Differentiation in between equilibrium position of ordinal and cardinal approaches

This article discusses the differentiation between the equilibrium position of ordinal and cardinal approaches in economics. It also explores the usefulness of the concept of elasticities in decision-making. Additionally, it examines the relationship between short-run costs and the differences between perfectly competitive firms and monopolist firms in respect to short-run equilibrium. Furthermore, it provides an overview of inflation and the costs associated with it. Lastly, it discusses the components of aggregate demand and evaluates the effectiveness of GDP.

ECONOMICS

Table of Contents
INTRODUCTION...........................................................................................................................3
Question 1........................................................................................................................................3
1. a) Differentiation in between equilibrium position of ordinal and cardinal approaches.........3
1.b) Usefulness of concept of elasticities....................................................................................4
Question 2........................................................................................................................................5
2. a) Relationship between short run cost...................................................................................5
2. b) Difference between perfectly competitive firm and monopolist firm in respect to short
run equilibrium............................................................................................................................6
Question 3........................................................................................................................................7
3. a) Inflation...............................................................................................................................7
b)Costs of Inflation.....................................................................................................................8
Q4.....................................................................................................................................................8
a)Components of aggregate demand...........................................................................................8
b)Valuation of effectiveness of GDP.........................................................................................9
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................11

INTRODUCTION
Economics is defined as the concept study how people interact and behave with values. This
whole concept is about to understand how economic factors affect the people ion society. This
report will emphasis over certain principles and concepts related to economics. Henceforth,
report will focus over different theories related to consumer behaviour. Usefulness of the concept
of elasticities will also elaborate in this project. Relationship between different short run cost will
also analyse in this project. In context to the perfectly competitive firm and a monopolist firm
short run equilibrium situation will analyse in this project. Furthermore, this study will research
about inflation and the cost of inflation. Different elements associated with the GDP will also
analyse in this task.
Question 1
1. a) Differentiation in between equilibrium position of ordinal and cardinal approaches
Equilibrium point is the situation arises in market where both demand and supply contain
equal position. This is the point in economy where supply of products is equal to the overall
demand available in the market related to certain products. This point is crucial as in order to
control inflation equilibrium point is the biggest weapon which economy can use. TH basic
concept of equilibrium position in market is the same but it can be analysed with the support of
different approaches like ordinal and cardinal approaches.
Cardinal utility is the satisfaction that can only be measured in numbers whereas ordinal
utility denote the satisfaction level which can never be measured in numbers. The concept of
cardinal utility was first used by Marshal on the other side ordinal utility was initially used by JR
Hicks. In term of realistic cardinal utility can state as less realistic as compare to ordinal utility.
In term of qualitative and quantitative measures' cardinal is quantitative in nature whereas,
ordinal is qualitative in nature (Schroenn Goebel, 2017). The approach of cardinal also involve
marginal points and the ordinal is more based on indifference position of the products. The key

different between the equilibrium positions in both the utilities is that cardinal is measured in
units and the other one is identified in term of ranking. Consumer behaviour is very volatile in
nature as it keep on changing. It becomes very difficult to monitor point of equilibrium in respect
to consumer behaviour. Changing nature of both these concepts cater more challenges
monitoring and measure equilibrium points. The measurement units for both this position are
also different in nature.
1.b) Usefulness of concept of elasticities
Elasticity concept is all about measuring the possible level of changes in one factor due to
changes in other associated element. Organisation and business entities take all important
decision related to business such as pricing decision, product supply decision, production related
decision-making and all other decisions based on the overview related to elasticity concept.
Every company while taking the pricing related decisions and in the process of setting up prices
of different products use this concept of elasticity so that company or business entity can achieve
the best level of growth opportunities and potential in respective target market. The entire
concept of elasticity play significant role in conducting market study. Sustainability and growth
in business is always influenced with decision-making of management (Hu, 2017). The entire
concept allow management in every organisation to take the best level of decision related to
product supply, manufacture and develop.
This concept is equally useful in context to trade at international level. Not only at the
domestic level but also at an international level elasticity concept play huge role and support the
management to take the best level of decision. The use of elasticity concept also for the
government and institutions to frame fiscal policy. Product development activity is among the
major practices used by the business entity. ON the basis of the concept under this segment
companies get to launch nee products and development strategies for all the future developments
that can benefit to business entity (Alshiybani, 2019). This concept also support in controlling
inflation. In process to sustain the economic flow and healthy balance in market this concept play
huge role. The entire concept of elasticity is well diversified as it allows the business to keep
balance in demand, supply, prices and all other elements which support in achieving effective
flow of business in respective market.

Question 2
2. a) Relationship between short run cost
Source: Short run cost https://businessjargons.com/short-run-cost.html
Short run cost is denoted as the time frame where at-least one factor is fixed and other
elements are variable in nature. Fixed cost such as capital, factory building, plant and equipment
and many such cost are fixed in nature. Variable cost include raw material, labour, employee
wages and other such cost are variable in nature. The nature of variable cost is that it contain
only if the organisation is engaged in producing its products. In case the business entity stop its
production than the variable cost will be nil. Short run cost are identified as short run total cost,
short run average cost and short run marginal cost (Nani, 2019). All these costs are related to
each other.
Total cost is all about the overall cost required to produce the final units or goods. Total
cost comprises with short run fixed cost and short run variable cost. Fixed cost contain a basic
nature that this cost will incur in the same capacity irrespective of the level of production. Even
if the business stop producing its products this cost would still be incurred by business entity.
Variable cost is incurred in the capacity of production (Baccaro and Pontusson, 2018). On the
other hand one more concept is associated with short run cost is that short run average cost. This
is the per unit cost company could incur out of producing the final slop of output. Short run
marginal cost is also a key concept that involve change in total cost distributed into the denote
Illustration 1: Short run cost

change in total production . This cost is further denoted as the level of cost organisation needed
to incurred in order to produce the extra unit of production. All the cost are related to each other.
2. b) Difference between perfectly competitive firm and monopolist firm in respect to short run
equilibrium
Market contain its own nature. Every market is different from other. Some markets are
perfectly competitive and some are monopolist in nature. The key differences between perfectly
competitive market and monopolist firm can demonstrated in the following manner.
Point in difference Perfectly competitive firm Monopolist firm
Meaning This is the firm that run and
operate its business in perfect
competition situation.
All such business entities that
conduct their business activities
in perfect level of competition
are associated with this category
(Phelps, Wagner and Moger,
2020).
Monopolist firm is denoted as all such
business entities that solely engaged in
selling products in respective market.
These are the firms that are the only
seller or producer of a respective
product in market.
Competition Competition faced by these
organisations are huge in nature.
Perfectly competitive business
entities conduct operations in
aggressive level of market
competition.
Monopolist firms face less competition
or in many cases they are the only
producer of respective products and
units.
The competition is minimum in case
of these firms.
Control over prices
in short run
Competitive firm not hold much
control over the pricing
practices.
Due to aggressive level of
competition these business
entities and organisations do not
carry major control over pricing
In context to this firm entities get the
proper control over pricing practices
of the product.
They get the opportunity to set the
prices based on the convenience of the
business entity.
In majority of cases prices are high in

practices followed by such firms.
Prices are set of product under
this environment are based on
the average prices set by other
organisations.
context to monopolistic firms as they
do not face any competition in market.
Customer loyalty In context to perfectly
competitive firm customer
loyalty is very less.
As consumer contain plenty of
choices which allow the
customers to move on towards
any business entity.
Customer loyalty is huge in context to
monopolist firms.
AS customer not carry other options
which allow them to stick to only one
company in order to meet the need and
requirements.
Question 3
3. a) Inflation
As per the views and opinions stated by Charalambopoulos, Douka and Mavratzas
(2019), inflation is indicated as the level of decline in buying power of potential customers in
market. The basic concept of inflation is related to decline in the value of money or capital.
Inflation is the rate of decline in the currency exchange. The usual situation of inflation is when
the currency issued by the government is more the need and demand of currency. This is the
basic concept attached with the inflation as if the currency supply is more than the actual need
and demand of market than inflation rate will increase. IN case of opposite case scenario
inflation would decrease.
The views of Neiburg and Guyer (2017), illustrated about inflation is that every time
economy hit from inflation than value of currency get decreases. This will further increase the
prices of products in market. Inflation reduces the buying power of people in market without
getting any increase in the income. Inflation decreases the growth rate of economy due to price
hike of different products offer by companies.
Critical evaluation of inflation conducted by the Freund and Rendahl (2020), in its study
denote that it is not a strong indication for any economic growth of country. Inflation causes

pricing hike of majority of products offer by any country. This negativity affect the buying
power of customers in market due to decreased value of currency in respective market.
b)Costs of Inflation
Fall in value of savings: People earning through job or business like to save portion of their
earnings to use in future. The inflation or rise in prices in market of commodities or property
may cause the saved value of money to diminish and make the savings cost low as per time value
of money. People in such cases would like to put their money in financial institutions like banks
to get interest on their savings. However, this is done on an estimate that the percentage of
inflation will remain same in upcoming years (Nakamura and et.al., 2018). This phenomena is
also known as shoe leather cost. The customer would have to visit the banks or ATMs to make
transactions in which transport costs of moving to the bank and transaction charges levied by
ATMs will add up to the shoe leather cost.
Menu costs: This is a social cost associated with inflation. It from its name comes from
restaurant business although applies to other business structure too. Inflation causes business
models to review their prices. The businesses have to then bear additional expenses of printing
new catalogue with changed prices and also take marketing and promotional measures to make
the message reach out to public of changed prices.
Reduction in international competitiveness: The country having a high inflation rate than its
trading partners, its exports will become less competitive. This leads to fall in exports and a
deterioration in current account (Turner and et.al., 2019).
Q4.
a)Components of aggregate demand
The components of aggregate demand in UK economy are:
a) Consumer expenditure on goods and services:This includes demand of durable goods like
audio visual goods, vehicles and also non durable goods such as food products and beverages
which come under consumption category. They have to be re-purchased.

b) Capital Investment: The spending on capital goods like plant and equipment and new
buildings which help in producing consumer goods in future. The investment includes spending
on working capital of goods produced as well those in production. Producers may find that
demand is more than output or demand is weaker than current output (Jump and Kohler, 2020).
c) Government Spending: The spending is done on state provided goods and services which
includes public goods and merit goods. The decision on planning of government to spend on a
particular category is also affected by the development in the economy.
Government spending constitutes a prominent part of GDP. Some part of it goes in
investments and some in public welfare schemes.
d) Exports of goods and services: There are exports going overseas which can be said as inflow
of demand in circular flow of income and spending which adds up to the aggregate demand
(Skott, 2019).
e) Imports of goods and services: They can be termed as withdrawal of demand from the circular
flow of income and spending done.
The calculation of net exports measures value of total exports minus the imports. The UK
has been running a trade deficit for many years where imports are exceeding imports.
b)Valuation of effectiveness of GDP
'GDP may not measure the overall well-being of the nation'. This statement can be critically
evaluated. While a GDP growth rate may signal that economy of the country is growing, but it
does not highlight how well is a common man of the country benefiting from it. It may sound
good quantitatively but does not reflect on the qualitative aspect. The economic benefits received
by the nation through trade is reflecting how much on the health conditions of the public, how
well it is affecting transport linkages used by public for travel, how well it is doing for the
education and development for the country's aspiring students is not assessed. However, in the
same coin, one can say that a progressive GDP may not reflect on these conditions but it does
provide pathway for building the nation. A country with good economy rate can spend on health

sector, improve the conditions and facilities existing in hospitals, government can use money to
spend on infrastructure like roads, railway line extension to help the public. Their can be an
increase in budget on education sector to help promote the students' skills and also offering them
educational loans to better their future. Thus, it can be said that it is up to the use of resources by
the government to help improve the existing conditions which can increase the happiness
quotient among people reflecting the real growth. Another measure can also be to check GDP per
capita income on an average basis, which reflects distribution of wealth among individuals to
raise their living standards. UK has a decent average per capita income which signifies decent
living standards being affordable by the citizens.
CONCLUSION
Equilibrium point is the position in market where demand and supply both are at the
same point. This is the position associated with the market where demand of a certain product is
equal to the overall supply of such product in respective market. Elasticity is the concept that
indicate the possible change in one product due to change in price of other product. This concept
support the organisation in taking decisions related to prices, supply and many such decisions.
Short run cost are segregated into fixed cost, variable cost, marginal cost and total cost. Inflation
is indicated as decrease in the total value of currency in respective market. GDP is the measure
of total production in the country for the respective financial year.

REFERENCES
Books and Journals
Alshiybani, F. K. K., 2019. The Impact of the Growth Rate of Money Supply on Inflation in Iraq
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Baccaro, L. and Pontusson, J., 2018. Comparative political economy and varieties of
macroeconomics.
Charalambopoulos, A., Douka, E. and Mavratzas, S., 2019. Second order formulation of
boundary value problems in gradient elasticity. arXiv preprint arXiv:1909.10776.
Freund, L. and Rendahl, P., 2020. Unexpected effects: uncertainty, unemployment, and inflation.
Hu, S., 2017. Economics of higher education: Background, concepts, and applications by
Toutkoushian, RK, & Paulsen, MB: Dordrecht, The Netherlands: Springer. 390 pp.
ISBN: 978-94-017-7504-5.
Jump, R.C. and Kohler, K., 2020. A history of aggregate demand and supply shocks for the
United Kingdom, 1900 to 2016.
Nakamura, E. and et.al., 2018. The elusive costs of inflation: Price dispersion during the US
great inflation. The Quarterly Journal of Economics.133(4). pp.1933-1980.
Nani, M. N., 2019. Exploring teachers’ experiences of teaching Economics threshold concepts
in Grade 10 FET phase at Ugu district (Doctoral dissertation).
Neiburg, F. and Guyer, J.I., 2017. The real in the real economy. Journal of Ethnographic
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Phelps, A., Wagner, J. O. C. E. L. Y. N. and Moger, A. N. D. R. E. W., 2020. Experiential
depression and anxiety through proceduralized play: a case study of fragile
equilibrium. JGSS, 1. pp.104-149.
Schroenn Goebel, J. L., 2017. Students' learning of threshold concepts in undergraduate
economics (Doctoral dissertation).
Skott, P., 2019. Aggregate demand policy in mature and dual economies!.
Turner, H.C. and et.al., 2019. Adjusting for inflation and currency changes within health
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