Professional Documents
Culture Documents
Location of Industry
Incorporates elements of
Macro Analysis
National Income and National Output Nature of Use of theory of Markets and
Business Private Enterprises
Economics
The General Price Level and Interest Rates
Pragmatic in Approach
In Macro Balance of Trade and Balance of Payments
Economics we
study about-
External value of Currency
Interdisciplinary in Nature
Normative in Nature
The Level of Employment and Rate
of Economic Growth
Elasticity of Demand
Y
Elasticity of demand is defined as the responsiveness of Substitutes
the quantity demanded of a good to changes in one of D
the variables on which demand depends. More precisely, p1
elasticity of demand is the percentage change in quantity
demanded divided by the percentage change in one of the
Cross
variables on which demand depends. elasticity Price of p
between two Coffee
Types of Elasticity substitute
goods is D
of Demand
positive.
X
o m m1
Price Income Cross Advertisement Quantity Demanded of Tea
elasticity of elasticity of elasticity of elasticity
demand demand demand of sale Substitute Goods
Y D
Price Elasticity of Demand
Price Elasticity of Demand refers to the percentage change p
Complementary
in quantity demanded of a commodity as a result of a
Price of Cross
percentage change in price of that commodity. Pen Elasticity
As demand curve slopes downwards to the right, the sign p1
between two
of price elasticity is negative. complementary
We normally ignore the sign of elasticity and concentrate goods is
D negative.
on the coefficient. Greater the absolute coefficient, greater
o X
is the price elasticity. M M2
In symbolic form, price elasticity= Ep= % change in Quantity Demanded of Ink
quantity demanded / % change in price.
Complementary Goods
Statistical methods
Controlled experiments
Indifference Map
It refers to the want satisfying power of goods
and services. It is not absolute but relative. It is
Meaning of a subjective concept and it depends upon the Indifference curve slopes
Utility downwards to the right
mental attitude of people.
It is always convex
to the origin
Law of Diminishing Marginal Utility Properties of
Two ICs never intersect
indifference
It states that as a consumer increases the consumption of a curve
each other
commodity, every successive unit of the commodity gives
lesser and lesser satisfaction to the consumer. It will never touch the axes
Consumer's
Surplus What a consumer is
ready to pay - What he
actually pays Budget line or price line shows all those
combinations of two goods which the consumer
Budget Line/ can buy spending his given money income on the
Price Line
two goods at their given prices.
is a curve which represents all those combinations
of two goods which give same satisfaction to
Indifference the consumer. Since all the combinations on an
Curve Consumer's Equilibrium
indifference curve give equal satisfaction to the
consumer, the consumer is indifferent among them. A consumer is said to be in equilibrium when he is deriving
maximum possible satisfaction from the goods and is in no
position to rearrange his purchase of goods.
The consumer attains equilibrium at the point where the
budget line is tangent to the indifference curve and MUx / Px
=MUy /Py = MUz /Pz
Q is the point
of equilibrium
where
MRSXY =MUX /
MUY
Figure shows
various iso-cost
Stage 1 Law lines representing
of increasing different
returns. combinations of
Stage 2 Law of factors with different
diminishing outlays.
returns. AB, CD and EF are
Stage 3 Law Iso-cost
of negative lines.
returns.
Iso-cost Lines
Monopoly
Profit
Maximisation
MC
Cost F H
Revenue E
Decrease in supply
I The firm will causing an increase in the
G maximize equilibrium
MR profits at the price and a fall in
point at which quantity demanded
A B
marginal
Q* Output
revenue is equal
to marginal cost
Profit Total Profit
Proft Increasing Proft Decreasing There can be simultaneous changes in both demand and
MR > MC MC > MR supply and the equilibrium price will change according to the
proportionate change in demand and supply.
Q* Output
S
15 Surplus
A state where the quantity
10 that firms sell is equal to the
Price
Quantity demanded and Supplied (in Units) Quantity demanded and Supplied (in Units)
In the long-run all the supernormal profits or losses get wiped
Effect on Equilibrium Price and Quantity When Demand and
away with entry or exit of the firms from the industry and all
Supply Curves Shift in Opposite Directions firms earn only normal profit.