Key Economics Concepts: Demand, Markets, Money, Inflation
What Is Demand? Its Determinants
Demand refers to the quantity of a commodity that consumers are willing and able to buy at a given price and time.
Determinants of Demand
- Price of the commodity: Demand decreases when price increases and vice versa.
- Income of consumers: Higher income increases demand for normal goods.
- Price of related goods:
- Substitute goods: If the price of a substitute rises, demand increases.
- Complementary goods: If the price of a complement rises, demand decreases.
- Taste and preference:
Monetary and Fiscal Policy Mechanics Explained
Economic Policy Fundamentals
Monetary Policy (MP)
Monetary Policy (MP): Refers to the decisions made by the central bank regarding the control of financial variables (mainly the money supply and interest rates), implemented by the European Central Bank (ECB).
Banking System
Banking System: Includes commercial banks, savings banks, and credit unions. They create the money supply by creating bank money through customer deposits.
Fiscal Policy (FP)
Fiscal Policy (FP): The economic authority of a country
Read MoreFoundations of Economic Theory and Global Systems
The Fundamentals of Economics
Economics is often called the “Queen of Social Sciences” because it touches almost every aspect of human life. At its core, it is the study of how people manage scarcity—the fact that we have unlimited wants but limited resources.
Meaning of Economics
Economics is derived from the Greek word Oikonomia, which means “household management.”
- Modern Definition: It is a social science that studies the production, distribution, and consumption of goods and services.
- The Problem
Economic Theories of Rent and Wages: Analysis and Critique
Quasi Rent: Definition and Calculation
- Introduced by Dr. Alfred Marshall.
- Refers to the additional income earned by factors other than land.
- Applies to factors whose supply is fixed only in the short period.
- The term Quasi Rent is often used as income derived from machines and other appliances of production made by man.
- Quasi Rent is not related to any particular factor of production; whatever revenue a firm earns in the short run over and above its variable cost is called Quasi Rent.
Formula:
Quasi Rent
Read MorePrice Elasticity, Consumer Equilibrium & Returns to Scale
Price Elasticity of Demand (PED)
Price Elasticity of Demand (PED) is an economic measure that shows how sensitive the quantity demanded of a good is to a change in its price. In simpler terms, it tells us how much consumers will reduce or increase their purchases when the price changes.
The law of demand states that price and quantity move in opposite directions, but elasticity measures the magnitude of that move.
Methods of Measuring Price Elasticity
While there are several ways to calculate this sensitivity,
Income Tax: Diversification, Default, and Residency Rules
1. Diversification and Application of Incomes
Diversification of Income
Diversification of income refers to the strategy of earning income from multiple sources rather than relying on a single source. This is a fundamental risk management technique in personal finance and business.
- Risk Mitigation: By spreading income generation across various channels, an individual or business reduces the impact of poor performance or failure in any one area. For example, if a business relies only on one product