Barter is the exchange of products and services for other products and services. Barter system in economics, people do not use money for transactions. ‘Barter’ means to exchange goods and services for other products and services. Alternatively, economic exchanges without the medium of money are referred to as barter system exchange. An economy based on barter system exchange (i.e., exchange of goods for goods) is called C.C. Economy, i.e., commodity for commodity exchange economy. In such an economy, a person gives his surplus good and gets in return the good he needs.
Economics Class 12
Money Supply
The money supply refers to the total sum of money available to the public in the economy at a point of time. It is a stock concept in sharp contrast to the national income which is a flow representing the value of goods and services produced per unit of time, usually taken as a year.
Functions of Money
All the difficulties of barter were overcome with the introduction of money. Money is defined as anything that is generally acceptable as a means of exchange and that at the same time acts as a measure and as a store of value. An important point about this definition is that it regards anything that is generally acceptable as money. Thus, money includes coins, currency notes, cheques, Bills of Exchange, and so on. It is not always easy to define money. That is why Prof. Walker has said that money is that which money does. By this, he refers to the functions of money. Money performs many functions in a modern economy.
Economic Meaning in Hindi
अर्थशास्त्र का अर्थ (Economic Meaning in Hindi)
अर्थशास्त्र एक सामाजिक विज्ञान है
जो अध्ययन करता है
जिस तरह से समाज अपने सीमित संसाधनों का उपयोग करना चुनता है, जिसमें वैकल्पिक उपयोग होते हैं,
माल और सेवाओं का उत्पादन करने के लिए
लोगों के विभिन्न समूहों के बीच उन्हें वितरित करें।
Multiple Choice Questions For Economics with Answers – Tax System
Multiple Choice Questions For Economics with Answers, which are covered in this chapter, relate to the topic, Tax System. Multiple Choice Questions For Economics with Answers Test contains 10 questions. Answers to Multiple Choice Questions For Economics with Answers are available at the end of the last question.
CHECK OUT ALL ECONOMICS MCQS AT OUR ECONOMICS QUESTION CHAPTER-WISE INDEX : –
1. Which of the following is an Indirect tax:
(a) Value Added Tax
(b) Gift Tax
(c) Wealth Tax
(d) Income Tax
[Read more…] about Multiple Choice Questions For Economics with Answers – Tax System
Economics Multiple Choice Questions – Chapter 3 – Theory of Production
Economics Multiple Choice Questions, which are covered in this chapter, relate to the topic, Theory of Production. Economics Multiple Choice Questions Test contains 10 questions. Answers to Economics Multiple Choice Questions are available at the end of the last question.
CHECK OUT ALL ECONOMICS MCQS AT OUR ECONOMICS QUESTION CHAPTER-WISE INDEX : –
1. ______ shows the overall output generated at a given level of input:
(a) Cost function
(b) Production function
(c) Iso cost
(d) Marginal rate of technical substitution
[Read more…] about Economics Multiple Choice Questions – Chapter 3 – Theory of Production
Equi Marginal Utility
Law of Equi Marginal Utility
Law of Equi Marginal Utility deals with the case of Consumer’s Equilibrium , where the consumer spends income on Two commodities. Law of Equi Marginal Utility provides that where the consumer spends income on two commodities, he achieves maximum satisfaction when the following conditions are satisfied : –
Consumer Equilibrium
Consumer Equilibrium : –
Consumer Equilibrium refers to the situation, where a consumer, with limited income, achieves maximum satisfaction , without changing the manner of spending on existing expenditure.A consumer, who wants to consume a particular good, may have limited income. Such consumer has to pay a price for each unit of commodity he purchases. Given the limited income, the consumer can only buy limited quantity of goods. We also know that as per the law of Diminishing Marginal Utility, the additional utility derived from each successive unit, keeps on decreasing. Due to these reason, every rational consumer , tries to achieve maximum satisfaction by incurring expenditure accordingly.
Consumer equilibrium can arise in the following two scenarios : –
- Consumer’s entire income is spent on single commodity.
- Consumer’s income is spent on two
Lets discuss these two in detail : –
Consumer’s equilibrium in case of single commodity : –
Where a consumer purchases a single commodity, the equilibrium is said to exist at the point where the quantity purchased by consumer gives him the maximum satisfaction, or in other words, when marginal utility of the commodity is equal to price paid for the commodity.
The number of units of a commodity , which a consumer would consume would depend on two factors :-
- Price of the given commodity
- Expected Marginal utility from each successive unit.
Marginal utility in money terms
MU of one extra unit of money (say rupee in India) is the additional utility obtained by a consumer, when he spends an additional rupee on other goods.
Marginal utility in terms of money =
Equilibrium condition in case of single commodity :-
Consumer who consumes a single commodity (say x), will be at equilibrium when Marginal utility of the commodity (MUx) is equal to price paid (Px) for the commodity.
- Marginal utility of the commodity Mux > Price Paid (Px)
This means that the benefit obtained by consumer on additional unit purchase (Mux ) is greater than the price paid for commodity and consumer will keep buying additional units of goods. As consumer keeps buying additional units of goods, MU will fall due to the operation of the law of diminishing marginal utility. When Mu is equal to price, the consumer gets maximum benefits , and is in a state of equilibrium.
- Marginal utility of the commodity Mux < Price Paid (Px)
This means that the benefit obtained by consumer on additional unit purchase (Mux ) is less than the price paid for commodity . The consumer will keep reducing the consumption of commodity ‘x, until his Marginal Utility is equal to price.
Consumer’s Equilibrium in case of Two commodities.
Where the consumer spends income on two commodities, he achieves maximum satisfaction when the following conditions are satisfied : –
- MU of two commodities and their respective prices are equal –
For two given commodities x and y
and
- MU falls with an increase in consumption – If this condition is not satisfied, the consumer will keep buying only one good , which is unrealistic and consumer will never reach the equilibrium position.
This law is also know as the “Law of Equi-Marginal utility”.
For Example : –
Lets say the total income of a consumer is Rs.20. He intends to purchase two commodities x and y, which are priced at Rs. 4 each per unit .
Consumer’s equilibrium in case of commodities x and y is as under :-
| Units Consumed | Mux (“units”) | MUy (“units”) |
| 1 | 40 | 32 |
| 2 | 28 | 24 |
| 3 | 24 | 16 |
| 4 | 14 | 14 |
| 5 | 10 | 6 |
From the above table, given that commodity ‘x’ has utility of 40 utils as against 32 utils of commodity y, consumer would spend first rupee on commodity x. Similarly, the second rupee will be spent on commodity ‘y’ to get utility of 32 utils, as utils of commodity x for second rupee is 28. The consumer would reach equilibrium when : –
- MU of last rupee spent on each commodity is same – 4 units consumed
- MU falls as consumption increases
Consumer Equilibrium One Commodity Case
Consumer Equilibrium One Commodity Case :-
Consumer Equilibrium One Commodity Case (say commodity x) exists, at the point when Marginal utility of the commodity (MUx) is equal to price paid (Px) for the commodity.
- Consumer Equilibrium One Commodity Case – Marginal utility of the commodity Mux > Price Paid (Px) –
This means that the benefit obtained by consumer on additional unit purchase (Mux ) is greater than the price paid for commodity and consumer will keep buying additional units of goods. As consumer keeps buying additional units of goods, MU will fall due to the operation of the law of diminishing marginal utility. When Mu is equal to price, the consumer gets maximum benefits , and is in a state of equilibrium.
- Consumer Equilibrium One Commodity Case – Marginal utility of the commodity Mux < Price Paid (Px)
This means that the benefit obtained by consumer on additional unit purchase (Mux ) is less than the price paid for commodity . The consumer will keep reducing the consumption of commodity ‘x, until his Marginal Utility is equal to price.
Law of Diminishing Marginal Utility
Law of diminishing marginal utility
When we feel hungry, we eat food, let’s say apples. The first Apple that we eat generally provides most satisfaction then the second. The second Apple provides more satisfaction than the third and so on. This means that the satisfaction that the utility we derive from consumption of every subsequent Apple is less than the consumption of the previous Apple. Marginal utility is the additional utility derived from consumption of each successive unit of commodity. In simple terms, the Law of diminishing marginal utility provides in simple terms provides that as we consume more and more units, of any commodity ( apples in this case), the utility derived from each successive unit (successive apples in this case) keeps of decreasing.
Law of diminishing marginal utility was first given by a German economist H.H. Gossen, and is therefore also known as “Gossen’s First law of Consumption”. This law of diminishing marginal utility has universal applicability , i.e it applies to all goods and services.
Assumptions of Law of Diminishing Marginal Utility : –
Like any other law, the applicability of Law of Diminishing Marginal Utility is based on certain assumptions. The following are the assumptions, which should exist if the law of diminishing marginal utility has to apply : –
- Cardinal measurement of utility : – Utility is measurable in quantitative terms and a consumer can express his satisfaction it’s such terms.
- Monetary measurement of utility :- Utility is measurable in terms of money.
- Consumption of reasonable quantity : – While measuring utility, the quantity which is considered in successive consumption should be a reasonable quantity of the commodity . For example, to measure the utility of apples, we should compare consumption of units of apples, and not slices of apples. If the unit of consumption is slices of apples, it is likely that a hungry person May get higher satisfaction from each successive consumption of next slice of Apple.
- Continuous Consumption:- Consumption should be a continuous process at any particular point in time. For example, if one Apple is consumed in the morning and another Apple is consumed in the evening afternoon, then the second Apple may provide equal or higher satisfaction as when compared to the Apple that was eaten in the morning.
- No change in Quality : – Law of DMU assumes that the quality of each successive unit of the the commodity which is consumed , is uniform. If a person eats a sour Apple first and the sweet apple thereafter, the Apple eaten later would give more satisfaction then the first apple.
- Rational consumer:- it is assumed that the consumer , aims at maximizing total satisfaction. For this purpose the consumer not only calculates the utility derived from each commodity, he also compares the utilities of different commodities.
- Independent Utilities : – Law of DMU assumes that marginal utility of one commodity has no relation with marginal utility of another commodity. Each of the commodities have independent utilities.
- Marginal utility of money is assumed to remains constant under the Law of Diminishing Marginal Utility
- Fixed income and prices : – Law of Diminishing Marginal Utility assumes that income of the consumer and prices of the goods which such consumer wishes to purchase , remains constant.
- Perfect knowledge : – The consumer is assumed to know , both the different goods on which his income can be spent, and the utility that may arise out of such consumption.
Utility in Economics
Utility : –
Utility in Economics , refers to the power of a particular commodity to satisfy human wants. Such power of satisfaction of human wants could be either be actual satisfaction or expected satisfaction , which could be derived from the consumption of a commodity. Utility in Economics , of a commodity differs from person to person (clothing may have different utility for rich and poor), place to place (Winter in UK may require different clothes than summers in India at the same time) and time to time (when hungry, food has higher utility).
Measurement of Utility in Economics :-
According to economists, utilityUtility in Economics can be measured in cardinal or quantitative terms, which makes it possible to estimate utility, derived by a person from consumption of goods and services in numerical terms. ‘Util’ , is an imaginary and psychological units measure used to measure utility (just like KG is used for Weight) . Under the Cardinal Utility Approach, ‘Utility’ concept aims to attain the consumer’s equilibrium.
Measurement of satisfaction in “utils”
Mohan, ate two items, an apple and a chocolate. Let us assume that eating an apple gives 50 utils of utility. utils be assigned to the chocolate? In case Mohan likes the chocolates less than the Apple, the chocolates could have utils which would be less than 50. For example if we assign utils of 25, to chocolates, we can say that Mohan likes chocolates, half as much as apple. However, if Mohan Likes chocolates more than the Apple, the chocolates could have utils which would be more than 50. For example if we assign utils of 100, to chocolates, we can say that Mohan likes chocolates, twice as much as apple.
Measurement of satisfaction in terms of money
Since, utils may vary from individual to individual, they cannot be taken as a standard unit for measurement of utility. In view of this, Many economists suggested the measurement of utility in terms of money , which the consumer is willing to pay for a commodity. For example if 1 util is assumed to be equal to Rs. 5, an apple will yield utils worth Rs. 250 (as 1 util = Rs.5) and if chocolate gives utils of 25 or 100, it would be worth Rs. 125 /Rs. 500 in terms of money.
Utility in Economics
Utility in Economics
Utility in Economics , refers to the power of a particular commodity to satisfy human wants. Such power of satisfaction of human wants could be either be actual satisfaction or expected satisfaction , which could be derived from the consumption of a commodity. Utility of a commodity differs from person to person (clothing may have different utility for rich and poor), place to place (Winter in UK may require different clothes than summers in India at the same time) and time to time (when hungry, food has higher utility).
Measurement of Utility :-
According to economists, utility can be measured in cardinal or quantitative terms, which makes it possible to estimate utility, derived by a person from consumption of goods and services in numerical terms. ‘Util’ , is an imaginary and psychological units measure used to measure utility (just like KG is used for Weight) . Under the Cardinal Utility Approach, ‘Utility’ concept aims to attain the consumer’s equilibrium.
Measurement of satisfaction in “utils”
Mohan, ate two items, an apple and a chocolate. Let us assume that eating an apple gives 50 utils of utility. utils be assigned to the chocolate? In case Mohan likes the chocolates less than the Apple, the chocolates could have utils which would be less than 50. For example if we assign utils of 25, to chocolates, we can say that Mohan likes chocolates, half as much as apple. However, if Mohan Likes chocolates more than the Apple, the chocolates could have utils which would be more than 50. For example if we assign utils of 100, to chocolates, we can say that Mohan likes chocolates, twice as much as apple.
Measurement of satisfaction in terms of money
Since, utils may vary from individual to individual, they cannot be taken as a standard unit for measurement of utility. in view of this, Many economists suggested the measurement of utility in terms of money or price, which the consumer is willing to pay for a commodity. For example if 1 util is assumed to be equal to Rs. 5, an apple will yield utils worth Rs. 250 (as 1 util = Rs.5) and if chocolate gives utils of 25 or 100, it would be worth Rs. 125 /Rs. 500 in terms of money.
