Income effect + substitution effect

Prove that price effect= Income effect + substitution effect i.e. P.E= I.E+ S.E.


Off the two goods if price of one good change and price of other good remain constant we see two things.

i) Change in income due to change in price.
ii) Consumption of one good increase instead of other good.

Preliminary budget line is AB, indifference curve is I2 and equilibrium is at point C.

Now if price of good x decrease (remaining price of good Y unchanged) we get new budget line AB1 and it touches indifference curve I2 at point y. So, new equilibrium is g. change in equilibrium from e to g due to change in price of x (y constant) is price effect shown by M1M3 in the figure.

Now due to reduction of price of good x money income of consumer increase. To reduce to money income by compensation variation we have to drew new price line CD parallel to AB1 that can reduce the income and touch primary indifference curve i.e. he get indifferent utility as was before. CD line, touches I1 at point f, so new equilibrium is f it means that when price of good x decreases [y constant] consumer would purchase more of x instead of y and it is substitution effect shown by M1M2 in the diagram.

Again, if we return back the income that we cut in compensation variation, the consumer reaches to equilibrium point g from f and it is the income effect as shown by M2M3 in the figure.

Hence, M1M3= M1M2 + M2M3
Price effect= Substitution effect + income effect

P.E= I.E + S.E (Proved)

Income consumption curve

Income consumption curve for normal and inferior goods

Normal goods: Normal goods are that goods which have positive income effect. If both the goods are normal, income consumption curve is upward sloping to the right i.e. with the increase in consumer’s income consumption increases.

Inferior goods: Inferior goods are that goods, which have negative income effect on that goods. In this case increase in consumer’s income will not increase the consumption.

Income consumption curve

Income consumption curve (ICC)

Income consumption curve is the locus of equilibrium points, at various levels of consumer’s income, when price of goods, consumers taste & habits etc. remains constant.


AB, CD, EF are 3 budget line. I1, I2, I3 are 3 indifference curve.

At the preliminary stage budget line AB and IC is I1 and equilibrium point is R. As income increases budget line shifted new line is CD, new IC is I2 and equilibrium is S. If income further increase budget line will be EF, IC is I3 and new equilibrium is T. If we add the equilibrium points at different. Income level we get a curve and it is the ICC curve.

Consumer’s equilibrium

Consumer’s equilibrium by indifference curve

Let us explain with the help of indifference curves, how a consumer reaches an equilibrium position. The consumer is said to be in equilibrium when he obtains maximum satisfaction from various goods consumption.

Statement of the law: The main aims of consumer’s attain the maximum satisfaction. For this reason, he will choose that combination wjhich will give the greater satisfaction and do not want to change that desired combination. In this optimum combination he obtain equilibrium position.

Equilibrium conditions:

(A) The budget line is tangent to an indifference curve.
(B) The slope of budget line must be equal to the slope of an indifference curve.
(C) The indifference curve must be convex to the origin.

Assumptions: The assumptions on which the analysis is base are:

i) Our consumer has an indifference map showing the scale of preferences for various combinations of the two goods apple and mangoes. This scale of preference remains same through out the analysis.
ii) He has given constant amount of money i.e. budget is constant.
iii) Prices of the goods in the market are given and constant.
iv) Each of the goods is homogenous and divisible.
v) The consumer acts rationally.
vi) Marginal utility of money constant.

Explanation: Now we can explain the indifference map and budget line.

Indifference map: A set of indifference curves is called indifference map.

Budget line: An individual budget line expresses how much a person is able to consume. The consumer attains the equilibrium when higher indifference curve is tangent to the budget line.
Figure identification: OX axis- Quantity of good X
OY axis- Quantity of good Y
AB curve- Budget line

I1, I2, I3 are three indifference curve. The budget line is tangent to the indifference curve I2 at the point D. The consumer gets OL of good X and OP of good Y. This is the larger quantity of utility, which the consumer can get from a cost outlay AB. He will not move to other indifference curve I1 because it will give lower utility to him. As a result he will not choose C or E. Again he cannot move to I3 because of budget constraint.
Therefore, we can say that D is the optimum combination for him. Other two conditions for consumer’s equilibrium are-

1) The slope of indifference curve must be equal the slope of the budget line:

The essential condition is that the slope of indifference curve must be equal the slope of the budget line. At ‘D’ the slope of indifference curve is the MRS of x for y and the slope of the budget line is the ratio of the price of x and y.

2) The indifference curve should be convex to the origin:

This is a necessary but not sufficient condition for consumer equilibrium. At the point of tangency the indifference curve must be convex to the origin.

Indifference curve I1 tangent to price line at point S but at that point it is concave to the origin instead of convex i.e. here MRSxy is increasing which is not possible and equilibrium cannot be achieved. IC curve I2 tangent to price line at point P and it is convex to origin at that point where MRSxy is diminishing and fulfill the conditions of equilibrium.

Indifference curve

Indifference curve is a geometric device that has been used to replace the neo-classical cardinal utility concept. Professor Hicks presented its comprehensive version in his book value of capital. The indifference curve analysis measures utility ordinarily. Here our aim is to identify the indifference curve.

Definition: Indifference curve is the locus of some points, which refers same utility in every combination of two products. Indifference curve is derived from indifference schedule which is a list of combination of two commodities, the list being so arranged a consumer is indifferent to the combination i.e. utility is same in every combination.

Assumption: The assumptions of the ordinal theory are the following:

1) The consumer acts rationally so as to maximize satisfaction.
2) There are two goods x and y.
3) The consumer posses complete information about the price of goods in the market.
4) The price of two goods is given.
5) The consumer’s tastes, habits and income remain the same throughout the analysis.

Budget line

Price line or Budget line

The price line, which represents the price of the goods and consumer’s money income. Suppose a consumer has got income of Tk. 50 to spend on goods X and Y. let the price of the good X in the market be Tk. 10 per unit and y be Tk. 5 per unit.

Fig : Price line or Budget line

With Tk. 50 he can buy 5 units of good X and no Y and 10 units of good Y and no X. By joining the point P and L we get what is called price line or Budget line. This line shows all possible combinations of two goods that the consumer can buy if he spends the whole of his given sum of money or he purchases at the given prices. With Tk. 50 he can also buy 8 Y and 1 X or 6 Y and 2 X or 4 y and 3x etc.

Stage production is justified

Stage production is justified (rational stage)/Economic implication fo the law of variable proportion !!!

A rational producer will never choose to produce in stage 3 where marginal product of the variable factor is where marginal product of the variable factor is negative. Marginal product of the variable factor being negative in stage 3, a producer can always increase his output by reducing the amount of variable factor. It is this clear that rational producer will never be producing in stage 3. Even if the variable factor is free the rational producer stops at he end of the second stage where the marginal producer of the variable factor is zero. At the end of the second stage where the marginal product of the variable factor is zero, the producer will be maximizing the total product and will thus be making maximum use of the variable factor.

A rational producer will also not choose to produce in stage I where the marginal product of the fixed factor is negative. A producer producing in stage 1 means that he will not be making the best use of the fixed factor and further he will not be utilizing fully the opportunities of increasing

Production by increasing Quantity of the variable factor whose average product continues to rise throughout the stage 1. Thus a rational producer will not stop in stage I but will expand further. Even if the fixed factor is free i.e. costs nothing the rational producer will stop only at the end of stage 1, where the marginal product of the fixed factor is zero and the average product of the variable factor is maximum. At the end of the stage 1 he will be making maximum use of fixed factor.

It is thus clear from above that the rational producer will never be found producing i stage land stage 3. A rational producer will always seek to produce in stage 2 where both the marginal product and average product of the variable factor are diminishing. At which particular point in this stage, the producer will decide to produce depends upon the prices of factors. The stage 2 represents the range of rational production decisions.

ISO cost line

ISO cost line


ISO cost line is the locus of some points, which represents same cost in every combination of the factors. In detail iso-cost line shows various combinations of two factors, which can be purchased with a given amount of total money.
Suppose a producer wants to spend Tk. 300 on factor x and y. If the price of the factor ys T. 3 per unit and the price of the factor x is Tk. 5 per unit. With Tk. 3 per unit he can purchase 100 (OA) unit of y and no factor x or with Tk. 5 he can purchased 60 (OM) unit of factor x and no factor y. By jointing points A and M we set a line which is called iso cost line.

Fig. ISO-Cost line

In the above diagram the horizontal axis i.e. ox axis represents factor x and the vertical axis i.e. oy axis represents factor y. Am is the ISO cost line.
ISO cost lien AM on which will lie all those combinations of factors x and y which can be purchased with Tk. 300. The ISO cost line is also known as price line or outlay line.

Expansion path

Expansion path


Expansion path is the locus of equilibrium points that are derived from different ISO-QUANT curve and ISO-cost line. It can be explained by following diagram.

Fig: Expansion Path

In the above diagram ox axis represents factor X and OY axis represents factory Y. Three ISO-cost lines IC1, IC2 & IC3 are drawn which show different levels of total cost. All ISO-cost lines are parallel to one another indicating that the price of the two factors remain the same.
If the firm wants to produce the output level denoted by IQ, then it will choose the factor combination P which minimizes the cost of production. P is the point of tangency between the ISO-QUANT curve IQ, and the ISO-cost line IC1.

Now, If a firm wants to produce a higher level of output denoted by the ISO-QUANT curve IQ2. It will then choose the factor combination Q, which is the least cost combination for the new product. Q is the point of tangency between the equal product / ISO-QUANT IQ2 and the ISO-cast line IC2.

Again if a firm wants to produce a higher level of output denoted by the iso QUANT IQ3 then it will choose the factor combination R. Which is the least cost combination for new output. R is the point of tangency between the iso QUANT IQ3 and the iso cost line IC3.
If we join these points P, Q, R we get a path which is called the Expansion Path. It is also known as scate line.

The producer will expand his production through this path.

ISO-Product Map

ISO-Product Map

ISO-product map is a set of ISO-product curves. From this set of ISO-product curves it is very easy to Judge by how much production level on one equal-product curve is greater or less than on another. We have drawn an ISO-product map in the following figure showing ISO-Product curves IP, IP1, Ip2, Ip3 which represent 40 units, 60 units, 80 units and 100 units of output respectively.

Fig: ISO-product map

ISO - QUANTs

ISO - QUANTs

ISO – QUANTs / ISO – product curves / equal product curves / production indifference curve can be defined as locus of some points which represents different combination of two factors of production denoting same production in each point.

We can explain the ISO – QUANT curve with the help of schedule and graph.

Table: Various factor combinations to produce a given level of output:

Factor Combinations	Factor X	Factor Y
A B C D E	1 2 3 4 5	12 8 5 3 2

The concept of equal product curve can be easily understood from the table. It is assumed the two factors X and Y are being employed to produce a product.

Law of variable proportion

law of variable proportion / law of diminishing retures


Law of variable proportions occupies an important place in economic theory. This law examines the production function with one factor variable, keeping the QUANTities of other factors fixed. In other words, it refers to the input-output relation when the output is increased by varying the QUANTity of one input. When the QUANTity of one factor is varied, keeping the QUANTity other factor constant, the proportion between the variable factor and the fixed factor is altered; the ratio of employment of the variable factor to that of the fixed factor goes on increasing as the QUANTity of the variable factor is increased. Under this law we study the effects on output of variations in factor proportions. The law of variable proportions is the new name for the famous “Law of Diminishing Returns” of classical economics.

Fig: Stages of the law of variable proportions

Figure Identification: Ox axis represents the amount of variable factor and oy axis represents the output.

1st Stage: All of TP, AP and MP increases. TP increases at an increasing rate to point f and after that point TP increases but at a decreasing rate and point f is the point of inflextion. The point of inflextion represents the different rate of change i.e. before this, the rate of activities increases in an increasing rate and after this point the rate of activities increases in a decreasing rate.

Corresponding to the point of inflexion MP is highest. At the end of 1st stage AP = MP where MP falls and intersect AP from up where AP is highest.

2nd Stage: At the 2nd stage TP increases but AP and MP fall. At the end of 2nd stage TP is highest and corresponding to it MP is zero.

3rd Stage: At 3rd stage all of TP, AP and MP fall and MP is negative here.

Relationship between TP, AP and MP:

 TP increases in increasing rate before reaching to point of inflexion and after that point TP increases but at a decreasing rate. At this time AP and MP also increases and MP curve is higher than AP.

 When AP is highest then AP = MP and TP increases at a decreasing rate.

 Again when TP is highest then MP = O and AP decreases at that time.

Relationship between AP and MP.

 Whenever MP increases AP also increases then MP curve is in the up of AP curve

 When AP is highest then, AP = MP

 When MP decreases, AP also decreases then MP curve is in lower position that AP curve.

Production Function

Production Function

Production function can be defined as the relationship between production level and factors effecting production.

Functional presentation of production function,

Q = f (x, x2, x3 -----------------)
Here
Q = Production
f = function

X1, X2, X3, ....... Are the factors of production such as land, labor, capital, organization etc. Factors of production are two types:

i) Variable factor Labour, material etc.

ii) Constant factor Land, plant and equipment.

LAC-U-shaped

LAC curve U-shaped



The LAC curve slopes downward as the scale of production is enlarged. It is due to the various economics of scale, e.g.

i) Larger scope of specialization of labour.
ii) Increasing use of specialized machinery
iii) Other technological improvements.

The LAC rises after a point because of the various diseconomies of scale, e.g.

i) Rising cost of the inputs.
ii) The difficulty of management etc.

(LMC) Curve

The derivation of long run marginal cost (LMC) curve.

Derivation of LMC: Just as every point of the continuous long run average cost curve corresponds to some point of a short run average cost curve, similarly every point of the continuous long run marginal cost curve corresponds to some points on a short run marginal cost curve. LMC is related to the LAC in the same way as the SMC is related to the SAC.
If the output to be produced is OA, then in the long run it must be produced on point P on the short run average cost curve SAC1 and the long run average cost curve LAC, because only point P minimizes the cost for output OA. Corresponding to point P on SAC1 and LAC there is a point R on the short run marginal cost curve SMC1. Then AR is the relevant short run marginal cost for output OA in the long run. Therefore the point R must lie on the LMC curve corresponding to output OA. If the output OB is to be produced, SAC2 and LAC. L is also the point on SMC2 corresponding to output OB. So point L will also lie on the LMC.
curves. The relationship between Similarly for output OC we get point K at which there is point SAC3 is tangent to LAC. Corresponding to point K on LAC there is a point on SMC3 is H. Therefore, H must also lie on the LMC. By joining points R, L and H we get long run marginal cost curve, LMC. The LMC curve like LAC curve is also U-shaped. It is clear from the figure that LMC is flatter than the SMCLMC and LAC is the same as that between SMC and SAC. When LMC lies below LAC then LAC is falling and when LMC lies above LAC then LAC is rising. The LMC cuts LAC at its lowest point.

LAC Called planning Curve

Why LAC is called a ‘planning curve’?

Long run average cost curve is often called the planning curve of the firm by some economists because a firm plans to produce any output in the long run by choosing a plant on the LAC curve corresponding to the given output. The LAC curve reveals to the firm that how large should be plant for producing a certain output at the least possible cost. Thus while making decisions regarding the choice of a plant, the firm has to look at its long run average cost curve enveloping a family of plant curves.

Long run average cost

Long run average cost (LAC) curve.


Long run is a period of time in which all factors can be varied. So, there is no existence of any fixed cost as there is no fixed factor. So while deriving LAC we are needed to consider the short run average cost (SAC) curves only.

It is to be noted that in the short run the firm is tied with a given plant. But in the long run the firm moves from one plant to another.

The long run cost of production is the least possible cost of producing any given level of output when all inputs are variable including of curves the sizes of the plant.

LAC is the long run total cost divided by the level of output. LAC curve depicts the least possible average cost for producing all possible levels of output.
In order to understand the matter, consider the three short run average cost curves as shown in the following figure.


We know that in the long run the firm may run in various plants. In the above figure, there are three technically possible sizes of plant, and that no other size of plant can be built.

Now if the firm wants to produce OA amount of output it will incur lower cost on SAC1 them on SAC2. Because, cost on SAC1, AL<> amount of output varies. Now suppose that the size of the plant can be varied by infinitely small gradations so that there are infinite number of plants corresponding to which there will be numerous short run average cost curves. In that case, the long run average cost curve will be a smooth and continuous line without any scallops as shown in the following figure.

This long run average cost curve is so drawn as to be tangent to each of the short run average cost curves. The LAC is nothing else but the locus of all the tangency points since every point on the LAC represents a tangency point with some SAC curves.

If a firm desires to produce particular output in the long run, it will pick a point on the LAC curve corresponding to that output and it will then build a relevant plant and operate on the corresponding SAC curve.

In the figure above, for producing output OM the corresponding point on the LAC is G at which SAC1 is tangent to LAC. Thus, if a firm desires to produce at OM the firm will construct a plant corresponding to SAC1 and operate at the point G on LAC. Similar would be the case for all other outputs in the long run. But it is to be noted that all tangency points may not be the lowest point on the corresponding SAC. As we can see in the SAC1 in out figure, G is the tangency point and F is the lowest/ minimum point of SAC1. Similarly for SAC7, T is the tangency point but J is the minimum point of SAC7. But in SAC4 both the tangency point and the minimum point is the same, P. So the LAC is tangent to the falling portions of SAC1, SAC2 and SAC3 since LAC is falling too. LAC is falling until outputs are less on OQ. For outputs equal to more than OQ. LAC is rising so it will be tangent to the rising portions of SAC5, SAC6 and SAC7. This is caused because of the relevant plant’s optimal capacity.

In this way we can derive a LAC curve which first falls and then rises. So LAC is also a ‘U-shaped’ curve.

TFC, TVC, TC

TFC, TVC, TC


Total fixed cost (TFC): Fixed costs are those cost which must be incurred by a firm even if these is no production i.e. these cost are independent of output level. In the short run, the total amount of cost, which is incurred in hiring the fixed factors of production, remains constant.

TVC: Variable costs are those cost which are incurred on the employment of variable factors of production whose amount varies with the changes in the output level. Thus the total variable costs are changed in the short run. Variable costs are also called prime or direct cost.

TC: Total cost of a business is the sum of its total variable costs and total fixed costs.
Thus: TC= TFC + TVC

In other word, total cost refers to the sum of all costs that are incurred in a particular period of time during the production process of particular quantities of product.

Fixed and variable factors

Fixed and variable factors of production. Do they hold goods in both the short run and the long run?

Fixed factors: The factors which cannot be readily varied and require comparatively long time to make adjustment in them are called fixed factors.

Example: Capital equipment, building, top management, personnel etc. are fixed factors.

Variable factors: The factors, which can be readily varied with the change in the ouput level, are known as variable factors.

Example: Labour, raw materials and chemicals etc. are variable factors.

Application Of Variable And Fixed Factors In Short And Long Run:

In short run, factors like building, equipment cannot be readily varied. These all are fixed factors. Yet factors like labour, raw material can readily be varied with outp0ut level, which are variable factors. So in the short run, both fixed and variable factors hold good.

But as we can see, in the long run, all the factors even if it is building or equipment can be varied with the expansion of the firm’s plant. So there is no existence of fixed factors in the long run.

Derivation of demand curve from the law of diminishing marginal utility

Demand curve from the law of diminishing marginal utility:

The law of diminishing marginal utility states that the marginal utility of a good (expressed in terms of money) to a consumer decreases as the quantity consumed increases. This means that marginal utility curve of a good is a downward sloping curve i.e. there is a negative relationship between units of goods consumed and the marginal utilities of those goods. Marshallian utility analysis describes the fact that in case of acquiring consumer’s equilibrium when marginal utility of money remains constant, the marginal utility and price of a good is equal to each other. As there is a negative relationship between units of good and its utility and as marginal utility and price is equal so we can say that there is a negative relationship between units of good and price too. Demand law also utters the fact that there is a negative relationship between price and quantity demanded of a good. Hence, the law of diminishing marginal utility and the law of demand are closely related. Marginal utility curve is down warded from left to right and the demand curve is same too.

The following figure better describes the fact:

In the upper portion,

OX axis represents units of goods

OY axis represents (price of good x marginal utility of money)

Though marginal utility of money remains constant, price varies. OY axis also measures the marginal utility of good too. In case of, consumer buys OM₁ units of good. As at OM₁, the marginal utility of the good that is derived from the consumption of OM₁ unit (expressed as AM₁ in the figure) and are equal to each other. Now, if price falls to P₂, the units of good purchased requires to be increased to OM₂ in order to maintain equilibrium position. As a result, marginal utility becomes to BM₂ which is equal to. So when, the price decreases the marginal of good is also decreased through increasing the quantity purchased. So when price decreases, quantity demanded increases. This statement is related with demand law and it has been shown in the lower portion of the figure. The lower portion describes that at price P_1, quantity demanded Q_d is OM₁ which has been expressed through point A. At point B, Q_d is OM₂ while price is P₂. If we connect A and B with a curve, we get a down ward sloping demand curve DD which is similar to MU_x1 as shown in the upper position. As MU_x1 is down warded because of the law of diminishing marginal utility.

Thus, a demanded curve is derived from the law of diminishing marginal utility.

Theory of Power

Theory of Power:

The organization development practitioners needs both knowledge and skills in the arena of organization power. As Warner Baurks observes, Organization development signifies change and for change to occur in an organization, power must be exercised.

Theories:

Power dependency theory: Power dependency theory states that power inherent in any social relationship in which 1 person is dependent to another.

Such as- X and Y are two managers. And both of them are making sales. But X makes better sale due to his performance and for that he enjoys sound financial incentive, facilities and other benefits. And his performance may encourage or motivate (Y) to perform better. That means, if one have something more unique specialty and that what we can not get by other place, then the person have power over us.

Social exchange theory: power dependency theory has a broad range of social interaction is called social exchange theory which posits that what goes on between persons in an exchange of social commodities: love, hate, respect, power, influence, information, praise, blame, attraction, rejection and so forth.

- We enter and continue relationships when what we receive from other is equivalent to or in excess what we give to others.
- When balance is positive we continue and when it’s negative we terminate.

Such as, A got more response in society then B, and then A has some influential power to the society.

Theory of organization power: Compensating, working culture, strategic reward; freedom of choice, responsibility, growth and development, training, personnel.

-Maintenance by keeping the people giving reward. An organization has many potential influences and the important aspect is that the sources of commodity derive from possession of a commodity desired by others.

Strategic Contingency Model: Power that comes from subunit (individuals, units or groups) most important for solving the organizations most critical problems. Here contingency refers, the benefit which not come but it come.

Power

Power:

The capacity to bring about change

Power has defined as a capacity that A has to influence the behavior of B so that b acts in according with A’s wishes.

Probably the most important aspect of power is that it a function of dependency. The greater B’s dependency on A the greater A’s power.

Leader use power as a means of obtaining goals. Leader achieve goals and power is a means of facilitating their achievement

Power is the ability of those who posses power to bring about the outcomes they desire.

Actually it is the capacity to affect organizational outcomes. All in all, power is the intentional influence over the belief, emotions and terminates the employees.

Law of diminishing marginal utility

Law of diminishing marginal utility:

Statement of the law: According to the law of diminishing marginal utility, marginal utility of a good diminishes as a person consumes more units of a good. In other words, as a consumer takes more units of a good, the extra utility or satisfaction that he derives from an extra unit of the good goes on falling.

Marshall states the law thus: “The additional benefit which a person derives from a given increase of his stock of a thing diminishes with every increase in stock that he already has.”

Illustration of the law: Suppose, a person starts eating piece of bread one after another. The first toast gives him great pleasure. By the time he starts taking the second, the edge of his appetite has been blunted, and the second toast, meeting with a less urgent want, yields less satisfaction; the satisfaction of the third will be less than that of the third and so on. The additional satisfaction will go on decreasing with every successive toast till it drops to zero;; and if the consumer is forced to take more, the satisfaction may become negative, or the utility may change into disutility.

The idea will be clear from the following tabular and diagrammatic representation.

Tabular representation:

Diminishing marginal utility

Units (Toasts)	Total utility (Units of satisfaction)	Marginal utility (Units of satisfaction)
1	20	20
2	38	18
3	53	15
4	64	11
5	70	6
6	72	0
7	62	-8
8	46	-16

Diagrammatic representation:

OX axis represents units of toasts.

OY axis represents units of utility.

Utility of first toast of equal to 20 units has been represented by the rectangle standing on the portion of OX axis. Thus, with every successive consumption of toast results in a declination of utility as shown by every successive rectangles which become smaller and smaller in accordance with the tabular information. In the 6^th unit of toast, utility becomes to zero. From the 7^th unit it becomes negative as shown by rectangles below OX axis.

So, we can conclude saying that though total utility increases but at a decreasing rate and the rate is decreasing due to the law of diminishing marginal utility i.e. the more we shall consume a good, the additional utility that we derive from each additional unit goes on decreasing.

Limitations of the law:

1) It assumes that the commodity is taken in suitable units.

2) It is further assumed that the commodity is taken in certain time; otherwise the law will not apply.

3) There should be no change in consumer’s tastes.

4) The law is applicable to normal persons only.

5) The income of the consumers remains the same.

6) The law is not applicable in case of rare collections.

7) It is not applicable in case of fashion.

8) It is not applicable to money.

9) The law ignores the relation of complementary.

10) It ignores the effect of change in other’s people’s stock.

Cardinal & Ordinal utility

Ordinal utility: Distinguish between Cardinal and Ordinal utility

Ordinal utility: Ordinal utility is an approach invented by J. R. Hicks and R. G. D Allen in their well-known paper ‘A reconsideration of the theory of value.’ In 1939 Hicks reproduced the indifference curve theory of consumer’s demand in his book ‘value and capital’ modifying somewhat the version of the original paper.

According to ordinal utility approach, utility is a psychic entity and it cannot therefore be measured in quantitative cardinal terms. The ordinal utility simply implies that the consumer is capable of simply ‘Comparing the different level of satisfaction.’ In a word, ordinal utility being a psychic entity cannot be expressed in definite numbers but can be compared in accordance with scale of preference such as 1^st, 2^nd and 3rd.

Ordinal utility is expressed with the help of indifference curve analysis. In the above diagram, there are three indifference curves IC 1, IC 2, IC 3. Of them, IC 3 shows higher utilities than that of all. As, IC 3 gives the consumer much satisfaction so it takes first place in the consumer’s mind. Then IC 2 takes the second and IC 1 takes the third place in the scale of preference.

The differences between cardinal and ordinal utility is discussed below:

Cardinal utility	Ordinal utility
1. Cardinal utility assumes in the first place that utility is measurable and quantifiable.	1. Ordinal utility cannot be measurement and expressed in quantitative terms.
2.t is expressed in definite numbers such as 1, 2, 3 etc.	2. It is expressed in ordinal term such as 1st, 2nd, 3rd etc.
3. Cardinal utilities of two separate goods are independent of one another.	3. Ordinal utilities of two goods shown by indifference curve as dependent of each other.
4. Cardinal utility measures utility of one good only at a time.	4. It measures utilities of two goods at a time.
5. As there is only one good, there is no rate of substitution.	5. There is a marginal rate of substitution in indifference curve analysis.
6. Cardinal utility analysis does not consider utility as a quantifiable entity.	6. It considers utility as psychic entity.
7. Cardinal utilities of separate goods are additive.	7. Ordinal utilities of separate goods are not additive, as they are not expressed in definite numbers.
8. It assumes that marginal utility of money remains constant.	8. There is no assumption of constancy of marginal utility of money.
9. It ignores income effect and substitution effect.	9. It considers income effect and substitution effect.
10. It is unrealistic and unreliable.	10. It is more realistic and more reliable.

Relationship between marginal and total utility

Relationship between marginal and total utility:

We know that we can get the marginal utility through finding out the change in total utility due to a unit change in goods consumed. So there is a relationship between M. U. and T. U. The relationship has been described below:

1) When total utility increases at a constant rate then marginal utility remains constant.

2) When total utility increases at an increasing rate then marginal utility also increases.

3) When total utility increases at a decreasing rate, marginal utility also begins to decrease.

4) When total utility is at the highest level, then marginal utility equals to zero.

5) When total utility begins to decrease, then the marginal utility becomes negative.

The following diagram will better disclose above points.

The above figures show that MU is of diminishing type in character. But MU is positive up to that point when TU is increasing whether at a increasing or at a decreasing rate. When TU is highest at pint E then MU is equal to zero at point B, which refers to the same units of good consumed at point E. After that, point TU begins to decline then MU becomes negative.

So, we can easily conclude saying that there is a huge relationship between MU and TU.

Danger for Earth

Danger for Earth: 10^th September of 2008

The LHC is the world’s most powerful particle accelerator, producing beams seven times more energetic than any previous machine and around 30 times more intense when it reaches design performance, probably by 2010. Housed in a 27-kilometre tunnel, it relies on technologies that would not have been possible 30 years ago. The LHC is, in a sense, its own prototype.

Starting up such a machine is not as simple as flipping a switch. Commissioning is a long process that starts with the cooling down of each of the machine’s eight sectors. This is followed by the electrical testing of the 1600 superconducting magnets and their individual powering to nominal operating current. These steps are followed by the powering together of all the circuits of each sector, and then of the eight independent sectors in unison in order to operate as a single machine.

One of the most fascinating technological marvels of our time is scheduled to be fully turned on next week, amidst noticeable concern that the LHC unleashes uncontainable energies that eventually could result in the destruction of our planet. As it turns out, nature is the biggest proponent for the "no danger" argument cited by the IOP. There is a common and natural process whereby energetic cosmic rays striking Earth's upper atmosphere regularly produce the equivalent an LHC experiment. In fact, there have been more than 100,000 of them naturally on Earth. In addition, many of those collisions produced particles which exceed the energy potential of LHC. Researchers delving into the safety of the LHC point out there have been no "hypothetical black holes or strange lets, no vacuum bubbles or dangerous magnetic monopoles" even with the higher energy collisions. They do point out that the LHC's collisions will differ from those of high energy cosmic rays in that the LHC's generated particle velocity will be slower. They also state that the particle energy created by the LHC will be roughly the same as that of two mosquitoes colliding. They state, "any black hole produced would be much smaller than those known to astrophysicists.” The big concerns from watchdogs like Walter Wagner and Luis Sancho earlier this year, and the more recent and final hurdle, a collaborative effort by a group of concerned scientists overturned by the European Court of Human Rights in late August, reside in the unknowns. While the safety experts indicate that any potential black holes produced would be much smaller than those known to astrophysics that unknown potential is exactly the complaint by the concerned parties. Barring some kind of last minute difficulty or challenge, the LHC is scheduled to go online Wednesday, September 10, 2008, the official "switch on" date. And as of right now it has already been used in low-yield tests and will continue to be right up until Wednesday carrying out what physicists describe as "massive" tests.

Computers will be smarter

Computers will be smarter than humans!!


Intel technology showed off transmitting power wirelessly which could be capable of eliminates the wire clutter behind desks and other areas of the home or office.
Wireless power was one of several technologies Justin Rattner, CTO for Intel, highlighted at the last keynote of the chipmaker's Developer Forum in San Francisco.
I hope Intel warned the Luddites and pessimists away at the door, because the chipmaker had a lot of bullish statements about its belief that computers will become smarter than humans.
University of Washington demonstrated the ability to transmit 60 watts of power a distance of two or three feet, using two round metal coils, one as a transmitter, the other a receiver. The latter had a light bulb on the top that remained lit as Sample, a graduate student in electrical engineering, moved the coil around.

The technology builds on the work of Marin Soljacic, a physicist at MIT. Intel and MIT researchers are leveraging a phenomenon know as "resonant induction" in transmitting power.
Intel's system, called a "wireless resonant energy link," relies on strongly coupled resonators, which operate on a principle similar to how a singer can shatter glass with her voice. The receiving resonator absorbs power at its natural frequency much like a glass absorbs sound energy at its natural frequency.
If the technology finds its way into our daily lives, it could one day make it possible to recharge or operate a laptop or any other device simply by placing it on a desk or table with a wireless power device built in. If these devices proliferate, then we may no longer need a notebook battery, for example, a capacitor could be used instead to store power temporarily, Rattner said.
No timetable was given for when the technology could find its way to the market. Intel is working on miniaturizing the power-receiving antenna to a size where it could fit in the base of a notebook.
Joshua Smith, principal engineer at Intel's research facility in Seattle and the leader of the wireless power project, showed a robotic arm that could sense an apple placed in front of its claw, grasp the object, and then drop it into someone's outstretched hand. Among the key innovations is the sensor used in the robot. Rather than a camera, the sensor uses an electric field to identify objects, similar to how some fish identify their surroundings.
Smith, who also heads Intel's wireless power project, said the advanced sensor could one day make it possible to introduce the robots used on the factory floor into "a human environment."
As computers become smarter and robots more sophisticated, security becomes an issue. Rattner claimed that at the current pace in which computers are becoming more powerful, they could one day become smarter than people. If that was to happen, then how do you ensure control?

Rattner also highlighted during his keynote Intel's work in programmable matter. Company researchers are investigating how million of tiny micro-robots, called catoms, can be used to build shape-shifting materials.
To build functional catoms, Intel is using novel techniques that borrow from processes now used to make silicon chips. Intel eventually wants to bring all the necessary computational and mechanical components of a catoms into one package less than a millimeter across.
If such research is successful, then people could one day have a computer that fits comfortably into a pocket, but can also be stretched and shaped into a full-size traditional notebook. The same treatment could be done with a mobile phone or different gadgets.