Consumption & its characteristics needs and wants & their relation , differences concepts of economics opportunity cost laws of supply and demand laws of increasing and diminishing & constant returns standard of living

1. ECONOMICS AND THE
MARKET
SESSION 8
FACULTY : Ar Mahima J

2. SYLLABUS BLUEPRINT :
SOCIOLOGY & BUILDING
ECONOMICS
MODULE 1
Introduction to
Sociology
Elements of society
MODULE 2
communities
Urban and rural
communities
Cities and society
Social research
MODULE 3
Economics
Economic organization
of society
MODULE 4
Economics and the
market
MODULE 5
Urban land values
Building costs
Today
Guest Lecture –
November 9th , 2019

3. CONSUMPTION
Consumption means using up of utilities. For
example – when we take a glass of water to
quench our thirst, we are said to consume water.
Whenever we make use of any commodity or
service for the satisfaction of our wants, the act is
called consumption.
Therefore, by consumption we mean the
satisfaction of our wants by the use of
commodities and services.
Economists have defined consumption as “the
destruction of utility”. When a man eats an apple,
he does not destroy the matter of which it is
composed; he has only changed its form. Man has
destroyed its utility in the act of eating it.
Production is “Creation of Utility” Marshall has
called it Negative Production and has defined as
According to Prof. Ely – “Consumption in its
broadest sense means the use of economic
goods and personnel services in the
satisfaction of human wants.”
Prof. A. L. Mayers has said – “Consumption
is the direct and final use of goods or
services in satisfying the wants of human
beings.”

4. CHARACTERISTICS OF
CONSUMPTION:
The important characteristics of consumption are as follows:
1. Destruction of Utility: Science has proved this fact that man is neither the
creator of any article nor he is destroyer of any article. By the use of the article
the utility of the article is destroyed. The form of the article is changed.
2. Satisfaction of Human Wants: By consumption we must have satisfaction of
human wants. If satisfaction is not achieved it cannot be called consumption.
3. Direct Satisfaction of Wants: By consumption of any article people must get
satisfaction from the article directly. For example: If one is thirsty—taking a glass
of water to satisfy thirst is direct consumption.
4. The Reduction of Utility can be Rapid or it can be Slow: The utility of an article
diminishes slowly and gradually. For example: Using of scooter; or use of
television.
5. Consumption of Services: There is consumption not of goods only but also of
services. Coaching to students by teacher; to treat patients by doctors.

6. WANT ? NEED?

7. NEEDS
By the term needs, we mean those requirements which are extremely necessary for a human being
to live a healthy life. They are important for an organism to survive and may be
 personal,
 psychological,
 cultural,
 social, etc.
In ancient times the three basic needs of the man were
 food,
 clothing and
 shelter
For improvement of quality of life now additional important needs are
 education and
 healthcare
They are a person’s first priority as they are the things, that they keep us healthy and safe.
Therefore, if needs are not satisfied in time, it may result in
 illness,
 inability in functioning properly or
 even death.

8. WANTS
In economics, wants are defined as something that a person would like to possess,
 either immediately or
 at a later time.
Simply put, wants are the desires that cause business activities to produce
such products and services that are demanded by the economy.
They are optional, i.e. an individual is going to survive, even if not
satisfied.
 Further, wants may vary from
 person to person and
 time to time.
We all know that human wants are unlimited while the means to satisfy those
wants are limited. Hence, all the wants of an individual cannot be met and they
must seek for alternatives.

10. UNDERSTANDING RELATION BETWEEN
NEEDS & WANTS
We all know that economics is a social science, which deals
with
 production,
 distribution and
 consumption functions.
It is all about making choices regarding the allocation of
scarce resources, so as to make their best possible use and
satisfy human wants and needs.
From economics point of view
 While needs point out the something you must have for
survival,
 wants refers to something which is good to have, but not
essential for survival
For the purpose of spending and saving money wisely,
every person must know the difference between needs and

12. KEY DIFFERENCES BETWEEN
NEEDS AND WANTS
The term ‘needs’ is defined as an individual’s basic requirement that must be fulfilled, in order to
survive.
 Wants are described as the goods and services, which an individual like to have, as a part of his
caprices.
An individual needs are limited while his wants are unlimited.
Needs are something that you must have, in order to live.
 On the contrary, wants are something that you wish to have, so as to add comforts in your life.
Needs represents the necessities while wants indicate desires. Needs are important for the human
being to survive.
As against this, wants are not as important as needs, because a person can live without wants.
Needs are those items, that are required for life and does not change with time.
 As opposed to, wants are those items, that are desired by an individual either right now or in
future. Therefore, wants might change over time.
As needs are essential for life, non-fulfillment may lead to illness or even death.
 In contrast wants are not essential for living and so non-fulfillment, does not have a great

13. CONCLUSION
Hence it can be concluded that needs and wants are separate forces,
that compels actions for satisfaction.
 If needs are not met on time, the survival of a person is at stake
whereas wants are something which a person is craving for, that does
not challenge a person’s survival if not satisfied.
 So, needs can be distinguished from wants on the basis of their
level of importance.
 Hence, the distinction is between what is required and what is
desired.

14. CONCEPTS OF ECONOMICS
1) OPPORTUNITY COST
2) LAWS OF SUPPLY AND DEMAND
3) LAWS OF INCREASING, DIMINISHING & CONSTANT RETURNS
4) STANDARD OF LIVING

15. OPPORTUNITY COST
Opportunity costs represent the benefits
an individual, investor or business misses
out on when choosing one alternative over
another. While financial reports do not
show opportunity cost, business owners
can use it to make educated decisions
when they have multiple options before
them.
Because by definition they are unseen,
opportunity costs can be easily overlooked
if one is not careful. Understanding the
potential missed opportunities foregone by
choosing one investment over another
allows for better decision-making.
In a world of scarcity, choosing one thing
means giving up something else. The

16. OPPORTUNITY COST FORMULA AND
CALCULATION
Opportunity Cost=FO−CO
where:
FO=Return on best foregone option
CO=Return on chosen option
The formula for calculating an opportunity cost is simply the
difference between the expected returns of each option.
Opportunity cost is the return of a foregone option less the return on your
chosen option.
Considering opportunity costs can guide you to more profitable decision-
making.
You must assess the relative risk of each option in addition to its potential
returns.

17. LAWS OF SUPPLY AND DEMAND
The law of supply and demand is a
theory that explains the interaction
between the sellers of a resource
and the buyers for that resource.
The theory defines how the
relationship between the availability
of a particular product and the
desire (or demand) for that product
has on its price.
Generally, low supply and high
demand increase price and vice
versa.

18. LAWS OF SUPPLY AND DEMAND
• The law of demand says that at
higher prices, buyers will demand
less of an economic good.
• The law of supply says that at
higher prices, sellers will supply
more of an economic good.
• These two laws interact to
determine the actual market prices
and volume of goods that are
traded on a market.
• Several independent factors can
affect the shape of market supply
and demand, influencing both the
prices and quantities that we
observe in markets.

20. THE LAW OF DIMINISHING
RETURNS
The law of diminishing returns, also
referred to as the law of diminishing
marginal returns, states that in a
production process, as one input
variable is increased, there will be a
point at which the marginal per unit
output will start to decrease, holding all
other factors constant.
Under the law of diminishing returns, a
firm will get less and less extra output
when it adds additional units of an input
while holding other inputs fixed. In other
words, the marginal product of each unit
of input will decline as the amount of
that input increases, holding all other
inputs constant.

21. EXAMPLE
Diminishing returns are a
key factor in explaining why
many countries in Asia are so
poor.
Living standards in crowded
Rwanda or Bangladesh are
low because there are so
many workers per acre of
land and not because farmers
are ignorant or fail to
respond to economic
incentives

22. LAWS OF INCREASING RETURNS
The law of increasing returns is also called the law
of diminishing costs. The law of increasing return
states that:
"When more and more units of a variable factor is
employed, while other factor remain fixed, there is
an increase of production at a higher rate. The
tendency of the marginal return to rise per unit of
variable factors employed in fixed amounts of other
factors by a firm is called the law of increasing
return".
An increase of variable factor, holding constant the
quantity of other factors, leads generally to
improved organization. The output increases at a
rate higher than the rate of increase in the
employment of variable factor.
The law rests upon the following assumptions:
(i) There is a scope in the improvement of
technique of production.
(ii) At least one factor of production is
assumed to be indivisible.
(iii) Some factors are supposed to be divisible.
“An increase of labour and capital leads generally
to improved organization, which increases the
efficiency of the work of labour and capital.
Therefore, an increase of labour and capital
generally gives returns which increases more
than in proportion.” Marshall

23. LAW OF CONSTANT RETURNS
Statement of the Law:
The law of constant returns is said to
operate when the return remains the same
as the business is expanded or contracted.
Every additional investment of labour and
capital yields the same return as before.
Or in other words, whatever the scale of
production, the cost of the product per unit
remains the same.
We have said before that, in certain cases,
and when the business moves towards the
optimum, the returns increase, and when it
goes beyond the optimum, the returns
decrease. But if, after having reached the
optimum point, the industry is stabilized at
that level of output, the returns, continue

24. STANDARD OF LIVING
A standard of living is the level of
wealth, comfort, material goods, and
necessities available to a certain
socioeconomic class or a certain
geographic area.
The standard of living includes basic
material factors such as income,
gross domestic product (GDP), life
expectancy, and economic
opportunity.
The standard of living is closely
related to quality of life, which can
also include factors such as economic
and political stability, political and
religious freedom, environmental
quality, climate, and safety.

25. STANDARD OF LIVING
The standard of living is often used to compare
geographic areas, such as the standard of living in
the United States versus Canada, or the standard of
living in St. Louis versus New York.
For example, compared with a century ago, the
standard of living in the United States has improved
greatly. The same amount of work buys an
increased quantity of goods, and items that were
once luxuries, such as refrigerators and
automobiles, are now widely available. Also, life
expectancy has increased, and annual hours
worked have decreased.
In a narrow sense, economists frequently measure
the standard of living using Gross Domestic
Product (GDP). Per capita GDP provides a quick,
rough estimate of the total amount of goods and
• Standards of living are usually higher
in developed countries such as the
United States, than in less developed
nations.
• In fact, basic measures of the standard of
living (such as per capita GDP) are often
used to define the differences between
more and less developed countries.
• Emerging market economies usually see
rising standards of living over time as
they grow and develop into modern,

26. STANDARD OF LIVING VS. QUALITY
OF LIFE
A Standard of living
generally refers to wealth,
comfort, material goods and
necessities of certain classes
in certain areas—or more
objective characteristics.
Quality of life is more
subjective and intangible,
such as personal liberty or
environmental quality.
Characteristics that make up a good quality of life for one
person may not necessarily be the same for someone else.

28. BIBLIOGRAPHY
https://economicsconcepts.com/law_of_increasing_returns.htm
http://www.economicsdiscussion.net/law-of-increasing-returns/law-of-
increasing-returns-assumptions-explanation-and-causes/6910
https://www.investopedia.com/terms/s/standard-of-living.asp
https://www.toppr.com/guides/business-economics/theory-of-consumer-
behavior/nature-and-classification-of-human-wants/