Demand schedule and demand curve (of the market), demand
price Law of Demand Change along the demand curve (when own price changes) and shift of the curve (when other factors change, e.g. income of the consumer, prices of other related goods, tastes and preferences etc.) Slope of the demand curve and demand equation
Elasticity of demand: own price elasticity, income elasticity and
cross price elasticity o Own price elasticity: responsiveness of change in demand when there is a change in price o Point elasticity and arc elasticity o Own price elasticity = dQ/dP * P/Q o Elastic, unitary elastic and inelastic demand: meaning and implication o Income elasticity: normal (if elasticity is positive) and inferior goods (if elasticity is negative); luxury (if elasticity greater than 1), necessity (if elasticity less than 1) o Cross price elasticity: if positive, goods are substitutes, if negative, goods are substitutes if zero (close to zero), goods are not related
Price Elasticity of demand and Revenue:
o MR = P(1-1/|ep|); when elasticity = 1, MR = 0 implying if price falls/increases, TR remains the same o When elasticity less than 1, MR less than 0 implying if price falls(increases), TR falls(increases) o When elasticity greater than 1, MR greater than 0 implying if price falls(increases), TR increases(falls)
Market Supply schedule and supply curve, supply price
Change along the supply curve and shift of the curve Elasticity of supply
Equilibrium of supply and demand
Excess demand and excess supply, price mechanism
Comparative statics: impact on p and q
ParamitaM/ManEco/SummaryDD-SS
o If demand curve shifts
o If supply curve shifts o If both demand and supply curves shift (in the same direction or in opposite directions) Interfering with the market vs Working through the market Interference in two forms: price ceiling (rent control, petro price control etc.) and price floor (min. support price/ min wage etc.) Ceiling is the max price set, hence effective only if it is set below eqm price Floor is the min price set, hence effective only if it is set above the eqm price
Working through the market: imposition of tax/ provision of
subsidies. Effect of specific tax: price will be higher, quantity less; burden of tax will be shared between producers and consumers depending upon the elasticity of demand and supply.
NUMERICAL/ Application Exercises:
o Slope and elasticity of demand o Find equilibrium price and quantity o Find out own, cross price and income elasticity o Application of revenue and elasticity relation o Application of all the concepts in real life situations