Macroeconomics: Theory of Consumer Behaviour, Elasticity, Short Run Costs, Inflation, and Aggregate Demand

UGB 109 ECONOMICS
ALTERNATIVE
ASSESSMENT

Table of Contents
INTRODUCTION .........................................................................................................................3
QUESTION 1 ..................................................................................................................................3
a. ordinal and cardinal approach ................................................................................................3
b. Evaluating the usefulness of elasticity....................................................................................4
QUESTION 2...................................................................................................................................5
a Short run costs .........................................................................................................................5
b. Short run equilibrium in competitive firm and monopolistic firm..........................................8
QUESTION 3...................................................................................................................................8
a. Inflation...................................................................................................................................8
b. Cost of inflation ......................................................................................................................9
QUESTION 4.................................................................................................................................10
a. Components of aggregate demand........................................................................................10
b. GDP.......................................................................................................................................11
CONCLUSION..............................................................................................................................11
REFRENCE...................................................................................................................................12
Book and journal.......................................................................................................................12

INTRODUCTION
Macroeconomics is the branch of economics which deal with the structure performance
and decision-making and aggregate economy. Where microeconomics is a study of human
behavioural and individuals’ households. This report will show the theory of consumer
behavioural through cardinal and ordinal approach. Further there will be an elaborate explanation
of concept of elasticity. Lastly, analysis of short run costs is also detailed and there is a brief
explanation on inflation and about aggregate demand and the impact it has on GDP.
QUESTION 1
a. ordinal and cardinal approach
Utility is that satisfaction which consumer gets by consuming that utility. Commodity
that satisfy one after consuming it is known as utility. Utility can be measured in quantitative or
cardinal like 1,2,3 and ordinal which can't be enumerated in numerical form I.e. it in qualitative
or theoretical.
Difference between cardinal utility and ordinal utility:
Basis Cardinal utility Ordinal utility
approach Utility which derived by the consumers
from the consumption of their good or
any other services numerically is
known as cardinal utility. They have a
quantitative approach.
Ordinal utility can't be shown in
numerically. They have a
qualitative approach.
Credibility This approach is less realistic, because
It cannot be measured.
This approach is more realistic,
because it can be measure.
Measurement This is measure in utile for example
a person gain 1o utile from tea and 5
utile from coffee which mean utility
can not be measured it can calculate
only in ranks `
This is measure in ranks for
example people can express the
utility from consumptions of the
certain goods. For example LG
give 20 units of their utility , a

Samsung company would give
40 unit of utility.
curve Cardinal utility is analysed in the form
marginal curve. The increase in
satisfaction gain by one consumer from
consuming one extra unit of good is
known as marginal utility.
Ordinal utility is analysed and
portrayed through indifference
curve. Indifference curve shows
the same level of satisfaction
from each good.
Deliver Cardinal utility is promoted by classical
economists.
Ordinal utility is promoted by
modern economists.
b. Evaluating the usefulness of elasticity
Change of the one economic variable in the response to others is known as elasticity.
Elasticity is the concept of economics which is being used to measure the major change in
quantity aggregate demand for the any good and services. A demand can be called elastic when
the quantity demand of that product change incredibly when its price tends to increase or
decrease. There are 4 types of elasticity: Price elasticity of demand:When in any product comes large change in context of there
price change it is called as elastic. Taking an example of kitkat chocolate if price of kitkat
chocolate increase in market there are many alternatives of kitkat chocolate bar like perk
etc. Cross elasticity of demand: The change of economic factor in the demand of g or
purchased of any product or any other services in relation to its price change is
known as cross elasticity of demand. Income elasticity of demand: Income elasticity of demand refers to the quantity that
demand for certain products and the goods or any other services to change In the real
income of costumers who buys it and keeping all the other thing constant. For example if
a person's income increases from 10% then the demand of that person would be risen
from 10%.
 Advertising elasticity of demand: Advertising elasticity of demand is there to measure
the advertising that company should increase or decrease the advertising. It is basically to
measure that what they are showing through their advertising is impacting or not on their