Question

1. Define the concepts of utility, indifference curve, and budget constraint. Discuss how these concepts relate to consumer choice.
2. Explain the following concepts: demand schedule, demand curve, supply schedule, supply curve. Then, list the determinants of demand and explain how a change in each determinant affects the demand curve. Do the same for the supply.

Answer 1

Utility implies the satisfaction received from consumption of a certain commodity,
Indifference curve is the curve representing all the points on which consumer receives equal satisfaction from consumption of two commodities.
Consumer's choice is represented by his indifference curve which represent his optimal choices and what level of satisfaction he derives from those choices.
Budget constraint is a combination of a person's income and the prices of the commodities which implies how much of the goods can a consumer afford.

Demand schedule is the combination of price and quantity at which a commodity is demanded. Demand curve graphically represents all those points where a certain Quantity is demanded at a cretain price . Similarly supply schedule is the combination of price and quantity at which a commodity is supplied. Supply curve graphically represents all those points where a certain Quantity is supplied at a certain price.
Demand is influenced by taste and preferences of the consumers, price change of substitute goods, price change of complementary goods while supply is influenced by availability of raw material, changes in technology of production, availability of complementary raw material and substitute raw material and natural factors.
The changes in any of these external factors affect the demand curve and cause a rightward or leftward shift , similarly a change in any of the above mentioned external factors shifts the supply curve rightward or leftward causing the equilibrium to shift simultaneously.