Economy

The proportional change in quantity supplied due to a proportional change in the price of a good or service is called elasticity of supply.” Symbolically, Mathematically speaking, if we divide the marginal supply function by the average supply function (Qs/P), we find price elasticity of supply. Marginal supply function or slope of supply function; and Qs/P = Average supply function It means that the elasticity of supply is the product of marginal supply function and … [Read more...] about Price Elasticity of Supply [Measurement Methods]

If there is a change in quantity supplied due to change in factors other than product’s price i.e.method of production, price of inputs etc, OR a change in product’s price leads to no change in quantity supplied, it is known as rise (or increase) and fall (or decrease) in supply. In such cases, whole supply schedule changes and supply curve shifts. [note] Thus it is also called shifting of the supply curve. Now we discuss this phenomenon in detail. Causes of Changes in supply Changes in … [Read more...] about Rise and Fall in Supply Curve – Shifting of Supply Curve

If there is a change in quantity demanded due to change in factors other than product’s price i.e. consumer’s income, taste etc OR  a change in product’s price leads to no change in quantity demanded, it is known as rise (or increase) and fall (or decrease) in demand. In such cases, whole demand schedule changes and demand curve shifts. [note] Thus it is also called shifting of the demand curve. Now we discuss this phenomenon in detail. Rise (or Increase) in Demand Rise in demand … [Read more...] about Rise and Fall of Demand Curve – Shifting in Demand

Proportional change in quantity demanded of one good due to the proportional change in the price of another good, is called cross-elasticity of demand. Thus: The concept of cross elasticity of demand appears in case of related goods, i.e. substitute goods and complementary goods. Cross elasticity is positive for substitute goods and negative for complementary goods. Substitute Goods Generally speaking, “The goods which can be used in place of each other, are called substitute … [Read more...] about Cross Elasticity of Demand

If there is a change in quantity demanded due to a change in price of the commodity or service while other factors are held constant, it is known as changes in quantity demanded or extension / contraction of demand curve. When we show extension or contraction in a diagram, we remain on the same demand curve moving from one point to another point. Hence, it is also called movement along the demand curve. [note] Extension of Demand Other things remaining the same, higher quantity demanded … [Read more...] about Extraction and Contraction of Demand

Proportional change in quantity demanded due to a proportional change in consumer’s income, is called income elasticity of demand. We measure income elasticity of demand with help of the following formula Income elasticity can be calculated as under The concept of income elasticity of demand is used to differentiate normal goods and inferior goods. Normal Goods The goods, for which income elasticity of demand is positive, are called normal or superior goods. It is explained … [Read more...] about How to Calculate Income Elasticity of Demand

Guidance for Finance Minister The concept of elasticity of demand provides a guideline to the finance minister to impose taxes on different commodities. He will impose more taxes on goods for which demand is more elastic i.e. luxuries and fewer taxes on those for which demand is less elastic i.e. necessities of life. Guidance for Price Determination Producers determine the prices of their products on the basis of this concept. They increase the prices of less elastic goods and vice … [Read more...] about 10 Importance of Elasticity of Demand