MICROECONOMICS

Consumer Income allocated to certain

Money him to
buy a
thing
· -

Utility Marginal Utility Price

·

-> =

MUx =

PX

PRODUCTION POSSIBILITY CURVE (PPC)

Y

A
- B
0 .

Why is PPC downward curve

?
15 8
=
- -

= = - - -
=

D
·

- -

127
- - - -
1-

&
=
a
- - - -
Z
.

Why concave curve

q - - 1 -
= - - =

t
7

E
I

X
⑧ I 234 #

Units Or Wheat

is combinations
A PPC
showing various
of the two goods that an
economy produce given its mesources
can
->
a curve .

It's a downward
sloping che
indicating that in order to produce more of one good some units
of the other
goods has to be sacrificed .

limited utilised
and
they truly
->
This is cuz resources are are .

->
A PPC is concave to
origin indicating that move and more units
of one
good have to be

sacrificed additional of the other This is called

to produce one unit
good .

increasing opportunity
increasing marginal of transformation This
is
cost or rate .

because rources are not

equally efficient when shifted from one

production process to another

MRT
Bam
=
Idaily production in thousands (daily production in thousands) MRT
·
caus ·
TVs

0 O ·
20 2 1
:

18 3 1
:

I
-
⑳

W
2
·
15 4 :
1

11 5 f
:

3 ·
-

↑ 6 6 1
↳ &
:

5 2
0

* SHIFTS IN THE PPC

=>
FACTORS For
shifting right of PPC .

1 .
Increase in Resources
in
Improvement technology
·

Y
Discovery of new resources
·

-
W
↑

in
Economy guouth
·

· Education and
Training
·

Labour
Miguation Immigration
·

FDI
⑧

⑰
# B B'X
Units
of good

FACTORS
=>

C .

Decrease in Resources
·
Natural Disasters

⑰
⑰
·

wars

W
L

&
·
Pandemic

L
Emigration
·

⑪ ⑮
#
- Utilisation OF Resources under PPC

·
·
Cover utilization

· A - Max utilization

·
Resources
! of
B
·

underutilisation
-
⑰
goodx
X

units of
units MRI
combinations
of cellphones clothing a
-

e n

A 8 O -

B 6 10 2
:

10

C 4 15 2 :
5

D 2 18 2 : 3

E 0 20 2 :
 ⑫2 MRT

E -

F 500 : 1000
=
0 5
.

F -

G 1200 : 1000
=

1 2
.

A
downward
-
M Economy A
Economy B

#=

(I) is

crative
destruction
based
of RandD

Al

A ↑

(I] I

USA B'
B
③
chiren

L
i * -

t ·
L
R
⑳
N
d
o I
⑧
T

⑧
N

+ ne-

O B A
B
Goodx Good x
* UTILITY - the want
satisfying power of
goods and services .

Sum or

>
Total
Utility Margi nat Utility
=>
-

MU =
AQ

OF
No .

cups Total Utility Marginal Utility

of tea
per day DMU=
u
I 12 12

2 22 10

I
30
6
36

I
10
6 10

F 39 -

I
8 34 -
5

- -

MUn= TUn-TUn-1

Eg
:

MUx= Px
150>110 -
Buys the good
130 :

150 ->
Buys the good
150 <200
Maybe
- .
 AVG
*

- CONSUMER'S SURPLUS
1a
Price the consumer is Price he
willing to
pay actually pays .

- consumer samples is a measure of the

welfare that
people gain from consuming goods
and Senoces .

- is
C Tr Tex

↑
=
-

p
C Tr
Texp Tu I MU I OP
-
=

- -A
:
=

Area
of Op'NO OG Aty he
=

-
:

purchases
-
X
Tr 2 Mr
Texp Px0 !- when is Op
price
= =

-
OPXOQ
~
=

=Area of AOPNO
~~
Texp = Px 0
P

↓ *
Xanantity
of Op'NO-Area o
CS :
Area
DOPND MU
CS =

Area OF APP'N

Price/Unit
-
Units OF X
O -

(MUx] (Px)
(MVx-Px)
units Price Net
Marginal
No .

of Marginal
(a) Utility INTP(E)
-

Benefit

3
1 .
20 12 8

2 18 12 6

4
+

2+0
3 16 12 4

consume
↳ IH 12 2

5 12 12 O

6 10 12 -

I
CS =

TU -

Texp Tr =
IMU
-

80-PXQ
=

=80-12x5
=

80 -
60
=
20
Oue) function &=300-2P and Calculate
If the demand is
given as
price- 15 · the consumers
snplus
.

& =

300 - 2P

If Dis O .
(P 0 =
=

300
x5

2P

↑
=300 -

2(45)

-1 1xbxh
CS :

,
// =

1x210 x 105
45
-

-11025
no

O
as
cio Y

One) P Find surplus if

If 100-20 out the consumer's 0:30
=

p =

100 -

2(30)
P =

HO

c bxh
1
=

x88x30

900
-
 DOX
Or VALUE or The Diamond Inatur Paradox

value -

in-use-utility

value-in-exchange -
Price

like water
Paradox Of Value Essential
goods have a
:
·

low market value while market

like
value
of non-essential
goods
diamond is
high
WATER DIAMONDS
-N Ya
I
P
:? 47
X I

-
/
P
-
-
~
- E
-
--
X

·
A

OY

!
=
⑤·
=x Pu ~
S

=
DD
DW
Da
>
OD and as
of water * Op OD and OS
of Diamonds X

↓ I
Quantity Quantity
Demand
Supplied

from
The surplus received water is
gulator than
->
consumer

diamonds this because

the consumer
simples received. from is water
being a

(the
pay)
-

necessity
but
has
very Las
high utility the consumer is
pricewater's Willing
available)
to

a
valy
IOW
price supply of water is
highly elastic or This
easily
.

causes
difference bet the
the
price the consumer
milling to
pay
and the price they actually pay
to be
significantly
lange .

->
The consumer
surplus received from diamonds is lesser than the Is received fromwater
water
DEMAND
Market demand is that total quantity demanded
across all consumers in a market for a given
good.

The law
of demand

Demand Function
Od
f (4)
=

Tabular Freem

Demand Schedule
PX Ox

18 500

20 400

30 300

48 200

50 100
*
Reasons for downward sloping demand are :

Y
↑
1 . Income effect
2 Substitution effect

!
.

3 .
Law of Diminishing Marginal Utility -

X
Ox
Quant
ty .
· FACTORS AFFECTING DEMAND

. Consumer's Income
1 ->
Income ↑ -
Demand

Income -
Demand I

2 Price of Related Goods I

substitutes compliments

sam
.

and - X and Y
If x

P* and OD ↑, Pyr ->

ODx ↓

.
3 Tastes Preference ,
Habitats , Fashion

n .
Advertisements

5 .

Expectations of consumers about Future

changes
in Price (E)
6 . Distribution of income

I
.

Population Growth

8 . Climatic Conditions
 VARIATION VIS CHANGE IN DEMAND

↓ Pcs Other factors It

-
P4 ↓ Y ax
Decrease
CONSTANT

↑
- inD
other factors
Di
X
De D Increase
Ya - -- in D
d
D

· P

pr
X

- a nar
Dr D Di
↳ Pi

-
>
0
Oz O Ol X

egx" OD of X

Exercise :

0 ) What will be the effect

.
of the following on the demand curve for Good X ? Draw diagrams to
explain your
ans

2) A fall in
price of GoodY, when X and Y are substitutes .

2) Newspapers have reported that

goodx has health
giving properties
.

3) increase
An in the
price of good X .
Aus

C-o
and I
1
*
R
2
C
and 5 Y
R
y
O
I
d

O D O D
E
E E
E

0 R >x 0 R >x

5) a

7
 EXCEPTIONS TO THE LAW OF DEMAND

a
-
-
- - -

-
-

e P

---
a
P ---
L

!
I

Oz >x
④D of X

1 .

Giften goods
: Strongly inferior goods ,Consumer spends a major
proportion of his income on such goods their demands
increases with an increase in price

.
2 When price =

Quality

3 . VEBLEN GOODS / SNOB EFFECT : Some consumers measure utility of a commodity by its
price such goods have high prestige value
Ex- diamonds, rare artefacts

1 .

Expectations regarding Funer prices .

5 .

Bandwagon effect :
Trying to Fit in a
group
.
IF AUG SUPPLY

Quantity of the stock the seller is willing to offer for sale

at a
given price .

LAN OF SUPPLY- Other

things remaining the same

QS =
F(P) Pr-> QSA
Pl ->
QSd

Gre
Supply
-
Schedule
supply
-

Price Os Y
supply
->
curve
A
can't be
10 100 started
70
-

from
20

30
200

300
60 -

origin .

·
48 400
50 500
-

1 11 I -X
100 200 300 400 500600700

-
QS

* shut down
price S

*
Sample goods

Freegood
-
=> *
gradual increase
 FACTORS AFFECTING SUPPLY

1 . Price of other products in the market .

Production
2 .

Technology
Profit Maximisation QSA

-
.
3 Price of factor inputs
M .

Objectives of the Firm

. - Sales Maximisation &S4

5 OF Firms
. No .

producers or in the
industry .

Future COPK-Ast
6 price expectations of the

see"
.

I Taxes and subsidies

by the
gort
-> COPL-as *
.
.

8 . Climate
changes
.
9 Political Factors

VARIATION VIS CHANGE IN SUPPLY

↓ ↓

P41 Price constant

Ease
Other facto us constant Other Factors ↑d

nY
Increase
3
in S
*
S
S2
a- e -

- i xi
-> Extension
P--- -

P
↓ as
a
↳ in
- -

contraction
Si >S2
2 -
in Os
O O Os Oz -x

Os
 -
12)
⑥

.
*

Oty of supply
of good X

5)

"contain
4 a
3, 4
-
-
-

E
↳ 4
& Ol
-

oF
Oty Supply

EXCEPTIONS TO THE LAIN OF SUPPLY

↓
Backward bending supply curve and Labour

Wages/hu Labour
Images/day
Hrs/day

·
100 6 600

200 8 1600
1000

300 10 3000 -
300 8 4000

1000 6 6000

100

.....,
0 8
6 10

Labour
Huskay
MARKET EQUILIBRIUM

Market Equilibrium -

Od = Ds

Market
Eg . Price = OP
Y
Market Eg Ot :
00
N

D surplus
-

S>D
Ch

!
price OP2
At At Price OP ,
Pl
QD =

0 &, RD = OO"
P
QS =

002 &S =
00

Deficit : &'A"
Surplus =
0 , 02

>x
OD and OS

demanded
Price
Oty Oty Supplied
4 135 26

5 104 53
② 81 81

7 68 98

8 33 110

I 39 121

Due to unsold stock there will be

competition price = 8

the sellers who will reduce the 0 =

53
among
clear their stock Price will fall Oz =

110
quice to .

until it reaches the equilibrium at Unsold units : 57 units .

6 .

Price 4
competition among buyers
=

they will
pay higher D 135
=

S 26
price
=

At 109 units there is deficit

them is scarcity
.
 *
SHIFTS IN EQUILIBRIUM

.
1 Due to Increase in Demand

Due to increase in income 1) Income increase ->

DY

D
- S
2) Demand curve will shift

from DD
Pl E,
to the
right -D , D
,

↑ 1

P
E
3)
Eq price will increase from
-
Op ->OP,

D
4) Os4 or extension in O2 From E-> E ,
S

5) Ovewall
quantity ↑ From 00 ->
00 ,
Od
-

Op
-

O
O
d
⑪D and OS Income ↑ Price

2 .
Increase in Supply

Fall in imput price ->

COPI

Y
↑

I Fall in
input price
->
S4

S
D

Si
2) Save will shift to
right
E
from SS -
S ,
S2
P
-

A
↓
P, El

3) Eg price
.
will Fall From OP->OP,
S

D
Si
in Od From E-E,
7) Od4 Or extension

O
-a -x
8
5) increase
.

Overall will
gty
.

Op and Os
 ⑧

⑧
⑧
comp
subs
subs

&

-
0 1)
"
S

·
.

D
s

"
E
↓

El

n
S

> X
8 O & 1

OD and OS
-
new caus

X
d) -
N

*
C) x S

=
Ou
X

7I
E
O
.

S
Ol
>x
a
>
OD and OS
 0 2 .

-
1 S
PUD's
b) D
S
I
C) .
N
E
↓

·
El

↳ D
O

8
S

O & 1
> X
7 R
I

..
>x

y
why
X
I
?

"
suTw
S

rightward
o
sets
E

.
not
S

· nitt OD and OS
>

Movie
Tickets
software
- .
3) X

Si
0 H .

-
1
comp
S

I S "E ↓
s

Di r
-
I

E
↓
↳ D

P
S

> X
8 O & 1

Si

D
1 OS
3
Di

gawriters
X

0 0 -
I
x
"T

=
=

X
E

>
OD and OS
0 .

6) M

20- -

18-

16-

Price
of 14-

tickets 12---------------------
El

10 -

8 ---------------------- E
&D & S =
=
8000
6 -

y - Di
D
2
·
-

!!!! I i in is in >

Quantity (1000)

0 .
7)

(a) &D 5000 0 5 1 +0 2A-100p related

rely the
=
+
. .
· -

&S = -
5000 +
100p it is Demand Gave

I =
25 , 000
related
·
then
A 10 , 000
+vely
=

5(25 000) (10 000) it is Gre

&D 5000 0 0 2 100p
supply
-
+ +
=
.
, .
,

OD = 19500-lOOP

At equilibrium
-
Od = OS
A

19300 -

100P = -5000 +
100P
(b) D S

P = 122 5 .

= , 22 5-
. E

0 =

19300-100(122 .
5)
& = 7250
S D

I
X
0 OD and OS
(C) 0d= 5000 + 0 .
5230 000)
,
+
0 2
. (10 , 000) -

100P

Od = 22000-lOOP

Od Os
At
Eg
=

Y
A
-

& =

-5000 +

100(135) 22000-100p : -5000 +100p D ↑ S

135-
0 =
8500 P = 135

= , 22 5-
. E

S D

I
0 OD and OS *

Cas Demand
0 .
8) &D = 1000 -
2P 1000 -

(2x100)
OS = 3P
1000 -
400 =

0
At OS OS
Eg
=

& = 600
1000 -
2P = 30

P =
200

(b) PA

S
SD
e
300

" Y
208 d) Surplus at 500

100 c) Shortage at 500

600 .
C
400 O
 0 .
9)
&D 50-2P +
0 3 PR OS -
H +
P
191
. =
=

= 50 -
20 +
0 .
5(5)
=

525- 2P 52 3 -2P . = 4 +
P
-
56 5 .
= -
3P

(
P 18 83
price
= .

0 = 14 84
.

A S

-
... -
- The demand curve will shift to the

-------
18 83 right as the substitute
good becomes

........
.

i From Rs 5 to
expensive after tax . e .
.

-I Rs 6

"City
. .

14 .
84

1) When Pr=6 after tax

New &d = 50-2 P+ 0 5 .

(6)

New Od =
53-2P

Od DS
Neww
equilibrium price =

53 -2P =
-
4 +
P

P =
19
 PRICE FLOOR

determined the forces

-> When the market
equilibrium price by of
demand and is then in order protect
supply very low to
the interest
of the seller the
gort will set a
price
above the equilibrium .

It is the lowest price which the product

at can be
bought
and sold in the market .

Ya
S
D

PWI ce
·

F1000
Pz
--------------

P E(0d Os)
=

e
S C

O >x

Od and Os
The
gort assures that if
don't
the consumers
buy
price floor the failure
buy complete
at cort will or else it is
J
a .

EXAMPLES OF FLOOR PRICE IN THE INDIAN ECONOMY-

(MSP] For and minimum for

Minimum
support price agricultural products Wages
·

labourers .

Oligopoly Firms and

Monopoly can use floor price for their
product .

·
Incase of
CEILING PRICE

S
D

* Si

-
=> - - - - - 2 -
- -
Ceiling Price

S D

>
0 O

Od and Os

when the market equilibrium price determined by the Forces of demand and

buyers the gort

supply- very hig there ballotte que" mo
the

price .

price which service and

It is the max at a
good or can be
bought
sold .

Ex Price Vaccines
of
:

Food
grains
Rent control
-> &d =

1000-2P

Os =
550 +
P

ad -
Os

1000 -
2P =
550 +

1000 -
550 = 3P

4 =
P
3

p =

150

Od =
1000 -

2(150) Od =

1000 -
2(120)
Od =
1000 -
300 Od =
1000 -

240

Od = FOO =

760

&S =
500 +
120

620
=

"
- Mas =
go

"I
120
->
shortage

T
e
ceiling price
->
DKS
↳ shortage

OD and OS
 ELASTICITY OF DEMAND
It is the degree of responsiveness of a change in demand due to changes in price of a good
Income of the consumer and price of related goods .

TYPES OF ELASTICITY OF DEMAND -

1 Price of demand
.

elasticity
2 . Income
clasticity of demand

demand
3 . CVOSS
elasticity of

PRICE ELASTICITY

Method
2) Point or
Percentage

% Od of X
age change in

Ep -
%
age change in
price of Y

Ep =

A =
Ep 1 x P, where ,
= ,

*Q = Q2 -
Q
AP = Pz -
P,
Q2 = New
Oty C
0, =
Original OtyC
Pz =
New price
P,
Original price
=
 2 .
Arc elasticity of Demand Method

This method
only used when
is the percentage change in
price is significantly high .

Ep
Pu
=

Ep & , P, P2
=
+

a, + 02

3 .
Geometric Method

This method is used to calculate the price of demand at

elasticity
->

a
point on the demand curve .

"a
Ep lower
Segment

↳an
=

=
I
LEP
·
A
upper Segment

Ephe
.
A
-> At
point
*
2
............ E Ep
A
x
=

.......
! 03
=

↳=p
· S
-> At point C

X
OD Ep
=
= 0
c

->
Atpoint B
->
Atpoint D -
At point E

Ep B
=

EP EP
1
I?
=
=

AD
DL>AD Ep 1 (BC As)
=

????
As , A =

...
EP> 1
4 .
Total Expenditure or Total Revenue Method

Buyers Sellews

Texp
=
Px0 TR =
Px0

where , INkeVe ,

P-
> Price/unit P -> Price /Unit
O- units purchased a -
units sold

3
· P4 10 % OD ↓ 3%

TR Px0
=

TRY

·
PN 10 % OD ↑ 3%
EPL'
TR =
PXD

TR4

3
⑧ P↓ 10 % & D ↑ 15 %

TR Y

PP 10 % &D ↓ 15 %
EP> I
·

TR N
 3
· P4d 10 % OD ↓A 10 %

TR <
Ep =
1
Unitary
Elasticity
Ep = 1 .

questionX
calculas

--
O
I

O
0 1)

Ep aee
.

P, = 1
Pc =

2
0 ,
=
80

02 =
48

Ep Ep considered
good
0 75 the is
necesity
= -
.
.

0 .

2)
& %
P1 = 10

P2 = 8

DO =
20 AP = -
2

a
EP =
x

EP
+
2
20
=

x =
-

0 .

3)
P O TR =

PxO (a) Price changes From 10 to 8

10 20 200
EP = Y change in Od
8 30 240 % change in
price

-x
6 35 210 I

4 HO 160

=x 8
=
2 .
3 (EP>1)
(b) Price
changes from 8 to 6 (C) Price changes
from 6 toy

Ep = Ep =

x
42
=
/
" - x
=

x
-
x 30
-
2 35
,
63
=- 0 .

43
0 66
Ep
=
-

0 .
7)
--
EP =

=
-0 4 . =

x =

50

price & 50 %
of $2
New Price $3

Quiz on Next
Thursday
15 mark
↳ September , MONDAY

DEGREES OF PRICE ELASTICITY OF DEMAND

1
Perfectly Elastic Demand such demand curve is parallel to the x-axis
=
. a

that At Price infinite the

indicating Op
pty of goods can
be demanded .

-
R
* Such a demand weve is
hypothetical .

or unrealistic .

n P D

>
X
0 ad

2 .

Perfectly Inelastic Demand- Here the demand curve is

parallel to Y

indicating that
any fluctuation price in

Y
A
Will have no
impact on
pty demanded
D

P3 .............

E
P- --------------

Ep 0
=

Pi . . . . . . . . . . .

>X
0 Q

Od

.
3
Relatively Elastic Demand. (Ep)()
Y soc Bad
X
P , P2 < 0 , 02

D
...
Ep >

P2

E
........
* Luxuries will have such a demand
↓
Pi - I creve

·
. . . . .

! -

>x
Od Oz 02
 4 .

Relatively Inelastic Demand (Ep(1)

aY

D AP > DO

P, 42 > 0 , &2
P2

:"
Ep <1 * Necessities

Pi

>x
·
D
Od

5 .

Unitary Elastic Demand (Ep 1) =

->
When a
percentage change
given in
quie
causes an equal--- in
quantity
-

*
demanded price elasticity :
1 .

Y
AP =

DOch
R
D P , Pc 0 , 02 such demand
a are is
rectangular hyperbola
=

I variables
->

multiplication of with y
yield
...
P2 as x will
=

p
the same ans.

Demand is incidental
e
->
curve .

->
Rectangular
v
Hyperbola
D
Pi
-

S
02 O, X
·
FACTORS INFLUENCING ELASTICITY OF DEMAND :

1 .

Availability OF Substitutes :

↑ Substitutes ->
El of Demand ↑

.
2 The
proportion of income spent
:

↑
↑
proportion of
Elasticity Of Demand
->
income
spent .

The number of
5 uses
of commodity
:
.

↑No ↑ of Demand
OF
Elasticity
->
. uses .

4 Nature Or The
good
:
.

El oF DK
Necessity
->

Luxuries El $4
of
->

5 . Time :

Short-Run ↓ El Demand
of
-

Long-Run-4 El of Demand
&2

Ep -0 I
Ep
in de nice
.
= -

O2 =
?
0, =

2000 Ep :
x

42 =

142 5.
,

P 150
,
=

Ep=
! *
TR , =

P, x Di

7-
=

130x2000
2000x
-
0 .

= 3 , 00, 000 e

TR2 =
Pc x &2 02 =

2070
,

=
142 5 . x 2000

=294975

ATR =

TR2-TRI
=

294975 - 3, 00 , 000

=
5025
-

:
Total Revenue will decrease .

0 .

13)

3
a) Novels

b) Metro rides in the next 3 yus

Will have
C) Cola

great ev elasticity
is
d) Volkswagen Polo

e) Sugar
0 .

17) % A in Price =
41

%. $ in Ob
-
=

x 100

=
8%

Ep :
Ad
=
A A in P

Ep =
-
2 "

11
.

in P = 4% ↑

% 1 .
in Od =
8% N

... TR

since
 2 .

INCOME ELASTICITY OF DEMAND

1 in Od
Ey age change
=

age change
% in income
of the consumer

Ey -P =
=

Where ,

* Y
Ey
DY Yz
**
= -
=

Q DO =

02
-
0

Or New Ob
Od
D1-Original
Y2 ->
New Income

Y,
Original Income
-

DEGREES ELASTICITY OF DEMAND:

·
OF INCOME

2) Relatively Elastic Demand (Ey)1)

->
in
Od> %
change change Y
↳ in

-
Ex Luxuries
:

2) Relatively Inelastic Demand (Ey<1)

Od<"
change
in
change in Y
->

> Ex Necessities
:
.

5) of Demand (zy 0
Zero Income Elasticity
=

-> increase and decrease in income -> Od

his
These are
necessary goods on which the consumer spends a
very negligible age of
income

Ex Salt Newspapers
:

,
.

4 .

Negative Income Elasticity of Demand

(Ey<0)
Y* - Od
Y - Od

Ex :

Inferior Goods .
 3 .

CROSS ELASTICITY OF DEMAND

Ec =
1 A in Od of good X

% A in Price of goody

Ec
L *
=
=

Ec
*
=

Degrees of Elasticity of Demand

·
Cross

1) Positive Cross
Elasticity of Demand (Ec>0)

->
Py * &x
-

Ox ↓
Pyb
->

-> Ex :
Substitutes .

2)
Negative Cross Elasticity of Demand
(Ec<0)
->
Py4 -> Ox K

Qx M
Pyl
->

->
Ex
Complimentally Goods
:

3) Zero Cross
Elasticity of Demand (Ec 0)
=

4
>
Py Or Pur -> 0x =>

Ex Unrelated
goods
:
->
.
 &8) .

Ec = H

% .
A in Od =
20

nOdoa
Ec :

n
=
% DinP 1 5
,
=

Ans= 5 %

To increase the price of good by

x 20 %
->

5%
the
price o I should increase
by
and Y substitutes
Since
good x are as Eco

0 .

9) Ep =
-

Ey =
1

4
Ec =
-

-
a)4x =
5%
-

ene
Ep-ange
e

o
-

3 =

% DOd=
.
15%

d) 1 BY = 41 -

b) % . x
Py = 8%

Ey Ich ncd
ange a
Ec
=

% Y in
change
1 -

Od - =
x

y .

DOd =

n % DOdy = -
32 %
& .

11)
Ep =- 1 5
.

% A in
.

price =
5

Ep=
inda
-

13 = ed

% D in Od= -
75 .

% .
in Price < % inOd

... T

a .

(n)
1) Luxu

2) duxwy

3) Necessity

4) Luxury
3) Necessity
a .

(b) vijay Dairy

Buttermilk Flavored Milk

P H = P = 6

& =

100 0 =
2000

TR =
4x100 TR =
2000 x 6
=
400 -
12000

S
TR=
12400

Ep 1 2
Butter Milk Flavoured Milk
-

= .

⑳
EC :
1 8
.

13 % of
" D in
.

OdofButt=-18 original 07 =
260
=10 % less of 6
New
price
5 H 18% less 100 18 &
of New 2260
=
=
.
=

New & 82 New TR 5 4 x 2260

=
=
.

inda
Ep
= -

12204
New TR =
4x82
=
328
-1 3.
=
d
-
10

TR =

12204 +

328

12532

DTR =
12532-12410
* - 132

Ec
=

y .
binOd of Buttermilk
A i
Of FM Since the This
increasing
18 Od of Buttarm
a veau mikis" ommended
-
10
 ELASTICITY OF SUPPLY

Es :

yage change in Oty Supply

.

%
age change Price
in

Es
=
=

Es Os
x
=

·
Degrees OF
Elasticity

1 .

Perfectly Elastic
Supply (Es 2) =

-
N

=
Es =
2

P S

> X
D
Os

->
such a
supply curve can be seen in

highly populated country with mass-

unemployment for labour hours specially
for unskilled laborers .
 2 .

Perfectly Inelastic
Supply
(Es 0) =

Y
A

Pz---------

E P- ---------
Es 0 =

P, - - - - - - - -

-
O X

Os

->
such a
supply curve can be seen for rave

commodities like
paintings antiques and places
,

with limited
seating capacities like stadiums
auditoriums etc
,
Airplanes .

3 .

Relatively Elastic
Supply (Es)()
AP <AR
Y A

S ...
Es /

----i ..........
↑

P,
............,
S

>X
⑧ O O 02

OS

->
Here in will
a small
change price see a
relatively
bigger change in
supply
.

like , Electronics, Toys or Manufactured

goods .
2 .

Relatively Inelastic Supply (Es(1)

Ya
:. P>A0 :: ESCI
S

:
e

-x

Os

->
Commodities derived From natural

crude oil
resources like
gold , , minerals

this
will see
type of supply curve .

5 .

Unitary Elastic Supply (Es=1)

YX

Pz . -------------

*
↑
P

...........
...... "
↓
Pi

↳
S
E
- -
,
I
⑧ Ol O R2 X

⑪S
Demand .
Supply and
Elasticity
Phase-I ->
April 2019 to March 2028 (Pre-covid)
Phase-2 -
April 2020 to
July 2021 (2 waves
of covid covered)
I Peak of lockdown)

Phase-3 -

Ang 2021 to July 2023

(Opening up of the
economy)

Slide I >
Givp-20
Name Members
of
Roll no -

2nd Slide ->

Intro
of Firm
(Indian
Economy
pow]
Slide 3 -
Phase 1 India's GDP rate
growth
.
.

Slidey For Phase 1

->
Diagram .

slide 5 -
Literature
supporting slidey .
(Newspresen

Every Phases 3 slides

Last Slide -
Predictions how will
youre company fair in
the Future-

24th
Submission Date ->
September
0 18
.
Y
A

4x1
Origina TR =

D :
OPXOO
Price ↳
OF Wheat Area
of DOPER
=

El

"T E
New IR =

:
4xQ
OP , x OK ,

a
3 ,
Area I Up,E , A ,
:

>X
O
Di Q

Od and Os of heat ...

OP, E, Q , > OPEO

.. TRY
 FACTORS AFFECTING ELASTICITY SUPPLY

1
5
. MC=

↑MC ->
Esk

2 . No .
Or sellers ,

↑ No . OF sellers -> Est

Or Factors Production
3
Mobility Of
.
:
-

↑Mobility ->
Esq

Excess
n .

Capacity
↑
Excess Est
Capacity ->

5 . Time Period

Short Run -> Esk

Run Es
Long
t
 coefficient of is 2 What
Due .
The
elasticity ofthesupply seller
of
goodsupply .

the commodity ,wa supplies so units at M per

Of
quantity
price of
at
Rs .
a

unit ?

Es :

yage change in Oty Supply

.

%
age change Price
in

25 %
%
change 1x100
=
=

2 =

3
New Y
0 80 40
=
=

&S 50 %
change in
=

New Q =
40 +
80 = 120
 ·
APPLICATIONS OF Es and Ed

(1) Incidence Or Tax

can't

-under↳shifted
Burden can be shifted .

Direct Indirect
M
·

Impact and ·

Impact and Incidence

Incidence 2 diff
is on
people
is on the
same
person

Impact - On whom the tax is levied .

Incidence - One who bears the burden of the tax .

Indirect Tax Incidence and Ed and Es

1) Ed = 0
Since Ed is 0
Y R equal to ive can

D say that the

buyer is
completely
S insensitive i he will
price e
. .

continue to units of
buy same

↳ good irrespective of the

price .

Price A
Tax Rev
and Tax
3 TAX Before Tax
- -

" +X Q
price : Op
↳i
Ot =
00

After Tax Pp , xPE(PE 0 :

3 -

0 Q X

Od and Os Price =
OP, =I PP, E , E
Ot =

0Q
.. PP, =
Tax
2) Ed>Es

M
Si Tax
Before
D -

S
P Price
=
OP
.

07 =

00
↳ P

After Tax
ps D -

OPB
4
&
Buyers price =

0, 7
O Ops
Od and Os
sellers
price :

Tax =

0PB -

04s =
PBPs

Buyers Burden oF Tax = 4 PB

Sellers Burden of Tax =

PPs
: Ed>Es :. PPS>PPB

3 .
If Es> Ed
4 . When Es =

0
0 19
.

Ed =
4 04.

Es =0 . 22

8 22 Sellers 100-5 16
Buyer
: .
=
.
- -

4 04+0 22
.
.

= 94 84 % .

=0 .
0516

=
5 16 %
.

will take no or
The seller
large
->
a
burden on the tax as demand is

highly considering heYachts

elastic
shifts
are

super luxury goods If .

a
larger burden on buyers he will
loose a
large no
of customers -
.

Burden on the Buyer FES

=

Burden on the Seller-Ed -

Ed+ ES

0 .
20)
Od =
13500 -
500P : Od =

13500 =
500x15

&S =
3000 + 200P & =
6000

Si
Od= OS D S

13500 -
5004 =
3000 +
2009 - -

D
13500 -
3000 =
200p +
500

10500 = 700P

0S 200 (P-10)
=
p = 3000 +

-I
1P 15 =
-
New Ed ,

Od =

Os

13500-300p =
3000 +
200(P -10)

P =
17 86.

Od =
13500 -
500 x 17 .
86

- 4570

Sellers Price
Price -
Buyers 10
-
Tax
-
17 86
-
.

- 7 86 .

Sellers Burden
In 7
= .
86

Price 17 86
Buyers
=
.

Burden 17 86-15
Buyer's
= .

2 86. .

⑱Es
 Applications of Ed and Es

1) Incidence Of Tax

1) Paradox of Good for

fauming
Plenty news is bad news
-

for the farmers

in
elastic
Ya
highly

~ ~
D clastic
highly

Price S
of food
Mop I 100) P
M f Si

100
E TR
, =
x 1000

=100000
1401 P, *

s .
I D

7
TR2
=

=
40 x

44 , 000
1100

a,
O
(1100) X

(1000)
Odand Os of Food
Gop wor ?
Freea
e
losses

3) OPEC and
global oil prices .
 [PRODUCTION
FUNCTION

showt Run
long Run

It is a functional relationship between the inputs employed and the

resultant output .

In the shout run some factors of production and fixed while

others are variable .

In the
long hm all factors
of production will become

variable and firm its entire of

the can
change scale

production .

-
SHORT RUN -
& =

f(L i), ⑰RUN - & :

f(L k)
,

O &: Output
:

Output
1 :

Units
of Labour (variable) 2
:

Units
of Labour/variable)
5 =

Units of Capital (constant or Fixed) 1

:

Units
of capital (variable
 SHORT-RUN PRODUCTION FUNCTION

OR
THE LAIN OF VARIABLE PROPORTIONS

1 . Total Product (TP) ->

Output (C)

(AP)
Average Product
↑
2
=

3 .

Marginal Product
(MP)=

Units of Labour Total Product Average product Marginal

product
L O AP MP
&

E
80 80 80

staue 988
170 90
270 ⑱
0 0

such
368 92 98
430 62
480 86 50
304 72
304 24
since 499
480
B -

-
I
15
3
 TP
-
AP d
2
MP Stage I
Stage stage
3

-
i
&
point of
Inflection

-
-
X

units of Labour

stage I -

increasing returns to a Factor (I to 4)

causes

1 . Fixed Factors) Variable Factors -

.
2 Specialization
-
STAGE-2
Diminishing Returns To a Factor

CAUSES :

I .
Fixed Factors Variable Factors

2
. Intensive use of indivisible FF .

of the Factors
3
.
Imperfect substitutability .

STAGE -3 Negative Returns To a Factor .

CAUSE :

overcrowding the FF
 e ② e

E
51 S
75 119
2
Stagel 504 84
91 133

g
sta
768
99
1000
99
1152
88 2
63
stugs
.

2 1140 81 43
.
 LONG-RUN PRODUCTION
OR

RETURNS To SCALE

In
long Run all Factors of Production become variable

and therefore the Firm can

change its entire scale of

production .

STAGE 2] to Scale
In casing Returns .

% D in < % D in the Output

all Inputs
-> .

causes :

of Certain Factors
↓ .

Indivisibility
.
2 Extensive Specialisation
The Curve Effect
3 .

Learning

STAGE-2] Constant Returns To Scale .

% A in all %
Inputs= A in Output
->
. .

causes
-
:

Overcoming
1 .

In efficiencies

Perfect
C .

divisibility of FOP .
STAGE 3] Decreasing Returns to scale

->
%. the output
1 A in all
.

inputs I in

CAUSES :

1 Difficulties
Managerial
.
.

2 .
1 .
TFC

-N

TFC
R

0 >x
OUTPUT (0)
-

The TFC curve is parallel to the x axis as TFC does not vary with the level of output .
Ex — rent , interest on loan , salaries of board of directors .
ex
At output = OQ 2
TC = KQ2
TF C = JQ2
TVC = NQ2
TFC = TC - TVC
TF = KQ2- NQ2
TFC = KN
.. KN=JQ2

OUTPUT

3 .
TC =

TFC + TVC
 I
4 .
AFC= : TFC =
AFCXQ

Y
A

Since Q
AFC multiplied by
will
always yield a
Rectangular
->
constant value which is TFD .

Hyprebola The AFC curve is a

rectangular
hyperbola
E

AFC
-
X
0
Output (a)

5 .
AVC= I
Q · The AVC curve is a mirror
Ap
image of the curve

-a in short run production

~
function .

·
This makes the AVC curve

AVL a U-shaped cheve .

-X

Output (a)
Ya
Staged Stage 2 Stage 3

AP

Mem
Units of the Variable Factor
 6 .
AC= AFC + AVC OR AC = T
-

-
-
Auc

-
E ~ is
it is
a

summation
AFC and AVC at
a
The

U-shaped
AC cree

curve

of
output
as

091 AVC is
minimum
# at
point
+ The AC
continues to fall till output
OQ2 where the minimum
is N
point
This is because
of AC
S
X although
0 at ON ABC is minimum
OUTPUT the AFC continues to fall

sharply between points

K and I

M
This causes Al to continue
to fall fill N that is
point
output OR2 after OQL
or
point N the AC
starts rising as the Fall
in AFC has become
insigni-
Ficantafterpointepoint
/ I .

7)
y
Mc
=

e
or
& TL TFC TVC AFC=TF AUC AC MC
(TC
-

-
TFC) Q

8 50 #O O D

I 70 50 20 50

2 85 50 35 0 58 .

3 118 50 60 16 66
.

y 150 30 100 12 3 .

5 199 50 149 10

6 240 50 190 8 33.

7 287 30 237 7 14 .

5 3H2 50 292 6 .
25
 Concepts Of Cost

1
.
Opportunity cost Implicit cost Explicit cost
=
+

2 .

Implicit cost =
Cost of all self owned resources ·

.
3 Explicit cost =

Cost oF all resources hived or

purchased from outside sources

cost Explicit
4
Accounting cost
=
.
.

Explicit
.

5 Economic cost =

+
Implicit
cost cost

6
Accounting =TR Accounting cost
-

Profit

7
.

Economic :
TR-Economic cost
profit