m i a e s e i a l o r i o ef r d t a u t hc i , oi e nng e o y t s gg . m f m d f s l a h l m c e nn n a e fs oe n d t df i sha au e i o d ou ro e o i t . n h o m , w e r s c c bo s n i e a e r e bs r nn vo t r s o e i , sl h g m e o r m a o eg a i s s m l t h g r e t l r i n e v , c o o e i c a g nf y ue h ee e s h c m d l r r r i i t t e n b oo t i nH h o o mm e a , l o k s o p I t f f f l y e a h ’ e u i o c l l . l l l d i rt c h m c s c l d d d d w n a s l e t w o a o nn y r n f o nnn in i y r hb o ol c a a a a h e o n d e I , e t e t c i e i e h n nr em m m m Od h c t s g t o r . e a t e a he sd ee f e .e uf a o r f m e n G N Td d d d f t I I o , l i gn has m na u c am t ei r e he hga t Cd Tot s e l d . . . . 2 3 4 o 1 s l a Other Factors

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Y L P P U S D N A D N A M E D F O Y R O E H T

Size and composition of Population:

E.g.

The level of National Income and its Distribution:

Sociological factors:

Y L P P U S D N A D N A M E D F O Y R O E H T

d n a m e d e h t p u . hc st ue pr s re e l o mo mc , us sk n ti o r hd yd r l a o nc i , d rs om aa r e t r x c Ee -i c r o f

. 5

e t a e r c t n e m e s i t r e v d a d n a n g i a p m a c s u. od un na i m t n e od cf do ne ap y rt e vw ee l c n Aa . c t e s m a e r c , s e t s a p h t o o t , s p a o s e k i l s t c u d o r p t e l i o T . 6

E.g.

d n a m e d e h t n i l l a f o t d a e l l l i w y t i d o m. y mt oi cd ao nm om xo ac t e hh gt i f Ho Government Policy:

d n a m e d e h t s t c e f f a o s l a y c i l o p n o i t a x a t ss . ’ t e n i ei t md no rm e vm oo gc er ho Tf

. 7

re a s ea e nr nc i n i yl t l i i d ow mt y i md oo cm am fo o ec ce i h r pt r eo hf t d nn i a em s i e r td c t en pe xr . er u sc r e e mh ut s, e nr ou d ct n ua ff I vice versa

d n a m e d f o l e v e l e h t , n o i t i d n o c n o i s s e r p e d g n i r u d. s tl l u a Bf

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e d , s n o i t i d n o c m o o b h g u. oe rr ho t m gs ni i s s d s a o po sg i t s yo r t m n ur oo cf ed hn t a fm I Trade Conditions: . 8

. 9

,e e l l b b a ar l i u a vd ar se i tm s u e s r n e o t c n i f fo o sl y e l t a a i r c e wp os l hd t n i wa m se e i d t i l e i r c ao f tm i d e eb r l c e lk i ew i l l p s ed mr o ae o hg ft I

s e i t i s s e c e N . 1

Exceptions:

e nc wr i OP

f o wd an La em s e r D e v n I

scooters, LCD/LED televisions, refrigerators, home theatre, etc.

n o i t a l u p o P

s u o c i s p sd no oo CG . 2

s r e h t O

n o i t i s o p m o C

e z i S

e v i t a l us cd eo po Sg . 3

n e l b e V

s d o o G d e t a l e R f o e c i r P

b o n S

s e dc nn ae er t e s f a e Tr P

Determinants of Demand

E.g.

Expectation about future prices:

Consumer-credit facility and interest rates:

y r a t n e e m v e l p m o C

e t u t e i v t s b + u S

n o i t a r t s n o m e D

e m o c n I

ne ev e f v f +i G

r o i ee r vv e f n I

l a mee rvv o-+ N

e tem c co ei f r f c EPn I

) A , T , Pc ; Ps , M , P x— ( e f r e = h x D W

× t c u d o r p f o d e d n a m e d y t i t n a u q = × t c u d o r p e h t f o e c i r p e h t =

r e m u s n o c e h t f o e m o c n i y e n o m = e t u t i t s b u s s t i f o e c i r p e h t =

s d o o g y r a t n e m e l p m o c s t i f o e c i r p e h t = s e c n e r e f e r p d n a s e t s a t s ’ r e m u s n o c =

r e v d a f o l e v e l e h t h g u o r h t d e r u s a . e er mu t ti c d en f e f e p x ge nt i s n i t e r m e ve s di at =

. d e g n a h c n u n i a m e r e m o c n i s r e m u s n o C . 1

. d e g n a h c n u n i a m e r s r e m u s n o c f o s e c n e r e f e r p d n a s e t s a T . 2

n u n i a m e r s d o o g t n e m e l p m o c d n a s d o o g e t u t i t s b u s. d fe o g en ca i r h Pc . 3

e h t f o e c i r p e h t n i s e g n a h c e r u t u f f o s n o i t a t c e p x e oy . nt i ed r o a em r m e ho Tc . 4

. c t e y t i d o m m o c e h t f o n o i h s a f e h t n i e g n a h c o n s i e r e h T . 5

a d n a e l u d e h c s d n a m e d a f o p l e h e h t . he t v i r wu dc ed nn i a a l m p xe ed eg bn i nd an co wp s ae l r er ho Tc

(the dependent variable) (the independent variables) demand function

x D P xM P sP cT A

— : s n o i t p m u s s a n i a m g n i w o l l o f e h t n o d e s a b s i d n a m e d f o w a l e h t , s u h T

d n. aR tO n aT t C s nA oF cG eN r I a C d nN aE mU eL dF N fI o sD t N n aA nE i mL rB e A t I e R dA rV e hE t o H tT a S hI t dE eC mI uR sP s Y a L sN i tO I

“Law of Demand states that people will buy more at lower prices and buy less at higher prices, other things remaining the same.” (Prof. Samuelson) u

s et cc i r a pt r nn i o sc e gd nn aa hl s cl a ef he t c or i t yp l n e e s h r e vw s nd i sn e a i p r x a ve y dt ni ad mo em dm t o a c. ha t s e srs e or i t f a de t s c ni yar l mp p n mee idh s t w I u

p i h s n o i t a d l e e r l l l a a c n s o i i t c n u f f o t tc n u ed mo r ep t a a t s r o cf i l o d bn ma yms s e t / dn l a a e ch n i i t t m a r mne e ee t e hw t d t a e s Mb t i . 1 u

Demand Function u

p i h s n. od i e t d a l n e a r lm a e nd oy i t t c i t nn ua fu fq o s et r i ud t n a na y et hi t d so e m s s m e r po xc ea df no e ac mr i ep De fh o t wn e ae Lw et he Tb

The Law of Demand

TAXMANN®

Y L P P U S D N A D N A M E D F O Y R O E H T

i.e.

Y L P P U S D N A D N A M E D F O Y R O E H T

sy e u i t b i t o n t ag un ql i l ti e n ewm r si i e t f R f f i Eo d d gMo nUr i i wSe oNp hOn s e C v e i R l g b A aL a t g aUn Ci sI i r Tu Rd , As Pe c Ei r Np Of to a l he t v ye t l i t d n oe mr e mf f oi cd fa t o 1 1 = 6 + 5

9 = 5 + 4

7 = 4 + 3

5 = 3 + 2

3 = 2 + 1

) t e k r a m e h 6 5 4 3 2 t n i s r e y u b 2 y l n 5 4 3 2 1 o e r a e r e h T

1 2 3 4 5

(

r ce nh ut fo n. I . d e d n a m ned adn sya e t l i t l t o a nnf eao dut q s sd d e l nn u e dat ed ec hi n cr s pa tnm e kee red a s w e ts me i dbr npe ai c i h ls r a p unn o di e i t v h a i l w d e nrs , i ld har n t o oo i w Bt

Assumption:

TAXMANN®

t sa e i t y i t u n ab uo qt g tn n i l ei l r e w f f e i 5 4 3 2 1 d r a gS. e nR i m wEi o t hMf sUo d eSo l Ni b r aOe t Cp aEn sHe i v Ti Lg La g An tr i a hu t d , ys 1 2 3 4 5 t i e d c i or mp t mn oe cr e af f fd i o A+B

Consumer B

Consumer A

Market Demand Quantity Demanded p.m. kgs.

Price of sugar ` per kg.

Quantity Demanded kgs. per month Price of sugar ` per kg.

INVERSE

Market Demand Schedule

Individual Demand Schedule u

t e k r a M r o e l u d e h c S d n a m e D l a u d i v i d n I e b n a c. e el l u u d de eh hc cS s dd nn aa mm ee DD u

tn n e ev r i e g f f a i d n ei hs t e c si wr op ht sn e hr ce i f h f i wd ta t r a hd ce d an ra om ee l d b ay t t i ad so i m em l u do. ece hfm cot i s sf deo i t ni d t an o ma i r eu e Dqp u

Table 1 : Demand Schedule of an Individual Buyer

Table 2 : Market Demand Schedule

e l u d e h c s d n a m e d a f o n o i t a t n e s e r p e r l a c i h p a r g . an o si i t c n u f d n a m e d r o

vice versa

A demand curve

h c a e g n i t t o l p y b n w a r . dh p ea br ng aa cn yo t i d d n oa mm me od cd yn na ae rc or i f ep f vo r un co i dt na an i mb em do Ac

e d y t i t n a u q d n a s i x a Y . ei s hx t a noX ne eh kt an t o s) i e )l e b l b a i ar i a r v a vt n te n ed dn ne ep pe ed d( nd i e ( d en ca i r Pm

TAXMANN®

Y L P P U S D N A D N A M E D F O Y R O E H T

Figure: Individual Demand Curve

Figure: Market Demand Curve

t n a t s n o c e s l e g n i h t y r e v e d l o h e w e r e h w e v r u c d n a m e d e: ns i a l td h e gb i i a r r c t s s e ed hs Ti

Market Demand Curve is flatter than individual Demand Curve.

e pe ob l . s d e e v d r n u a C m d e n d a y t m i t e n D a u t q e k s r i t a Mgd nn si ta a a y ct li l i e dd wi no stm a hm go ei vr c r uoe h Ctt t f f de o nl ame c mo i r er Dfp dn lr a w uao dwn i ne v i w e d ow nd t I

an inverse relationship

P b – a = Q

. e p o l s e h t s i b d n a t p e c r e t n i l a c i t r e v e h t s i a e r e h W

, P 2 0 0 1 = Q n o i t c n u f d n a m e d a r o f : e l p m a x e r o F

b / Q – b / a = P

Y L P P U S D N A D N A M E D F O Y R O E H T

2 / Q – 2 / 0 0 1 = 2 / Q – 0 5 =

ye t h i t d of mo e mc i or cp ae yh ut bn e oh t ew l b g an ny i uu eb r e t r wa ot hs wo s l sa . s r l e l ea mcf i ur y spi t nrd oe o ch ygm nim h at o Ma c 2. Change in the number of consumers:

TAXMANN®

f yo t i l w i t a u l le a h nt i g d r n a a me v gr nu i h c sd i n n i ma im d e ed hg t n ti a p ho t l ss . wds ore a l t l wa o r f ne , wp e r oo od f d s e n e r a i e l m hp t e md ti I -

r me om cu s en ho t fc o . oe Usi c Mdr nP ,a s = l l e a cU f i M yr t p i n d i n oa a g mh a mtl l i ort e ct e a ee r hr o t fgm o sg een i cms i o r a pch c eer hbu t y ntp i t ed r ho a t Wms

. s l l a f e c i r p n e h w e r o m g n i y u b s t r a t s s r e m o t s u c d l O

sa e t s ua e fs o a re e r bc n mi ul l ni ew ht Tu .p s e e s ub n ya nc . ay mi t ed vo a hm ym aod mcn ea yh e t t c i i d h r oc p i mh r e mww ooo Ct l

r e w o p gs . ne i s s a a e hr cc r n ui pr ee hm t ,u s s l ln a o f c ye t i h d t of mo ) me om co ac fn o i l ea ce i r r pe nh et h W(

ti s re a kr mre eam hmu t s sn l t l i o tic n ya t n i h d e t or h ew mt ma oe cre g asi c gi r yP nt i i= s d a hoU cmM r um pon nce o h e w sh e . otsm gfpu o o rys t i e r t i b di mi l ni l ut suau nleq oai ce n ci rt Ag pa

a t a y l n o s t i n u e r o m s e s a h c r u p r e m u s n o c. e ec hi t r ,p e cr ne ew o Hl n

em wo r sf a d le a v ur i qe ed gy t ni i l i e t bu l sa g nn. i i g g h r n t a i l rm l e a hef t hn o t o , ,y o wt g i ad l s oi t sm i n h t mu e oov t ci s gas nee i mc d c ruu os s cn co s t Ac i n

d n a

— : s w o l l o f s a e r a n

downward slope of a demand

Reasons for the law of demand curve u

1. The Law of Diminishing Marginal Utility:

i.e.

3. Various uses of a commodity:

vice versa

4. Income effect:

. ry e e s n s e o l m he t i wm a ys t e i t h n t ar uo qf y ei t t mn aa s u eq he t r eo s m a t he cg r un pa c ne ah cr eo hy se un ho Tm

e h t f o e c i r p n i e g n a h c e h t f o t c e f f e e m o c n i d. y et l l i a d co sm i sm i h o Tc

i.e.

g n i n i a m e r e. ce i r e f pf so ’ c e er f o f f o cd ,e a t eu t t i ft o s eb cu i s r pe nb i l l l i l a w f a ee ht t , he t m i Wa s e h t , s u h T

PRICE EFFECT = INCOME EFFECT + SUBSTITUTION EFFECT as explained by Hicks and Allen. n

e c i r p n i e g n a h c e h t f o t c e f f e n o i t u t i t . s y bt ui sd do em l m l a o cc se i h st i h f To n

rx oe f te i r eo t m u t i e t s m bo uc se ob t ew ko i l n de l v u oa wh h rc e i mh uw ss ne ot i ci ed ho t m t l m u o . sc e e v r i rs aen h st e Ao p n

y l e v i t a l e r s e m o c e b t i . ss l l e a i t f i yd t o i d m om mo mc or ce h at fo o n ea h ct i r r pe np ea he h Wc

s awen r ae fl o o i t ehp ehwe r Tsc o. ex msse e cat c ,i l n r a n a upa i t qrt r o eer h p e ggc m i nh ei i e tr e baah net sa re g e hh r nt a i stg h e t rn ce rr i i vw e hpeo t rwl l o e oo ,whf d o e ; s nl e h ats T maa . edcd e dd to s o fno g a o m dd . wmnl e ion ad l dha ei eb tm lo hl a e t lvnd i sf se owi t o y o d t gi ndw nd a i oawl d r mae omelh cmdi st cofh o Ac ott

. rh.s”t p oc c uane o i lr f owif t a s p eegi e phsh s pteTmd u y c ab .s o i d r o byp nng ol raoe C nni g soemsi h e t us rdtd o f oei e fu d r eoc env p ir uai wp l t mc aso a l n veal t oc dra t e ee t uCf f gr a s“e i f t a u e s o r n no e ee e r l po hnb i m t t i r ot e fpet o V m c m suomod d r s e e l l nco l e s c f i o a b i n h t c c so r n e s Asl c i i u c tn t oi o c t e ur e n l ca f b le f i el p i e Vs ssw nes i yh ohe bt ctl e fdctc i n u o t a n r o se a e e d l h l hn p c c i d o un t euo r pSf a a (i) Conspicuous goods:

TAXMANN®

Y L P P U S D N A D N A M E D F O Y R O E H T

5. Substitution effect:

E.g.

Exceptions to the Law of Demand

nsd ein vra e i g hm e ngd i eh t e ,h f s o d t en s r i or a sme dah g nii d of h mo e aec i n ce Di rh pd en ha t rm e e hh gt i o Ht .d e e s a h cc a st i t h a t e fu o l ea l v p e mg . i at m xs ee e rh np t ae r sh o a tf

Veblen effect takes place as some consumers measure the utility of a commodity by its price i.e., if the commodity is expensive they think that it has got more utility. As such, they buy less of this commodity at low price and more of it at high price.

,s? id i n t ehe s i s T p t a a .p ei t t a r s c fh dn s nioi adsh s t e tal e s d i r i td mbo ofn no y oedh n cc aW ei r . dd hpa see n i t hra t t m b o csee Sar d tof aa ,hmo n t etdw f a uel f i ose a Gd hh tnc t r i r f e t us bop n ot i sa Rdr e g e rs i ka ir S r g pon r i h uwt she ssm i a t i o wr s ,Bs n ea ah i c tw

(ii) Giffen goods:

The reason given for this is that when the price of bread went up, it caused such a large decline in the purchasing power of the poor people that they were forced to cut down the consumption of meat

Y L P P U S D N A D N A M E D F O Y R O E H T

el e cp i r o pe sp t , i e nl. ecp i t hr u wa t ndn eoe v w o efe ti ,s c d r aep p ea r s t bei ehn cce neh i hw S t ls s l i t e s l t so a wn d ,n e r a ot f i e f bo ne ar ho t m rd e he gm i h u s sn a o wc d e l l a c e r a p i h s n o i t a l e r d n a m e d e c i r p t c e r i d t i b i h x e h c i h . ’ ws sd do oo og gn e hf ci f uG S‘

rfygoe oot s tr n i i i t r tn da n e p eo f eait n cuaac I nqmle .o eeer chrra s e t s i ee . ch d i hi o . r co t i ,rph g e , r s e w n e vms ec . u s os i f df r t en oi e r ooeoGt a Mcmgfe o e o ns h .hce e t n e w f t fi fl u o i p s d t eaGmn i t sfa ml s a o e b l uoa xc scftEr p i n . d e i f ee l o ce y s t ohons i t g l o t l i a c orct t u o ad c e i huq r ee et t w va f do t o al n s rl hein pa , r i n a sa oi ej r t gh sfa ta td h oosfb o d go a e e ug k e t i d or n c l i n a oa s r si t n pi dr s m e of nea eoh on r dct gi g de c ni ar p en me oe cw t ne i b np ei eh s wn to e i bt a l pe i r h se ni v ot i i t s a o l p e r e h et s y r l e i r va ns i s e ec ve an ht so dn. otd oun gba ,m rd one i ad r e m d f en nd a I d n a e m o c. nd i nn ea em we td e d bn na oe i t c a i r l e p r n ee s e r e w vt ne i b sn i ei o r t e a hl t e sr de ov i ot i gs no ep f f d i n g fa o d en s a a cm e nd I

TAXMANN®

lnegw da h o n ei t cotih k c oc o f s es ro f i oo t f ae ec a t hi ft ,n so s pr i s snosee drtnlo oeeiod u o t , ot e cd dl ga, n ,a sps npd i n mrm o a ooat t e o i x a r t d g r e e e r cperg i e rmsoi h oueFrt h f s f .e T , e r dn. g f , i nos n c s l g i ae t s fe no i mh s r o etl s y n e dfb e l os i i t eol u i s hta s i o c v s u Te u e e d f l n ce f i i et e v t i n fn. nd o eool n l c i timsn a e n a f o c eo r ac i t et s her n bpby c oi,eec n mhehve ewgtad doathn s a . t c e uht e t hptte u n t t y sn o c aa yr a t bg s fga

ee trdsge i i c e r hu h nt ee d et i t t ntopaorvo f i e e n r eumxr he hf eg e m t s we e btdn d o l h e u p o o n ttco l i bi t a a t nhe sdht a hi cpmi wc t e t t dsu,ei te e t s d a , ec n h p r da fg vi ye x i r o r te e vl uh ps e ease o n s beerTwvoc i n h d t . i ot i eoicr s d nttdrHi p l eanau.h e e ehaete h bturuscht i i q f p s h r sgr a n a n sn w e i hi teeic we e g d d i tc h r s r i g I n e i c p n ai pawrr a xlsl dimhh e w eyi sueuhesc d o r t dbe y frl s w l o oh o e a o t c httsswa m ednnn i a a f n e s i a l a en uehr , ot grehd w g h t , hr dd t ,o fn ,ee to a o l g nhpoooem g n f n i f i m e ff s so h i i d aoo r lx s tn l i f s ie et e eio e r e c s i ri r a gwe te . i eor n sb t l h p F aap e n l . t t cl h ls a o a a e i ch ii eh uh e r pwt p at tqt

t d yc n nu a ad to l u a r n op he o t , i s t ih e a wt r m f eiso e t bt s s a a s o, he t rc n e sv r l r u u e e pfs . e mwe l s i uov a iuf sHs dd n.l os unn cnpaa o mem i gt ce nd iii i e r mnk pd f uoa o e c smh s t t w a e d t a kn dr u l a ea o e vm bh i t r t as e t du sx n o o nb i e t ea t n a ee l o bl u c ch sb l a a e a c hg cu d ls we an al ni l w o eo t i d hn a n Tk r a

ers tend to be irrational

consum-

(v)

and other more expensive foods.

Generally those goods which are inferior, with no close substitutes easily available and which occupy a substantial place in consumer’s budget are called ‘Giffen goods’. All Giffen goods are inferior goods; but all inferior goods are not Giffen goods

(iii) Conspicuous necessities:

(iv) Future expectations about prices:

. nes l i e i hpt o i ce d up o ms ,m ye l gm p o pnc aay h tc r o a nes c s sr i e e c ope dfn dof neo avs i e mt i c t ee i t dp n fsa o e u r wI r q a. m l eu ef hi m Tli f o n i sm e i r e a h s t s e e cm eu ns fn o o ec s o t a ce v ea hh t aew ha ft o l yfe o t h i tt t n . n ,s aasa ureg qoc, n n r gt ae ri e t gesa r bmw a u y l , cr dar e nmi atcw o h mi ecp es , ud du yaso acro e medF b nl e deU l p c o i .m hr y t a epi s x rde ue ohor hgmo i mF ah . ,aod e i ctcl i aea t c nhv t ae n r fi vo pe a nyem i ce t , ir i r y d l t opo r a mgn l i nl i mml l i iou S crw

s re a c i mr ep he t h nt . i e n ye n l i r hc l a we l u cdd i es t e dc r a i pnr a ,m p t e n kee rdh a e mbw d ele l i vw i d t n a ea l r u com eme p d , ss e ee b r ha l t l i hw ns I ds s ne al sd kn ca og t s n i rs or i f te e r ka rery e oa hg m n s t ae o i h n t nc i o i d i ea a t gsol nime aemr hro e e ch ci c tt n dr f ep aI t c. d a i s f dln i e a n nr gee d i phn s yeta ndfm yo at e si sd i d e eo ce r i s m r e r hmpe t v nn foi i cri l i aoe a f f,h oodt s l, . o d l c a nht e la e l s i n wmuo deoi ndhh s h e ac a hf . mi t d ehfd o dwo no f ag n e o o s d wsme l o t o r ao cs h l a n t ec t t i ha o ni nn Tf i u

d e d n a m e d y t i t n a u q s t i s l l a f d n ya t i d e c oa ml p ms oe ck a at fn o o i es cn i a r pp x ee hr t o ns ee hs i wr -

d e d n a m e d y t i t n a u q s t i s e s i r y t . i e d c oa l mp ms oe ck a at fn o o i ec t ca i r r pt n eo hc t r no el ha l wf -

s i h T . s e s i r d e d n a m e d y t i t n a u q s t i , s l l . a d f n ya t i m d oe md f mo on co i as fn o a p ex ce i r d pe l nl ea hc Wi s

s i h T . s l l a f d e d n a m e d y t i t n a u q s t i , s . e d s i n r a ym t i e d od f mo mn oo i ct c aa fr o t n eo cc i r d pe l nl ea hc Wi s

se dn h ei t at a n l mo e r es frd o er eva crw u i r cn pd w , sno e ad t r m s a eo t s ,dd e er mha otw cfp nou i ne eo kt iv i o li esm o cp l i l r i ew ph ft r o , e t sn m t au . n e t as sv nnnr i oou mc cc reed e rhn t a e Ta dc ..m tee re e m hsad t dse o o em soh a Ag ts

r yo nt i i d t so n e a g t nms amn hoo cc c seg nhn i atn efi moa em dc e i nr r ap . c m t e e eh dt , s e fnt i o s ea ng t one , i a t c h m ac o r c t on n t oei cu e k i ddl n s d ae t n da nn oa n i i s nmm. aerd e pdt e xye g et n ida t ,n rh s e ua c hn hut Tqo u

l l a e v r u c d n a m e d e h t d n a e l u d e h c s d n a m e d e h t , d n a m e d ft o a wh at l w eo hh Ts

Expansion and Contraction of Demand (changes in quantity demanded or movement along a demand curve) TAXMANN®

Y L P P U S D N A D N A M E D F O Y R O E H T

(vi) Demand for necessaries:

(vii) Speculative goods:

DEMAND CURVE FOR ABOVE EXCEPTIONS IS POSITIVELY SLOPED

Business Economics AUTHOR PUBLISHER DATE OF PUBLICATION EDITION ISBN NO PAGE NO. BINDING TYPE

: : : : : : :

P. M. SALWAN ,PRIYANKA JINDAL TAXMANN MARCH 2022 2ND EDITION 9789393880581 358 PAPERBACK

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Description This book is prepared exclusively for the Foundation Level of Chartered Accountancy Examination requirement. It covers the entire revised, new syllabus as per ICAI. The Present Publication is the 2nd Edition for CA-Foundation | New Syllabus | May/ Nov. 2022 Exams, authored by Dr P.M. Salwan & CA Priyanka Jindal, with the following noteworthy features: u Strictly as per the New Syllabus of ICAI u [Simple & Lucid Language] has been used throughout the book to present the

subject matter

[Topic-wise Coverage] and presentation of concepts

Coverage of this book includes: n

Questions from RTPs & MTPs of the ICAI

Practice Questions from the ICAI

Past Exam Questions till Dec. 2021 Exam | Memory Based

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