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Thursday, April 25, 2013

Fundamentals of Computers




Computer Basics
A computer is an electronic machine that stores, retrieves and process data
It cannot think or reason; it can carry out instructions given to it
Ability to accept, store and execute program makes the computer an invaluable and all-purpose business tool
Properties of a computer system
Volume of data
Accuracy
Repetitiveness
Complexity
Speed
Many more….
Organization of a computer
Components of a computer system
Six components
Hardware
Software
Data/ Information
Procedures
Humanware / People
Communications
Hardware
Refers to machine or physical equipment
Compromises the electronic and the electromechanical parts of the computer system
Can be
On-line
Ex. Keyboard, Mouse etc
Off –line
Ex. Printer, Scanner etc.
Software
Instructions that tell the hardware how to perform a task
Is a sequence of instructions, which directs a computer to perform certain functions
Categorized as
System Software
Application Software
Data/ Information
Procedures
Descriptions of how things are done
Appear in documentation manual, which contain the guidelines for using the hardware and software
Humanware
Refers to the persons who design, program and operate a computer
Categorized as
System Analyst
Programmer
End User
Communications
Becomes an element of the computer system when one computer system is set up to share data and information electronically with another computer system.
Computer Generations
Computer Generation
The term “generation” is used to distinguish between varying hardware technologies.
There are total five computer generations:
First Generation (1942-1955)
Second Generation (1955-1964)
Third Generation (1964-1975)
Fourth Generation (1975-1989)
Fifth Generation (1989-Present)
First Generation (1942-1955)
Too bulky in size, requires large rooms.
Thousands of vacuum tubes were used which consumes and produces large heat.
Magnetic Drum was used as memory
Punch card was used for I/O
Programs were written in machine language.
Example: UNIVAC I, IBM 650, Mark II etc.
Second Generation (1955-1964)
Made of semiconductor materials (Transistors).
Less power consumption/Production
Use of magnetic core memory and the discovery of magnetic disk as secondary memory
Transmission  of data using telephone line
Programs are written in higher level language (COBOL, FORTRAN, ALGOL etc.)
Example: IBM 7030, CDC 1604, RCA 301 etc.
Third Generation (1964-1975)
IC technology was used.
Semiconductor memory was used
More than one user can use it at a time
Huge use of high level language
Transmission  of data using computer system and satellite
Use of monitors
Example: IBM 360/370, PDP-8, GE 600 etc.
Fourth Generation (1975-1989)
Use of VLSI technology
Microprocessor based computer
Huge storage capacity
Use of package program and Object Oriented Programming
Use of interactive graphics
Use of Internet
Example: IBM PC and its clones, Apple II, CRAY-1 etc.
Fifth Generation (1989-Present)
Use of Artificial Intelligence
Will be capable of reasoning, learning, making inferences and behaving like human.
Use of multiple microprocessor
Use of optical fiber
Use of magnetic bubble as memory
Voice recognition, the ability to understand and obey spoken words.
Classification of Computer
Classification of Computers
Analog computer
Example: Speedometer, Slide rule operational amplifier etc
Digital Computer
Supercomputers
Mainframe Computers
Minicomputers
Microcomputers, or Personal Computers
Hybrid Computer
Supercomputers
  They are used for problems requiring complex calculations.
  They are applied to the solution of very complex and sophisticated scientific problems and for national security purposes of some advanced nations.
  Because of their size and expense, supercomputers are relatively rare.
  Supercomputers are used by universities, government agencies, and large businesses.
  They are generally used in the mapping of human gnome, forecasting weather etc.
Example: The Cray X-MP
Mainframe Computers
Can support hundreds or thousands of users, handling massive amounts of input, output and storage.
They provide greater processing speed, greater and high speed storage , a larger variety of input/output devices, multiprogramming and time-sharing.
Mainframes are also used as e-commerce servers, handling transactions over the Internet.
CPU speed: 600 MIPS to 10000 MIPS
Example: UNIVAC 1180, Cyber 170 etc
Minicomputers
They are physically smaller, less expensive and have small storage capacity compared to mainframe.
They are ideally suited for processing tasks that do not require access to huge volumes of stored data.
Some of the larger and expensive minicomputers are capable of supporting a number of terminals in time-shared mode.
CPU speed: 10 to 30 MIPS
Example: IBM S/34, PDP 11 etc
Microcomputers
  Commonly known as PC, refers to a type of computer system that was designed for use by a single person.
  Notebook (laptop) computers are used by people who need the power of a desktop system, but also portability.
  Handheld PCs (such as PDAs) lack the power of a desktop or notebook PC, but offer features for users who need limited functions and small size.
  The brain of microcomputer is the microprocessor; it is a silicon chip containing necessary circuits to perform arithmetic/logic operations and to control input/output operations.
Example: IBM PC, PS/2, Apple Macintosh etc
Number Systems
Common Number Systems
Characteristics of Number Systems
1)      The digits are consecutive.
2)      The number of digits is equal to the size of the base.
3)      Zero is always the first digit.
4)      The base number is never a digit.
5)      When 1 is added to the largest digit, a sum of zero and a carry of one results.
Quantities/Counting (1 of 3)
Quantities/Counting (2 of 3)
Quantities/Counting (3 of 3)
Conversion Among Bases
The possibilities:
Quick Example
Decimal to Binary
Decimal to Binary
Technique
Divide by two, keep track of the remainder
First remainder is bit 0 (LSB, least-significant bit)
Second remainder is bit 1 etc.
Example
Decimal to Octal
Decimal to Octal
Technique
Divide by 8
Keep track of the remainder
Example
Decimal to Hexadecimal
Decimal to Hexadecimal
Technique
Divide by 16
Keep track of the remainder
Example
Binary to Decimal
Binary to Decimal
Technique
Multiply each bit by 2n, where n is the “weight” of the bit
The weight is the position of the bit, starting from 0 on the right
Add the results
Example
Octal to Decimal
Octal to Decimal
Technique
Multiply each bit by 8n, where n is the “weight” of the bit
The weight is the position of the bit, starting from 0 on the right
Add the results
Example
Hexadecimal to Decimal
Hexadecimal to Decimal
Technique
Multiply each bit by 16n, where n is the “weight” of the bit
The weight is the position of the bit, starting from 0 on the right
Add the results
Example
Octal to Binary
Octal to Binary
Technique
Convert each octal digit to a 3-bit equivalent binary representation
Example
Hexadecimal to Binary
Hexadecimal to Binary
Technique
Convert each hexadecimal digit to a 4-bit equivalent binary representation
Example
Binary to Octal
Binary to Octal
Technique
Group bits in threes, starting on right
Convert to octal digits
Example
Binary to Hexadecimal
Binary to Hexadecimal
Technique
Group bits in fours, starting on right
Convert to hexadecimal digits
Example
Octal to Hexadecimal
Octal to Hexadecimal
Technique
Use binary as an intermediary
Example
Hexadecimal to Octal
Hexadecimal to Octal
Technique
Use binary as an intermediary
Example
Exercise – Convert ...
Exercise – Convert …
       Exercise – Convert ...
       Exercise – Convert …
       Binary Addition
       Two 1-bit values
       Binary Addition
       Two n-bit values
      Add individual bits
      Propagate carries
      E.g.,
       Multiplication
       Decimal (just for fun)
       Multiplication
       Binary, two 1-bit values
       Multiplication
       Binary, two n-bit values
      As with decimal values
      E.g.,
       Binary Subtraction
       Just like subtraction in any other base
      Minuend                            10110
      Subtrahand                -      10010   
      Difference                         00100
       And when a borrow is needed.  Note that the borrow gives us 2 in the current bit position.
       .
       Binary Subtraction
       And more ripple -
       Binary Subtraction
       But what happens when we want to do the following:
       Compliments
       Subtraction in any number system can be accomplished through the use of complements.
       A complement is a number that is used to represent the negative of a given number.
       Compliments
       There are two types of compliments for each number base system.
      Have the r’s complement
      Have the (r-1)’s complement
       Base 2 have 2’s complement  and 1’s complement
       Complementary Arithmetic
       1’s complement
      Switch all 0’s to 1’s and 1’s to 0’s
                               
                                Binary #                                                10110011
                                1’s complement                               01001100
       Complementary Arithmetic
       2’s complement
      Step 1: Find 1’s complement of the number
                                Binary #                                                11000110
                                1’s complement                               00111001
      Step 2: Add 1 to the 1’s complement
                                                                00111001
                                                        + 00000001
                                                                00111010
       Operation with 2’s complement
       Add 4 and -6
       Will use the 2’s complement of -6 or 1010
        4   0100
       -6   1010
            1110
       And taking the 2’s complement of 1110 get 0001 + 1 =  0010
MEMORY
Memory
Classification of Memory
Memory Capacity
Memory Hierarchy
Storage Evaluation Criteria
Storage capacity
It is the amount of data, which can be stored in the storage unit.
Higher Capacity is desired.
Access time
This is the time required to locate and retrieve stored data from the storage unit, in response to a program instruction.
Faster access time is preferred.
Storage Evaluation Criteria
Cost per bit of storage
This is the cost of a storage unit for a given storage capacity.
Lower cost is desirable.
Random Access
If the time taken to access data from the storage unit is independent of the location of the data in the storage unit, it is called random access storage.
Volatile
If the storage unit can retain the data stored in it, even when the power is turned off or interrupted, it is called non-volatile storage.
If the data stored are lost, when the power is turned off or interrupted, it is called volatile storage.
Non-volatile storage is desirable.
Primary storage units are volatile and the secondary storage units are non-volatile.
Cache Memory
System performance suffers when processor waits for data from slow memory device.
Cache memory is introduced between the CPU and the main memory.
Cache is a high speed memory for holding recently accessed data in main memory.
Cache Memory
The amount of cache memory has a tremendous impact on the computer's speed.
Two types of cache:
Level-1 L1 cache: CPU resident cache
Level-2 L2 cache: Motherboard resident cache.
Primary Memory
Two Types
q  Random Access Memory (RAM).
q  Read Only Memory (ROM)
Random Access Memory
Dynamic RAM
Static RAM
Read Only Memory
Use of ROM
Classification of ROM
ROM(Strict ROM)
Programmable ROM
Erasable Programmable ROM
Electrically Erasable Programmable ROM
Electrically Alterable ROM
Ø  A type of EEPROM that can be modified one bit at a time.
Ø  Writing is a very slow process and requires higher voltage (usually around 12V) than is used for read access.
Flash Memory
Why ROM?
THANK YOU
Secondary Memory
Secondary Memory
Nonvolatile
Slow compared to primary memory
Less costly & high capacity
Magnetic Storage Devices
Magnetic storage and magnetic recording refers to the storage of data on a magnetized medium.
Example:
Hard Disk
Floppy Disk
Magnetic Tape
How Data is Organized on a Magnetic Disk
Track
Sector
Cluster
Hard Disk
The hard disk drive is the main storage device within a computer.
It is where all the applications software and data is kept.
Data stored on a hard disk can be accessed much more quickly than data stored on a floppy disk.
A hard disk spins between 5,400 to 15,000 RPM inside its metal casing, which is why it makes that whirring noise.
Storage capacity of a Disk
Storage capacity of a disk
                                                = No. of recording surfaces(Cylinders) X                                   No. of tracks per surfaces X No. of sectors                                    per track X No. of bytes per sector
Storage capacity of a Disk
Calculate the capacity of a hard disk having 1632 cylinders, 12 tracks, 54 sectors per track.
Speed of a Disk
Seek time
The time it takes to position the head at the track is known as seek time.
Rotational Delay or Rotational Latency
The time it takes for the beginning of the sector to reach the desired sector is known as rotational delay.
Access time = Seek + Latency
Transfer rate
The time it takes to transfer the data is known as transfer time.
Advantages of Hard Disk
Large storage capacity.
Stores and retrieves data much faster than a floppy disk or CD-ROM.
Data is not lost when you switch off the computer.
Cheap on a cost per megabyte compared to other storage media.
Hard disks can be replaced and upgraded as necessary.
Can have two hard disks in a machine, one can act as a mirror of the other and create a back up copy.
Disadvantages of Hard Disk
Hard disks eventually fail which stops the computer from working.
Regular 'head' crashes can damage the surface of the disk, leading to loss of data in that sector.
The disk is fixed inside the computer and cannot easily be transferred to another computer
Floppy Disk
Used to transfer small files between computers and make backup copies to protect against lost work.
3.5”disk can store up to 1.44 MB of data which is approximately equivalent to 300 pages of A4 text.
Spins at 300 RPM
Takes 0.2 second to find data
Optical Storage
Optical storage is a term from engineering referring to the storage of data on an optically readable medium.
Compact Disk Read-Only Memory (CD-ROM)
Digital Versatile Disk Read-Only Memory (DVD-ROM)
CD
A Compact Disc (also known as a CD) is an optical disc used to store digital data.
The CD, available on the market since late 1982, remains the standard playback medium for commercial audio recordings to the present day.
Standard CDs have a diameter of 120 mm and can hold up to 80 minutes of audio.
There is also the Mini CD, with diameters ranging from 60 to 80 mm; they can store up to 24 minutes of audio.
Advantages
Data cannot be erased from CD-ROMs.
Small and portable.
Very cheap to produce.
CD-ROMs have a much larger storage capacity than floppy disks.
CD-R
These disks are blank but have been designed to be written onto once only.
The 'cd-writer' drive uses a laser to burn onto the spinning surface of the CD-R media.
Once the pit is burnt it cannot be erased.
CD-RW
'CD Read-Write'.
This technology allows the same area of the disk to be over-written many times (about a 1000 times).
There are two problems with the CD-RW disks
some drives have a problem reading CD-RW disks that have been burnt by other manufacturers' drives.
CD-R disks are now so cheap that it is less hassle to simply use a blank disk!
DVD
DVD (also known as "Digital Versatile Disc" or "Digital Video Disc") is a popular optical disc storage media format.
Its main uses are video and data storage.
Most DVDs are of the same dimensions as compact discs (CDs) but store more than six times as much data.
Advantages
Very large storage capacity
Sound and picture quality is excellent which makes them suitable for video and sound
DVD players can read CD-ROMs.
Flash Memory Stick
Flash is a 'solid state‘ memory i.e. it has no moving parts unlike magnetic storage devices, nor does it make use of lasers -unlike optical drives.
It works in a similar way to RAM.
The key difference is that data is retained in Flash memory even when the power is switched off.
They are now fairly inexpensive.
Advantages
More compact shape.
Operate faster.
Hold much more data.
Have a more durable design.
USB ports appear on almost every current PC and laptop. USB drives can also operate faster than an optical disc drive, while storing a larger amount of data in a much smaller space.


Comparison of Primary & Secondary Memory

Tuesday, April 23, 2013

Relation between Average Cost & Marginal Cost



Average cost is the total cost per unit of output. It is c cost per unit. Average cost is the sum total of Average variable it and average fixed cost. Average cost depends on the behavior of AVC and AFC. AC curve falls first, reaches a minimum and therefore rises. In the beginning both AVC and AFC fall. In this stage the fall in AFC weighs more than the fall in AVC. AFC fully and AVC partly contribute to the fall of AC. After the minimum point is reached, AVC rises more stiffly and AFC continues to fall. The rise in AVC pulls up the AC curve upward. Thus Average cost appears to be the shape of English letter 'U'.
Marginal cost, on the other hand, is the addition to the total cost by producing one more units of output. It is the difference between the previous total cost and the present total cost. It is the addition to the total cost of producing n units of output instead of (n-1) units. In symbols MCn = TCn - TCn- l Marginal cost changes due to the change in variable costs-. It has therefore, no relation with the fixed cost which is given and constant. MC, can be expressed as ATC/AQ which represents' the slope of the total cost curve.
In the table given above, the following points of relationship between average cost and marginal cost is shown.
(i) Both AC and MC are calculated from Total cost of production AC = TC/TO and MC = ATC/ATO.
Average cost shows the behaviour of TC over the wide range of output whereas MC is the slope of total cost curve.
(ii) When average cost is falling, marginal cost lies below the average cost. In the beginning when AC falls, MC falls faster. MC reaches a minimum and starts rising even then the AC is falling. MC lies below AC so long as AC is falling.
(iii) When AC is rising, MC lies above AC and rises faster- than AC. When AC rises MC also rises but at a faster rate. MC curve lies above AC curve.
(iv) The MC curve must cut the AC curve at its minimum point. At the minimum point of AC curve MC = AC. That means at this point MC cuts AC from below.
In the above diagram the M.C. curve intersects the. AC curve at the latter’s minimum point. The minimum point of the AC curve is P. At point P MC=AC. OM output is produced at the lowest average cost. When MC is above average cost, the average cost rises, i.e. MC pulls the AC upward.

Tuesday, April 16, 2013

Fundamentals of Economics



Twin themes in Economics:

Scarcity and Efficiency refers to the Twin themes of Economics;
Scarcity occurs where it's impossible to meet all unlimited the desires and needs of the peoples with limited resources i.e; goods and services. Society must need to find a balance between sacrificing one resource and that will result in getting other.
Efficiency denotes the most effective use of a society's resources in satisfying peoples wants and needs. It means that the economy's resources are being used as effectively as possible to satisfy people's needs and desires.
Thus, the essence of economics is to acknowledge the reality of scarcity and then figure out how to organize society in a way which produces the most efficient use of resources.
Types of Economics:
Market Economy
    • A market economy relies solely on the needs and wants of the consumer population. Three factors influence the development of a market economy: supply, demand and competition. Supply and demand vary inversely to one another; high supply means low demand and vice versa. Competition influences the drive to produce goods and services of higher quality or lower cost.
The government has little control in a market economy; this policy is known as laissez-faire. Capitalism is an example of a market economy system. The United States and most developed nations follow a market economy.
    •  
Command Economy
    • A command economy is the opposite of a market economy: in a command economy, the governing body controls the majority of wealth and resources, distributing it among the population accordingly. Communism is an example of a system that relies on command economy. In a communist society, the government owns and controls the wealth and resources. Socialist governments, such as those in the European Union, allow private possession of wealth and businesses, but place limits on prices.
Mixed Economy
    • A mixed economy is an economic system that takes elements from all three main economic systems into practice. For example, few economies fall purely under the market system or under the command system; instead, the relationship is a sliding scale rather than a choice between the two systems. Even market economies can maintain elements of traditional economies via family-owned and operated businesses.
Types of economics in terms of fairness:
Positive economics (sometimes called Descriptive Economics) is the study of economic reality and why the economy operates as it does. It is biased purely on facts rather than opinions. This type of economics is made up of positive statements which can be accepted or rejected through applying the scientific method. "Americans bought five million CDs last year" is a positive statement - a simple declaration of fact.

Normative economics (also called Policy Economics) deals with how the world ought to be. In this type of economics, opinions or value judgments - known as normative statements - are common. "We should reduce taxes" is an example of a normative statement.

Definition of 'Production Possibility Frontier - PPF'

A curve depicting all maximum output possibilities for two or more goods given a set of inputs (resources, labor, etc.). The PPF assumes that all inputs are used efficiently.


As indicated on the chart above, points A, B and C represent the points at which production of Good A and Good B is most efficient. Point X demonstrates the point at which resources are not being used efficiently in the production of both goods; point Y demonstrates an output that is not attainable with the given inputs.

Scope of Economics:


The scope of economics is the area or boundary of the study of economics. In scope of economics we answer and analyze the following three main questions:

(i) What is the subject matter of economics?

(ii) What is the nature of economics?

(iii) What are the limitations of economic?

(i) Subject Matter of Economics:


There is a difference of opinion among economists regarding the subject-matter of economics. Adam Smith, the father of modern economic theory, defined economics as a subject, which is mainly concerned with the study of nature and causes of generation of wealth of nation.

Marshall introduced the concept of welfare in the study of economics. According to Marshall; economics is a study of mankind in the ordinary business of life. It examines that part of individual and social actions which is closely connected with the material requisites of well-being. In this definition, Marshall has shifted the emphasis from wealth to man. He gives primary importance to man and secondary importance to wealth.

The Robinson’s concept of the subject-matter of economics is that: “economics is a science which studies human behavior as a relationship between ends and scarce means which have alternative uses”. According to Robbins (a) human wants are unlimited (b) means at his disposal to satisfy these wants are not only limited, (c) but have alternative uses. Man is always busy in adjusting his limited resources for the satisfaction of unlimited ends. The problems that centre round such activities constitute the subject-matters of economics.

Paul and Samuelson, however, include the dynamic aspects of economics in the subject matter. According to them, "economics is the study of how man and society choose with or without money, to employ productive uses to produce various commodities over time and distribute them for consumption now and in future among various people and groups of society”.

(ii) Nature of Economics:


The economists are also divided regarding the nature of economics. The following questions are generally covered in the nature of economics.

(a) Is economics a science or an art?

(b) Is it a positive science or a normative science?

(iii) Economics As a Science or An Art:


Economics is both a science and an art. Economics is considered as a science because it is a systematic knowledge derived from observation, study and experimentation. However, the degree of perfection of economics laws is less compared with the laws of pure sciences.

An art is the practical application of knowledge for achieving definite ends. A science teaches us to know a phenomenon and an art teaches us to do a thing. For example, there is inflation in Pakistan. This information is derived from positive science. The government takes certain fiscal and monetary measures to bring down the general level of prices in the country. The study of these fiscal and monetary measures to bring down inflation makes the subject of economics as an art.

After arriving at a conclusion that economics is both a science as well as an art. Here arises another controversy. Is economics a positive science or a normative science?

(iv) Economics is Positive or Normative Science:


There again difference of opinions among economists whether economics is a positive or normative science. Lionel Robbins, Senior and Friedman have described economics as a positive science. They opined that economics is based on logic. It is a value theory only. It is, therefore, neutral between ends.

Marshall, Pigou, Hawtrey, Keynes and many other economists regard economics as a normative science. According to them, the real function of the science is to increase the well-being of man. They have given suggestions in their works for promotion of human welfare.

For example, Malthus has given suggestions of checking the rising population. M. Keynes has suggested measures to remove unemployment.

We agree with Mr. Frazer, that an economist who is only an economist is a poor pretty fish. An economist must come forward to give advice to the problems facing the human being like depression, unemployment, high prices, etc., for increasing his welfare.

Economics, to conclude, has both theoretical as well as practical side. In other words, it is both a positive and a normative science.




Market: Market is a place where we go to buy & sell. Market is a mechanism where buyer and seller interaction with each other. Everything in a market has value or price. Price work for a market as a signal.
According to Chapman “Economically interpreted the term ‘market’ refers not to place but to a commodity or commodities, the buyers or sellers of which are in competition with one another”.
Demand: Demand is nothing but it is not still satisfied.
Demand in economics means a desire to possess a good supported by willingness and ability to pay for it. In the words of Prof. Hibdon:
"Demand means the various quantities of goods that would be purchased per time period at different prices in a given market".
Characteristics of Demand:
(i)                  Willingness and ability to pay.
(ii)                 Demand is always at a price.
(iii)                Demand is always per unit of time.

Statement of the Law of Demand:


Some well known statements of the law of demand are as under. 
According to Prof. Samuelson:
"The law of demand states that people will buy more at lower prices and buy less at higher prices, other things remaining the same".

E. Miller writes:

"Other things remaining the same, the quantity demanded of a commodity will be smaller at higher market prices and larger at lower market prices".

"Other things remaining the same, the quantity demanded increases with every fall in the price and decreases with every rise in the price".

The Demand Curve

If other things remains constant the relationship construct between product and demand is called demand curve.
The quantity demanded of a good usually is a strong function of its price. Suppose an experiment is run to determine the quantity demanded of a particular product at different price levels, holding everything else constant. Presenting the data in tabular form would result in a demand schedule, an example of which is shown below.

Demand Schedule

Price
Quantity
Demanded
5
10
4
17
3
26
2
38
1
53
The demand curve for this example is obtained by plotting the data:

Demand Curve

By convention, the demand curve displays quantity demanded as the independent variable (the x axis) and price as the dependent variable (the y axis).
The law of demand states that quantity demanded moves in the opposite direction of price (all other things held constant), and this effect is observed in the downward slope of the demand curve.
For basic analysis, the demand curve often is approximated as a straight line. A demand function can be written to describe the demand curve. Demand functions for a straight-line demand curve take the following form:
Quantity = a - (b x Price)
where a and b are constants that must be determined for each particular demand curve.
When price changes, the result is a change in quantity demanded as one moves along the demand curve.

Movement Vs. Shifts of Demand Curve:


Changes in demand for a commodity can be shown through the demand curve in two ways:

(1) Movement Along the Demand Curve and (2) Shifts of the Demand Curve.
    

(1) Movement along the Demand Curve:


Demand is a multivariable function. If income and other determinants of demand such as tastes of the consumers, changes in prices of related goods, income distribution, etc., remain constant and there is a change only in price of the commodity, then we move along the same demand curve.

In this case, the demand curve remains unchanged. When, as a result of change in price, the quantity demanded increases or decreases, it is technically called extension and contraction in demand.

The demand curve, which represents various price quantity has a negative slope. Whenever there is a change in the quantity demanded of a good due to change, in its price, there is a movement from one point price quantity combination to another on the
same demand curve. Such a movement from one point price quantity combination to another along the same demand curve is shown in figure (4.3).

Diagram/Figure:



Here the price of a commodity falls from $8 to $2. As a result, therefore, the quantity demanded increases from 100 units to 400 units per unit of time. There is extension in demand by 300 units. This movement is from one point price quantity combination (a) to another point (b) along a given demand curve. On the other hand, if the price of a good rises from $2 to $8, there is contraction in demand by 300 units.

We, thus, see that as a result of change in the price of a good, the consumer moves along the given demand curve. The demand curve remains the same and does not change its position. The movement along the demand curve is designated as change in quantity demanded.

(2) Shifts in Demand Curve:

 

Demand, as we know, is determined by many factors. When there is a change in demand due to one or more than one factors other than price, results in the shift of demand curve.

For example, if the level of income in community rises, other factors remaining the same, the demand for the goods increases. Consumers demand more goods at each price per period of me (rise or Increase in demand). The demand curve shifts upward from he original demand curve indicating that consumers at each price purchase more units of commodity per unit of time.

If there is a fall in the disposable income of the consumers or rise in the prices of close substitute of a good or decline in consumer taste or non-availability of good on credit, etc, etc., there is a reduction in demand (fall or decrease in demand). The fall or decrease in demand shifts the demand curve from the original demand curve to the left. The lower demand curve shows that consumers are able and willing to buy less of the good at each price than before.

Schedule:

                 
Pdx  ($)
Qdx
Rise in Qdx
Fall in Qdx
12
100
300
50
6
250
500
200
4
500
600
300

Diagram/Figure:



In this figure, (4.4) the original demand curve is DD/.

At a price of $12 per unit, consumers purchase 100 units. When price falls to$4 per unit, the quantity demanded increases to 500 units per unit of time. Let us assume now that level of income increases in a community. Now consumers demand 300 units of the commodity at price of $12 per unit and 600 at price of $4 per unit.

As a result, there is an upward shift of the demand curve DD2. In case the community income falls, there is then decrease in demand at price of $12 per unit. The quantity demanded of a good falls to 50 units. It is 300 units at price of $4 unit per period of time. There is a downward shift of the demand to the left of the original demand curve.

Summing Up: 

(i) Extension in demand is due to reduction in price.

(ii) Increase in demand occurs due to changes in factors other than price.

(iii) Contraction in demand is the result of a rise in the price commodity.

(iv) A decrease in demand follows a change in factors other than price.

(v) Changes in demand both increase and decrease are represent shifts in the demand curve.

(vi) Changes in the quantity demanded

 

Some of these demand-shifting factors are:
·         Customer preference
·         Prices of related goods
o    Complements - an increase in the price of a complement reduces demand, shifting the demand curve to the left.
o    Substitutes - an increase in the price of a substitute product increases demand, shifting the demand curve to the right.
·         Income - an increase in income shifts the demand curve of normal goods to the right.
·         Number of potential buyers - an increase in population or market size shifts the demand curve to the right.
·         Expectations of a price change - a news report predicting higher prices in the future can increase the current demand as customers increase the quantity they purchase in anticipation of the price change.
Why demand curve is downward sloping?
(i) Law of diminishing marginal utility: The law of demand is based on the law of diminishing marginal utility. According to the cardinal utility approach, when a consumer purchases more units of a commodity, its marginal utility declines. The consumer, therefore, will purchase more units of that commodity only if its price falls. Thus a decrease in price brings about an increase, in demand. The demand curve, therefore, is downward sloping.

(ii) Income effect: Other things being equal, when the price of a commodity decreases, the real income or the purchasing power of the household increases. The consumer is now in a position to purchase more commodities with the same income. The demand for a commodity thus increases not only from the existing buyers but also from the new buyers who were earlier unable to purchase at higher price. When at a lower price, there is a greater demand for a commodity by the households, the
Demand curve is bound to slope downward from left to right.

(iii) Substitution effect: The demand curve slopes downward from left to right also because of the substitution effect. For instance, the price of meat falls and the prices of other substitutes say poultry and beef remain constant. Then the households would prefer to purchase meat because it is now relatively cheaper. The increase in demand with a fall in the price of meat will move the demand curve downward from left to right.

(iv) Entry of new buyers: When the price of a commodity falls, its demand not only increases from the old buyers but the new buyers also enter the market. The combined result of the income and substitution effect is that demand extends, ceteris paribus, as the .price falls. The demand curve slopes downward from left to right.

Factors affecting demand

Innumerable factors and circumstances could affect a buyer's willingness or ability to buy a good. Some of the more common factors are:
Good's own price: The basic demand relationship is between potential prices of a good and the quantities that would be purchased at those prices. Generally the relationship is negative meaning that an increase in price will induce a decrease in the quantity demanded. This negative relationship is embodied in the downward slope of the consumer demand curve. The assumption of a negative relationship is reasonable and intuitive. If the price of a new novel is high, a person might decide to borrow the book from the public library rather than buy it.
Price of related goods: The principal related goods are complements and substitutes. A complement is a good that is used with the primary good. Examples include hotdogs and mustard, beer and pretzels, automobiles and gasoline.(Perfect complements behave as a single good.) If the price of the complement goes up the quantity demanded of the other good goes down. Mathematically, the variable representing the price of the complementary good would have a negative coefficient in the demand function. For example, Qd = a - P - Pg where Q is the quantity of automobiles demanded, P is the price of automobiles and Pg is the price of gasoline. The other main categories of related goods are substitutes. Substitutes are goods that can be used in place of the primary good. The mathematical relationship between the price of the substitute and the demand for the good in question is positive. If the price of the substitute goes down the demand for the good in question goes down.
Personal Disposable Income: In most cases, the more disposable income (income after tax and receipt of benefits) you have the more likely you are to buy.
Tastes or preferences: The greater the desire to own a good the more likely you are to buy the good there is a basic distinction between desire and demand. Desire is a measure of the willingness to buy a good based on its intrinsic qualities. Demand is the willingness and ability to put one's desires into effect. It is assumed that tastes and preferences are relatively constant.
Consumer expectations about future prices and income: If a consumer believes that the price of the good will be higher in the future he is more likely to purchase the good now. If the consumer expects that his income will be higher in the future the consumer may buy the good now.
Population: If the population grows this means that demand will also increase.
Nature of the good: If the good is a basic commodity, it will lead to a higher demand

Supply: In the words of Meyer:

Supply is a schedule of the amount of a good that would be offered fore sale at all possible price at any period of time; e.g., a day, a week, and so on”.

Factors affecting Supply curve:

(i) Technology changes. Technology helps a producer to minimize his cost of production.

(ii) Resource supplies. The producer also has to pay for other resources such as raw materials and labor. If his money is short on supplying a certain number of products because of an increase in resource supplies, then he has to reduce his supply.
 
(iii) Tax/ Subsidy. A producer aims to maximize his profit, but an increase in tax will only increase his expenses, decreasing his capacity to buy resource supplies and forcing him to reduce his supply.
 
(iv) Price of other goods produced. A producer may not only produce on product but other products as well. A producer's money is limited and if he increases his supply in one product, he would have to decrease his supply in the other product, no unless his sales increase.

Definition of Law of Supply:

There is direct relationship between the price of a commodity and its quantity offered fore sale over a specified period of time. When the price of a goods rises, other things remaining the same, its quantity which is offered for sale increases as and price falls, the amount available for sale decreases. This relationship between price and the quantities which suppliers are prepared to offer for sale is called the law of supply.

What is Price Elasticity of Demand?


Definition:


Price elasticity of demand measures the degree of responsiveness of the quantity demanded of a good to a change in its price. It is also defined as:

"The ratio of proportionate change in quantity demanded caused by a given proportionate change in price".

Formula For Calculation:


Price elasticity of demand is computed by dividing the percentage change in quantity demanded of a good by the percentage change in its price.

Symbolically price elasticity of demand is expressed as under:

EdPercentage Change in Quantity Demanded
 Percentage Change in Price

Simple formula for calculating the price elasticity of demand:

 Ed    =     %∆Q
               %∆P

Here:

Ed stands for price elasticity of demand.

Q stands for original quantity.

P stands for original price.

∆ stands for a small change.

Example:


The price elasticity of demand tells us the relative amount by which the quantity demanded will change in response to a change in the price of a particular good. For example, if there is a 10% rise in the price of a tea and it leads to reduction in its demanded by 20%, the price elasticity of demand will be:

Ed = -20
                                                                                  +10

Ed = -2.0

Five cases of Elasticity of Demand:
1. Perfectly elastic demand
2. Perfectly inelastic demand
3. Relatively elastic demand
4. Relatively inelastic demand
5. Unitary elastic demand
1. Perfectly elastic demand:
The demand is said to be perfectly .elastic when a very insignificant change in price leads to an infinite change in quantity demanded. A very small fall in price causes demand to rise infinitely. Likewise a very insignificant rise in price reduces the demand to zero. This case is theoretical which is never found in real life.
2. Perfectly inelastic demand:
The demand is said to be perfectly inelastic when a change in price produces no change in the quantity demanded of a commodity. In such a case quantity demanded remains constant regardless of change in price. The amount demanded is totally unresponsive of change in price. The elasticity of demand is said to be zero.
3. Relatively more elastic demand:
The demand is relatively more elastic when a small change in price causes a greater change in quantity demanded. In such a case a proportionate change in price of a commodity causes more than proportionate change in quantity demanded. If price changes by 10% the quantity demanded of the commodity change by more than 10% i.e. 25%. The demand curve in such a situation is relatively flatter.
4. Relatively inelastic demand:
It is a situation where a greater change in price leads to smaller change in quantity demanded. The demand is said to be relatively inelastic when a proportionate change in price is greater than the proportionate change in quantity demanded. For example If price falls by 20% quantity demanded rises by less than 20% i.e 15%.
5. Unitary elastic demand:
The demand is said to be unit when a change in price produces exactly the same percentage change in the quantity demanded of a commodity. In such a situation the percentage change in both the price and quantity demanded is the same. For example if the price falls by 25% the quantity demanded rises by the same 25%. It takes the shape of a rectangular hyperbola. Numerically elasticity of demand is said to be equal to 1.(ed = 1).
Relationship between elasticity and total revenue:
There exists s relation hip between the elasticity and total revenue but it is different for elastic and inelastic goods. As the formula for total revenue is:
TR = P × Q
Where P = price and Q = Quantity
Now the elasticity of demand is a direct effect of the changes in price on the quantity demanded. When there is a significant increase in Price then there is generally a significant decrease in Quantity and as a result of which Total Revenue is smaller. This shows that for goods that have a high price elasticity of demand, the decrease in total revenue is quite significant. This means that there is a negative relationship between elasticity and total revenue when the goods are elastic. For inelastic goods, the relationship may be positive. It will be positive if the price increase causes an increase in the total revenue as the quantity does not change.




In summary:

Elastic demand, price increase: total revenue decreases
Elastic demand, price decrease: total revenue increases
Inelastic demand, price increase: total revenue increases
Inelastic demand, price decrease: total revenue decreases
Unit elastic demand: total revenue does not change