UNIT 12

SOME ECONOMIC LAWS

Basic human needs are simple, but every induvidual has additional personal wants
which may be very complex. These complex personal wants are satisfied in different ways by
different things. A car, a bottle of whisky and a newspaper satisfy very different wants and the
whiskyot is not close substitute for the car. This special characteristic of satisfaying a want is
known in economics as itsutility. Utility is not the same as usefulness. A subemarine, for
example, may or may not be submarines, Economist describe this kind of utility as the
reletionship between a consumers and commodity.
Utility varies between different people and between different nations. A vegetarian
does not want meat, but may rate bananas very highly. A mountain-republic like switzerland
has little interest in submarines, while maritime nations rate them highly. Utility also of
pianos of low. Utility is therefore related to our sense of priorities. The utility of a commodity
is also related to the quantity available to the consumers. If men buy a large quantity of
paper,- they will lose interest in buying more paper will go down. The utility of commodity
consequently decreases as the consumers stock increases.
In most economic system, the prices of the majority of gods and services are fixed.
The individual cannot change the prices of the commodities he wants, and when planning his
expenditure, he must accept these prices. A consumer will go on buying cigarates as long as
his satisfacation continues and they render utility. If he continues to pay the current price, his
satisfacation is greater than his financial sacrifice. With each purchase, however, his
satisfication decreases, although the prices remain the same. If a consumers supply of money
is limited, a point will come when the financial sacrifice is greater than the dstisfication of
smoking cigarattes. He will stop buying the commodity. Thr cigarattes are the same, but their
utility has changed. If the prices rose, he would buy fewer; if they fell; he might buy more.
We can see that the nature of commodity remains the same, but its utility changes.
This indicates that a special relationship exists between goods snd services on the one hand
and a consumers and his money on the other hand. The consumers desire for s commodity
tends to diminish as he buy ore units of that commodity. This tendency is called the law of
Diminishing Marginal Utility.
Utility is of course related to the laws of supply and demand. When Economist talk
about a Law of Supply, tehy mean that a rise in prices tends to increase the supply of
commodity, while a fall in prices tends to reduces it. When they tslk sbout a Law of Supply
and Demand, they mean that a fall in prices tends to increases the demand for commodity,
while a rise in prices tend to decreases the demand. In any economic situation, a consumer
will decide to buy a commodity only in tems of its particular utility to him.
If the prices of a particular commodity rise in in the economy as a whole, thr rise will
naturally encourage producers to make more of that commodity. If, on the other hand, prices

fall locally or throughout the world, producers will reduce production. Supplies of many
commodities can generally be adjusted to suit market conditions. Tis menas that changes in
market prices lead to changes in the quantity of a particular commodity made available to
consumers. Household goods and furniture are in this category. In such instances, supply said
to be elastic, because it can be increased or decreased rapidly to suit market prices.
The principle of elasticity operates in the area of demand as well as in the area of
supply.people are very seldom have everything they want. They usually have to choose
carefully how they will spend their money. When they exercise tis choice, they work
according to their personal scale of prefierences, beginning with top-priority essentials like
food and housing. Next on their scale come those commodities which provide comfort and
convenience of some kind (telephones, insurances, etc.) and finally come the non-essential
like holidays andtrips to the theatre, which are important parts of life but not compartable
with food and shelter. If it is necessary to pay very-high prices for the essentials of leife,
people pay them-even if this mean spending all income. In such cases demand is in elastic.
For non essentials, however, demand is elastic and particularly responsive to changed in
prices.

EXERCISES
1. Answer these quetions, basing your anwer on the text.
a) What noun is used to show that whiskly is a simple replacement for a car?
substitute
b) Whhat noun is used to show that nations are not at war?
peacetime
c) What adverb is used to show that the utility of commodity decreases because
stock increases?
consequently
d) What verb is used to show that cigarettes provide utility as long as satisfication
continues?
Render
e) What adjective is used to show that the price of cigarettes is the price ruling now?
Current
f) What verb is used to show thst s consumers desire tends to go down or become
less as he buys more of a commodity?
Deminish
g) What noun its used to show that household goods and furniture are belong to a
certain type of commodity?
Category
h) What adjective is used to show that food and housing are more important than
other commodities?
Top priority
2. Say whatever these sentences are true (T) or false (F), and if they are false say why.
a. ( F )Switzerland is a maritime nation, and places a high priority on submarines.
BECAUSE switzerland is a maritime nations rate them highly.
b. ( F )If the current prices of cigarettes remains the same, consumers continue ro
buy more, even when their satisfication is less than their financial loss.
BECAUSE if the current prices of cigarettes remains the same, consumers
continue to buy more, his satisfication decreases than their financial sacrifice.
c. ( T )Because a consummers desire for a commodity tends to diminish as he buys
more of that commodity, economists talk of a law of diminishing utility.
d. ( T )Because the supply of furniture and household goods can be adjusted to suit
market conditions, we say that their supply is elastic.
e. ( F )Because elasticity of a demand refers to things high on our scale preferences,
we can say that the demand for essentials like food and shelter is very elastic.
BECAUSE elasticity of demand refers to things high our scale preferences,
we can say that the demand for essentials like food and housing

3. Combine these pairs of sentences by using although.

EXAMPLE : X = His satisfication decreases.
Y = The prices remain the same.
I

X although Y
His satisfication decreases, although the prices remain the same.

II.

Although Y,X
Although the prices remain the same, his satisfication decreases.

a. X = The individual cannot change to curent price.

Y = He may want to do so
The individual cannot change to curent price, although he may to do so.
Although He may want do so, The individual cannot change to current price.
b. X = The utility of cigarettes has changed.
Y = Their quality is the same
The utility of cigarettes has changed, although their quality is the same.
Although their quality is the same, The utility of cigarettes has changed.
c. X = He wants to buy thst car now.
Y = He should wait until he has enough money for both the car and other necessary
things.
He wants to buy thst car now, although He should wait until he has enough
money for both the car and other necessary things.
Although He should wait until he has enough money for both the car and other
necessary things, He wants to buy thst car now.
d. X = The work has not been done yet.
Y = It was planned five years ago.
The work has not been done yet, although It was planned five years ago.
Although It was planned five years ago, The work has not been done yet.
e. X = The schame has been started.
Y = It has not yet received goverment permission.
The schame has been planed, although It has not yet received goverment
permission.
Although It has not yet received goverment permission, The schame has been
planed.

4. Punctuate the following passage. Provide capital letters, commas, fullstops, brackets,
colons, etc. Where applicable.

Prices have risen throughout the national economy since 1954 between 1948 and
1953. There was a period of price stability. The goverment decided in 1960 to change
the national policy considerably an to introduce certain price controls although
controls. Although controls were not very popular with industrialist the goverment
also tried to reduce demand by limiting increases in wages throughout. The economy
although limitation of wages was not very popular with the trade unions, this
limitation of wage increases applied to both the public and private sectors. An official
commission was created to regulate wage and price increses. It was called the national
prices and wages board or npwb.