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Average cost, divide the sum of variable costs and fixed costs by the quantity of units
produced
Marginal cost =change in total cost/change in quantity
Quantity Total fixed Total Variable Total cost Average cost Marginal cost
cost cost
25 10 18 28 28/25 28
26 10 20 30 30/26 2/1=2
27 10 21 31 31/27 1/1=1
The price of the good or service.:
The law of demand states that when prices rise, the quantity of demand
falls. That also means that when prices drop, demand will grow. People
base their purchasing decisions on price if all other things are equal. The
exact quantity bought for each price level is described in the demand
schedule. It's then plotted on a graph to show the demand curve.
The demand curve only shows the relationship between the price and
quantity. If one of the other determinants changes, the entire demand
curve shifts.
If the quantity demanded responds a lot to price, then it's known as elastic
demand. If the volume doesn't change much, regardless of price,
that's inelastic demand.
Income of buyers.
When income rises, so will the quantity demanded. When income falls, so
will demand. But if your income doubles, you won't always buy twice as
much of a particular good or service. There's only so many pints of ice
cream you'd want to eat, no matter how wealthy you are. That's where the
concept of marginal utility comes into the picture. The first pint of ice cream
tastes delicious. You might have another. But after that, the marginal utility
starts to decrease to the point where you don't want any more.
Income Elasticity of demand= (% change in the quantity demand) / (% change in income) ={(Q2-Q1)/Q1}
/ {(Y2-Y1)/Y1} = (5/20) / (5000/10000)=2\4=1/2=0.5
It is a normal good because Income elasticity of demand is positive. A normal good is any good for
which demand increases when income increases, i.e. with a positive income elasticity of demand.
Cross elasticity of demand is the degree to which the quantity
demanded of one commodity responds to a change in the market price
of another commodity.