Major Concepts in Economics - Essay Example

When the price of such goods increases, a consumer finds it difficult to purchase that product with his present earnings. This will, in turn, mean that when the price increases the demand decreases. This phenomenon is called the income effect. Similarly, when the price of a particular product increases certain people opt to switch to any other low-priced substitute goods. This is called the substitution effect. This clearly explains that there is a relation between income effect and substitution effect. That is, the substitution effect occurs as a result of the income effect.

The following example indicates the effect of income and substitution, by taking into consideration this.

“For example: Suppose the income decreases. Let X be normal, Y be inferior. Since income decreases, you buy less X, more Y. We want to find the new optimal consumption bundle" (Lande, 2007).

The tax impact should be met by the consumers themselves. If there are any changes in the price of a commodity, it will ultimately affect the demand for such a product, and finally the income of the buyer also. There is an inverse relationship between demand and supply, but the price factor is also playing a key role in this context. If there is an increase in the price of a commodity, the total income level of the consumer will be affected.

"As shown in the Calculus of Hedonism, economists derive the individual demand curve from individual utility maps. Normally this results in the desired downward-sloping demand function, but there is a fly in the ointment to dispose of, since it is possible, though difficult, to draw a utility map which results in an upward sloping demand curve”.

Thus it becomes apparent that if any changes take place in the price pattern of a commodity, there should be a corresponding change in the income level of the consumer.

Every consumer has his or her right to select the goods according to his or her taste and preferences. Consumers should emphasize the quality of goods and the price affordability. The consumer theory gives more focus on the concept of effective utilization of purchased goods and thereby the attainment of satisfaction.

The applicability of consumer theory is very beneficial in the case of cutthroat competition. Due to recent technological advancements, nowadays mobile phone companies are also functioning based on modern economic principles. “Mobile commerce opportunities cover mobile initiatives that are designed to achieve strategic change in downstream activities through direct interaction with the customer. Customer knowledge must reach all the necessary parts of a mobile company to be useful, such as through an electronic knowledge repository. But mobile services involve more than just sending knowledge. They incorporate both technical and cultural challenges. To deliver superior service quality, companies must first understand how customers perceive and evaluate mobile customer services. Marketers need to offer genuinely useful information, adding real value to their corporate messages and transaction simplicity (easy to use, quick to deliver, cheap to process). Mobile technology provides companies with a great number of marketing options. Mobile marketing is considered as a new and effective communication channel to the benefit of consumers” (Mylonakis, 2004).

On an analysis of the above three questions, it becomes evident that the concept of economics is of great relevance to all fields of industrial and market development.