Law of Demand

A. Law of Demand

Law of Demand states that there is an inverse relation between the price of the commodity and its quantity demanded assuming all other Determinants of demand stay constant. It means that when the price of the commodity decreases demand increases and when the price of the commodity rises the demand falls.

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Indifference Curve and Consumer’s Equilibrium

A.Indifference Curve

Indifference curve is a diagrammatic presentation of the combination of two goods which gives the consumer the same level of satisfaction. It is a bearer of all such points which show diverse combinations of two commodities which gives the same level of satisfaction to the consumer. Each point on the Indifference curve indicates one of the all diverse combinations of two commodities. Each combination yields the same level of satisfaction among all the combinations.

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Production Possibility Curve

Production Possibility Curve and Opportunity Cost

A. Production Possibility Curve (PPC)

The Production Possibility Curve (PPC) represents the point at which an economy is most efficiently producing its goods and services and, therefore, allocating its resources in the optimum way. If the economy is not producing the quantities indicated by the PPC, resources are being underutilised and the production of society will be less than the potential output. The production possibility Curve shows there are limits to production, so an economy, to achieve efficiency, must decide what combination of goods and services should be produced.

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