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Showing posts from April, 2023

Exceptions to the Law of Demand- Veblen Goods and Giffen Goods

The Law of Demand states that there is an inverse relationship between Price and Quantity demanded, other factors remaining constant. A fall in price of a good leads to a rise in its quantity demanded and a rise in the price of a good leads to a decrease in its quantity demanded. However, there may be some cases where the law of demand doesn’t hold i.e when a decrease in price doesn’t result in an increase in quantity demanded and an increase in price doesn’t result in a fall in quantity demanded. In other words, we can say that the demand curve is not downward sloping. It may be an upward sloping curve, which means with a rise in price, quantity demanded also rises and a fall in price results into a fall in quantity demanded, other factors remaining the same.  So, what are those cases, also known as exceptions to the demand curve: 1. Veblen Goods Named after an American economist Thorstein Veblen, Veblen goods are certain type of luxury goods which do not obey the law of de

What is Demand? Explain the Law of Demand

Whenever you go to the market, you see many goods and services. But we know by experience that everything you desire is not purchased. There may be some goods which you want to buy, but you may not be able to afford them. There may be some goods that you are able to afford, but still not buy them may be because you are not willing to buy at that price or don’t have a liking for that good. However, there will be some goods for which you are able and willing to buy the good at the given prices. In this case, we say that you are demanding a good. Therefore, we say that demand for a good arises when the consumer is able and willing to buy a good at given price.   Demand for a good is always indicated with reference to its price. As we know, economics studies how people make decisions or choices in order to meet their needs with their limited resources, the Theory of Demand is one such theory analysing the behaviour of consumers when deciding the amount of goods and services to buy. W

Why did the Silicon Valley Bank Shut Down

On 10 th March 2023, the Silicon Valley Bank (SVB) was taken over by the U.S Government sending shock waves around the world especially in financial markets. The bank’s closure was the largest one since 2008. To safeguard its depositors, The California Department of Financial protection and Innovation appointed Federal Deposit Insurance Corporation (FDIC) as its receiver. What was SVB ? The SVB was a California based bank founded in 1983 and catered mainly to Silicon Valley startups. The tech industry was the biggest customer of SVB. It catered to nearly half of the venture backed startups in U.S. Apart from this, various other SAAS (Software as a Service) firms from across different countries had accounts in SVB. Its main clients also included various venture capitalists and private equity firms. What happened? What led to the fall of SVB wasn’t just one factor but a culmination of a number of factors working together. Firstly, the SVB dealt with a specialised type of lending

What is Circular Flow of Income in a Two-Sector Economy? With Diagram

I n an economy, there are innumerable goods and services being produced and consumed. The millions of people who live in that economy are involved in producing these goods and services and also consuming them.  In other words, people produce these goods, people also consume these goods. It may look like a complicated process, but it is a very basic concept happening in every economy.  To understand the working of an economy, we will simplify by assuming that there is no role of Government (no government interference in economic activities), no international trade (i.e no export and import of goods and services) taking place and no savings done by the household (i.e whatever is earned is spent on consumption). Let us start with a household which wants to buy goods and services for consumption. The household would need money income to buy these goods and services. Now, from where does this income come?  This income will come when households or more specifically members in the household