CROSS ELASTICITY OF DEMAND
It is the degree of responsiveness of demand for one commodity as a result of a change in the price of another. It is the measure of effect of a change in demand for...
Category: ECONOMICS
INCOME ELASTICITY OF DEMAND
“It is the degree of responsiveness of demand for goods to a change in income”. It is the extent to which demand changes as a result of increase or decrease in income. Additional income...
MEASURING PRICE ELASTICITY
If elasticity is zero, demand curve is perfectly inelastic. If elasticity is infinite, demand curve is perfectly elastic. And if elasticity is unitary, demand curve gently slopes downwards. If demand is elastic, consumers react...
ELASTICITY OF DEMAND
Introduction It is necessary to review or recall (repeat) the relationship between demand and price. “Demand has inverse relationship with price”. That is, a rise in price causes a fall in quantity demanded, and...
INDEX
Index is a system that shows level of variable (item) especially price, cost, wages, etc so that they could be compared with previous date. Index Number It is a number that shows the...
QUANTITY THEORY OF MONEY
It is a theory that shows direct relationship between money supply and the price level. It is a theory that shows that the general price level is proportional to money supply. The above implies...
VALUE OF MONEY AND PRICE LEVEL
Value of money “It is the quantity of goods and services a unit of money can buy in a given period”. In other words, the value of money refers to the purchasing power of...
INDIFFERENCE CURVE CONCEPT
It is a curve that shows various possible combinations of two goods in which a consumer is indifferent. It is a curve that indicates all possible combinations of two goods that give the same...
LAW OF DIMINISHING MARGINAL UTILITY
The law of diminishing marginal utility is based on the following consideration or assumption: “As the amount of a commodity a person possesses or consumes increases, the utility a consumer derives from successive units...
CONCEPTS OF UTILITY
They include the following:- Total Utility. Average Utility. Marginal Utility. 1) Total Utility It is the total amount of utility which a consumer derives (obtains or gets) from consuming many units of a...
SUPPLY OF AND DEMAND FOR MONEY
Introduction Supply of and demand for money are quite distinct concepts (different things) from supply of and demand for goods and services. Supply of goods is influenced (affected) by cost of production and desire...
INTRODUCTION TO THEORY OF CONSUMER BEHAVIOUR
UTILITY In economics, utility means: “Amount of satisfaction which a consumer derives (obtains) from the consumption of a commodity or service rendered at a particular time”. The amount of satisfaction obtained from a commodity...
COST OF PRODUCTION SCHEDULE
All the different cost concepts discussed are interrelated in a number of ways. They can easily be computed or calculated mathematically with the aid of their various formulae. The cost concepts are better interpreted...
RELATIONSHIP BETWEEN THE VARIOUS TYPES OF COSTS
Relationship between TFC, TVC and TC The diagram, figure 8, given below shows the graphical relationship between TC, TFC and TVC. TVC curve lies below TC curve because the former is a part of...
SHORT RUN AND LONG RUN COSTS
Short Run Costs (SRCs) Short run costs are costs which a firm incurs during its short run period. And they comprise two major types of cost: Fixed costs. Variable cost. The short-run cost may...
TOTAL, AVERAGE AND MARGINAL COSTS
Total cost is the total (entire or all) expenses incurred in the process of production. It is also defined as the ‘sum of total fixed cost and total variable cost’. Its Curve The combination...
VARIABLE COSTS
Variable costs are costs that vary with output (quantity produced in a period), thus as output increases, variable costs also increase. They are costs incurred in acquiring variable factors of production, e.g. raw materials,...
FIXED COSTS
Fixed cost are costs incurred in acquiring capital goods or fixed factors of production (fixed assets), e.g. machines, parcel of land (premises), vehicles, etc; and they don’t vary with output. They are costs that...
INTRODUCTION TO THEORY OF COST
Cost is a bit elusive (not very easy) to define. Literally, a cost, from the point of view of a producer, is an expense incurred in the process of production of goods or rendering...
LAW OF VARIABLE PROPORTION
Introduction Before we discuss the law of variable proportion or law of diminishing return, we wish to highlight (briefly explain) the following important terms: 1) Fixed factor It is a factor that does not...