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Sunday, August 31, 2014

Cause and Effect Relationships

Concepts of Economics

S.No
Cause
Effect
Reasoning/Explanation
1
When price of a good increases
Quantity demanded falls
Law of demand
2
When price of a good increases
Quantity supplied rises
Law of supply
3
When price of a good decreases
Quantity demanded rises
Law of demand
4
When price of a good decreases
Quantity supplied falls
Law of supply
5
When demand increases
Price also increases
Competition among buyers take place
6
When demand decreases
Price also decreases
Competition among sellers take place
7
When supply increases
Price falls
Competition among sellers take place
8
When supply decreases
Price rises
Competition among buyers take place
9
Technology improves
Cost of production falls
Advance technology is cost saving
10
Price of inputs (raw material, wages) falls
Cost of production falls
Raw material become cheaper
11
Rate of tax falls
Cost of production falls
Government is imposing less tax
12
Cost of production falls
Supply increases
Production becomes profitable
13
Backward Technology
Cost of production rises
Cost consuming
14
Price of inputs (raw material, wages)increases
Cost of production rises
Raw material become costlier
15
Rate of tax increases
Cost of production rises
Government is taking more tax
16
Cost of production rises
Supply decreases
Production becomes less profitable

17
Increase in demand is less than increase in supply
Price will fall
Competition among sellers  outweigh Competition among buyers
18
Increase in demand is more than increase in supply
Price will rise
Competition among buyers outweigh Competition among sellers
19
Increase in demand is equal to increase in supply
Price will remain same
Competition among buyers balances Competition among sellers
20
Inputs used in production are increased
MP first rises then falls even becomes negative
Law of diminishing marginal product
21
MP first rises then falls even becomes negative
MC becomes ‘U’ shaped
MC is ‘U’ shaped due to law of diminishing MP
22
AR(Price) constant
MR(net addition to TR) is constant
AR =MR in perfect competition
23
Creation of liabilities
Capital receipts
Borrowings
24
Reduction in assets
Capital receipts
Disinvestment ,recovery of old loans
25
Creation of assets
Capital expenditure
Buying of assets
26
Reduction in liabilities
Capital expenditure
Paying off debts
27
Foreign exchange rate increases
Value of domestic currency falls
Inverse relationship
28
Foreign exchange rate decreases
Value of domestic currency rises
Inverse relationship
29
Foreign exchange rate increases
Foreign goods become costlier
Imports will fall, demand for foreign exchange will fall.
More Rupees than earlier are needed to buy one dollar.
30
Foreign exchange rate decreases
Foreign goods become cheaper
Imports will rise, demand for foreign exchange will rise.
Less Rupees than earlier are needed to buy one dollar.
31
Value of domestic currency rises
Our goods become costlier for foreigners
Exports will fall, supply of foreign exchange will fall
32
Value of domestic currency falls
Our goods become cheaper for foreigners
Exports will rise, supply of foreign exchange will rise