Factors Affecting the Demand Curve – By Table Presentation

Factors Affecting the Demand Curve Examples Average Income When average income increases, demand increases Population Increase in the population increases the market size and hence demand Price of Related Goods Substitutes: When relative price of potassium fertilizers increases, demand for Nitrogenous fertilizers increases Complements: When the price of petrol increases, demand for Light Commercial vehicles […]

Measurement of elasticity of Supply

Elasticity of supply can be measured by following formula: Elasticity of supply = = = = ×   We illustrate below measurement of elasticity of supply at the point P on the supply curve SS according to the above formula. In Fig. SS1 is the supply curve. P is any point on it. Through P a […]

Factors determining elasticity of supply

            The elasticity of supply depends upon the following factors: (1)  Cost of Production: The supply of a commodity would be more elastic if with the increases, its marginal cost increases. On the contrary if with the increase in its output the marginal cost of the commodity falls, the supply would be less elastic or […]

Uses of elasticities of demand

In a capitalist economy, the entire volume of output is directed and controlled by consumer demand. If production is to be profitable the volume of output of goods and services produced must be adjusted in terms of the available demand for them.  Consumer demand exercises a major influence upon producers demand for factors of production, […]

Types of Elasticity of Supply

The term elasticity of supply expresses the degree of correlation between supply and price. Symbolically, Rs = ×   Dqs = Change in quantity Supplied Dps = Change in price Es = Elasticity of supply If the little fall in price supply contracts greatly, the supply will be more elastic. But with a greater fall in […]

Cross Elasticity of Demand

Cross elasticity of demand refers to a change in the quantity demanded of product A as s result of a change in the product B. When demand for a product changes due to a change in the price of another related commodity we have cross elasticity of demand. The formula for cross elasticity is, EAB […]

Types of Income Elasticity of Demand

The five possible income demand curves are shown in the figure. Each of them shows a different type of income elasticity. These are discussed below: (1)  Negative Income Elasticity of Demand: This refers to that situation where a given increase in the consumer’s money-income is followed by an actual fall in the quantity demanded of […]

Income Elasticity of Demand

When demand for a product changes due to a change in the incomes of consumers we have income elasticity of demand. The degree of responsiveness of demand to a change in incomes of the consumers is known as income elasticity of demand. The formula for income elasticity of demand is, Ey = Or, The income […]

Measures of Price Elasticity of Demand

There are four methods of measuring elasticity of demand. These are:- Total outlay or expenditure method; Point methods often referred to as the geometrical method; Arc method, and Mathematical method Total Outlay Method: One method of measuring price elasticity of demand, according to Marshall is to consider the change in the price and the consequent […]

Mathematical Method – Measures of Price elasticity of Demand

The point elasticity can also be calculated mathematically. We know that the slope of demand curve at any point is Expressed by the differential, . But in case in case we take the reciprocal of the Slope to get, and multiply it by the ratio of original price to original quantity p/q, we get  , […]