notes

1. Cardinal Utilityisthe ideathat economicwelfare canbe directlyobservable.Forexample,people
may be able to expressthe utilitythatconsumptiongivesforcertaingoods.Thisisimportantfor
welfare economicswhichtriestoputvaluesonconsumption.
Cardinal utility analysis is based on the cardinal measurement of utility which assumes that
utility is measurable and additive. This theory was developed by neo-classical economists
like Marshall, Pigou, Robertson etc. It is expressed as a quantity measured in hypothetical
units which called utils. If a consumer imagines that one mango has 8 utils and an apple 4
utils, it implies that the utility of mango is twice than of an apple.
nternal and external economies and diseconomies of
scale
External economies and diseconomies
External economies and diseconomies of scale are the benefits and costs associated with the
expansion of a whole industry and result from external factors over which a single firm has
little or no control.
External economies of scale include the benefits of positive externalities enjoyed by firms as
a result of the development of an industry or the whole economy. For example, as an industry
develops in a particular region an infrastructure of transport of communications will develop,
which all industry members can benefit from. Specialist suppliers may also enter the industry
and existing firms may benefit from their proximity.
External diseconomies are costs which are outside the control of a single firm and result of
the growth of a specific industry. For example, negative externalities, such as road
congestion, can result from the growth of an industry in a specific region. Resources may
become exhausted and the price of resources may rise as demand outstrips supply.
MARGINAL PRODUCTIVITY THEORY OF DISTRIBUTION:
1. The market price for a factor of production is determined by the supply and demand for
that factor.
2. Demand for a factor of production is derived from the demand for the things it helps
produce.
3. Demand by a firm for a factor of production is the marginal productivity schedule of the
factor.
4. Cost-minimizing firms will hire factors of production until the cost of hiring an additional
unit of the factor,
the marginal factor cost, equals the revenue gained from selling the additional output created
by using that additional unit of the factor,
the Value of Marginal Product or Marginal Revenue Product.

2. Marginal Factor Cost = Marginal Revenue Product
Price discrimination or price differentiation is a pricing strategy where identical
or largely similar goods or services are transacted at different prices by the same provider in
different markets or territories. Price discrimination or price differentiation is a pricing
strategy where identical or largely similar goods or services are transacted at different prices
by the same provider in different markets or territories.[1][2][3] Price differentiation is
distinguished from product differentiation by the more substantial difference in production
cost for the differently priced products involved in the latter strategy.[3] Price differentiation
essentially relies on the variation in the customers' willingness to pay.[2][3]
The term differential pricing is also used to describe the practice of charging different prices
to different buyers for the same quality and quantity of a product,[4] but it can also refer to a
combination of price differentiation and product differentiation.[3] Other terms used to refer to
price discrimination include equity pricing, preferential pricing,[5] and tiered pricing.[6]
Within the broader domain of price differentiation, a commonly accepted classification dating
to the 1920s is:[7][
In microeconomictheory,an indifference curveisa graph showingdifferent
bundlesof goodsbetweenwhichaconsumeris indifferent.Thatis,ateach pointonthe curve, the
consumerhasno preference forone bundle overanother.
n microeconomic theory, an indifference curve is a graph showing different bundles of
goods between which a consumer is indifferent. That is, at each point on the curve, the
consumer has no preference for one bundle over another. One can equivalently refer to each
point on the indifference curve as rendering the same level of utility (satisfaction) for the
consumer. In other words an indifference curve is the locus of various points showing
different combinations of two goods providing equal utility to the consumer. Utility is then a
device to represent preferences rather than something from which preferences come.[1] The
main use of indifference curves is in the representation of potentially observable demand
patterns for individual consumers over commodity bundles.[2]
An oligopolyis a market form in which a market or industry is dominated by a small
number of sellers (oligopolists). Oligopolies can result from various forms of collusion which
reduce competition and lead to higher prices for consumers. Oligopoly has its own market
structure. [1]
With few sellers, each oligopolist is likely to be aware of the actions of the others. According
to game theory, the decisions of one firm therefore influence and are influenced by the
decisions of other firms. Strategic planning by oligopolists needs to take into account the
likely responses of the other market participants.

3. Definition: Law of Equi Marginal Utility
"A person can get maximum utility with his given income when it is spent on different
commodities in such a way that the marginal utility of money spent on each item is equal".
It is clear that consumer can get maximum utility from the expenditure of his limited income.
He should purchase such amount of each commodity that the last unit of money spend on
each item provides same marginal utility.
Assumptions of the Law of Equi Marginal Utility:
1. There is no change in the prices of the goods.
2. The income of consumer is fixed.
3. The marginal utility of money is constant.
4. Consumer has perfect knowledge of utility obtained from goods.
5. Consumer is normal person so he tries to seek maximum satisfaction.
6. The utility is measurable in cardinal terms.
7. Consumer has many wants.
8. The goods have substitutes.
Opportunity Costs
The opportunity cost of a good or of performing an action, also known as the greatest cost,
is the lost value of alternate options that could have been chosen, rather than the one that was
chosen. If A gives twice as much pleasure as B, and there is no C that gives more pleasure
than B and is comparable (such as uses time, effort, or some other resource), then A's
opportunity cost is the benefit of B because that is the difference in resulting happiness. In
this particular scenario, the opportunity cost of A is not a good indicator of its value, because
it says that A is worth only as much as B, which is not the case.
Normally, there would be many alternate uses for the resources of A/B, so that there would
not be such a notable difference, and so A and B would be similar in benefits, B and C would
be similar in benefits, etc. In such a case where the differences are minor, the opportunity
cost of A would be similar to that of B, and that would reflect their similar benefits.
Measures ofnational income and output
From Wikipedia,the free encyclopedia
A variety of measures of national income and output are used in economics to estimate
total economic activity in a country or region, including gross domestic product (GDP), gross
national product (GNP), net national income (NNI), and adjusted national income (NNI*
adjusted for natural resource depletion). All are specially concerned with counting the total
amount of goods and services produced within some "boundary". The boundary is usually
defined by geography or citizenship, and may also restrict the goods and services that are
counted. For instance, some measures count only goods and services that are exchanged for

4. money, excluding bartered goods, while other measures may attempt to include bartered
goods by imputing monetary values to them. [1]
Difficulties in Measurement of National Income
There are many difficulties when it comes to measuring national income, however these can
be grouped into conceptual difficulties and practical difficulties:
ConceptualDifficulties
 Inclusionof Services:There hasbeensome debate aboutwhethertoinclude servicesinthe
countingof national income,andif itcountsas output.Marxianeconomistsare of the belief
that servicesshouldbe excludedfromnational income,mostothereconomiststhoughare in
agreementthatservicesshouldbe included.
 IdentifyingIntermediate Goods:The basicconceptof national income istoonlyinclude final
goods,intermediate goodsare neverincluded,butinrealityitisveryhardto draw a clear
cut line asto what intermediate goodsare.Manygoodscan be justifiedasintermediate as
well asfinal goodsdependingontheiruse.
 IdentifyingFactorIncomes:Separatingfactorincomesandnonfactor incomesisalsoa huge
problem.Factorincomesare those paidinexchange forfactorserviceslike wages,rent,
interestetc.Nonfactorare sale of sharessellingoldcarspropertyetc.,butthese are made
to looklike factorincomesandhence are mistakenlyincludedinnational income.
 Servicesof Housewivesandothersimilarservices:National income includesthose goodsand
servicesforwhichpaymenthasbeenmade,butthere are scoresof jobs,forwhichmoneyas
such isnot paid,alsothere are jobswhichpeople dothemselveslikemaintainthe gardens
etc.,so if theyhiredsomeone else todothisforthem, thennational income wouldincrease,
the argumenttheniswhy are these acts notaccountedfor now,butthe biggerissue would
be how to keepatrack of these activitiesandinclude theminnationalincome.
PracticalDifficulties
 UnreportedIllegal Income:Sometimes,peopledon'tprovide all the rightinformationabout
theirincomestoevade taxes sothisobviouslycausesdisparitiesinthe countingof national
income.
 NonMonetizedSector:Inmanydevelopingnations,thereisthisissue thatgoodsand
servicesare tradedthroughbarter,i.e.withoutanymoney.Suchgoodsandservicesshould
be includedinaccountingof national income,butthe absence of datamakesthisinclusion
difficult.
Cost curve

5. In economics,acost curve is a graphof the costs ofproduction as a
function of total quantity produced. In a free market economy,
productively efficient firms use these curves to find the optimal point
of production(minimizing cost),and profit maximizing firms can use
them to decide output quantities to achieve those aims.There are
various types of cost curves,all relatedto each other,including total
and average cost curves,and marginal ("for each additional unit")
cost curves,which are equal to the differential of the total cost curves.
Some are applicable to the short run, others to the long run. Short-run
average variable cost curve (SRAVC)
Short-run average variable cost curve (SRAVC)
Average variable cost (which is a short-run concept) is the
variable cost (typically labor cost) per unit of output:
SRAVC = wL / Q where w is the wage rate, L is the
quantity of labor used, and Q is the quantity of output
produced. The SRAVC curve plots the short-run average
variable cost against the level of output and is typically
drawn as U-shaped. Long-run average cost curve (LRAC)
Typical long run average cost curve
The long-run average cost curve depicts the cost per unit of output in the long run—that is,
when all productive inputs' usage levels can be varied. All points on the line represent least-
cost factor combinations; points above the line are attainable but unwise, while points below
are unattainable given present factors of production. The behavioral assumption underlying
the curve is that the producer will select the combination of inputs that will produce a given
output at the lowest possible cost. Given that LRAC is an average quantity, one must not
confuse it with the long-run marginal cost curve, which is the cost of one more unit.[3]:232 The
LRAC curve is created as an envelope of an infinite number of short-run average total cost
curves, each based on a particular fixed level of capital usage

6. Law of variable proportion
The Law of Variable Proportions which is the new name of the famous Law of Diminishing
Returns.
→According to Stigler” "As equal increments of one input are added, the inputs of
other productive services being held constant, beyond a certain point, the resulting
increments of produce will decrease i.e., the marginal product will diminish".
→According to Paul Samulson "An increase in some inputs relative to other fixed
inputs will in a given state of technology cause output to increase, but after a point, the
extra output resulting from the same addition of extra inputs will become less".
The law of variable proportions states that as the quantity of one factor is increased, keeping
the other factors fixed, the marginal product of that factor will eventually decline. This means
that upto the use of a certain amount of variable factor, marginal product of the factor may
increase and after a certain stage it starts diminishing. When the variable factor becomes
relatively abundant, the marginal product may become negative.
Assumptions of Law.
→Constant technology--- This law assumes that technology does not change throughout
the operation of the law.
→Fixed amount of some factors.—One factor of production has to be fixed for this law.
→ Possibility of varying factor proportions—This law assumes that variable factors can
be --changed in the short run.
In economics, a perfect market is defined by several conditions, collectively called
perfect competition. Among these conditions are
 Perfect market information
 No participant with market power to set prices
 Non intervention by governments
 No barriers to entry or exit
 Equal access to factors of production
 Profit maximization
 No Externalities

7. Price Determination in Economics For
many consumers, price seems to change with a one-way ratchet set to "up."
However, economists argue that price is actually set by market forces, balancing
supply and demand in order to optimize output with minimal waste. Although it
may seem that prices are set randomly, economists explain that price determination
is a rational process calculated in a straightforward manner.
What is Monopoly?
Monopoly is when a single company owns all or the majority of the market for a product or
service sold. When a monopoly situation exists in the market, this means that there is one
large seller who has the greatest market power, which results in very low levels of
competition. Since competition is low, such large monopolistic market players are able to
charge high prices and sell inferior products. An example would be public monopolies
formed by governments for the provision of public goods such as water and electricity.
Another example of a market with monopoly would be a pharmaceuticals company which
discovered a cure for a disease. This innovation will allow the firm to patent the drug so that
it cannot be produced by another competitor during the period for which the patent lasts. This
will give the pharmaceutical company a monopoly effect in the market.
What is Monopolistic Competition?
A monopolistic market is one where there are a large number of buyers but a very few
number of sellers. The players in these types of markets sell goods which are different to each
other and, therefore, are able to charge different prices depending on the value of the product
that is offered to the market. In a monopolistic competition situation, since there are only a
few number of sellers, one larger seller controls the market; therefore, has control over prices,
quality, and product features. However, such a monopoly is said to last only within the short
run, as such market power tends to disappear in the long run as new firms enter the market
creating a need for cheaper products.
What is the difference between Monopolistic Competition and Monopoly?

8. Monopoly and Monopolistic competition are similar because each market structure has a
large number of buyers and one or a very few number of sellers. However, monopolistic
markets have few barriers to entry for new firms, whereas monopoly markets have high entry
barriers because the market is controlled by one large company.
Monopoly markets are regulated by competitive commissions, to ensure that monopoly
players do not fully control market dynamics.