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Types of Price Elasticity of Demand
Types of Price Elasticity of Demand There are 5 types of price elasticity of demand, mentioned in the figure below: Table of Content [Show] Let us study these different types of price elasticity of demand. Perfectly Elastic Demand Perfectly Elastic Demand Definition: When a small change (rise or fall) in the price results in a large change (fall…
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What is Price Elasticity of Demand?
What is Price Elasticity of Demand? Price elasticity of demand is the measure of a change in the quantity demanded of a product due to change in the price of the product in the market. Table of Content [Show] In other words, Price elasticity of demand can be defined as the ratio of the percentage change in quantity demanded…
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What is the Elasticity of Demand?
What is Elasticity of Demand? Elasticity of demand is a degree of change in the quantity demanded of a product in response to its determinants, such as the price of the product, price of substitutes, and income of consumers. Table of Content [Show] In economics, elasticity can be defined as the responsiveness of a variable (demand or…
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Revealed Preference Theory
What is Revealed Preference Theory? The Revealed Preference Theory states that consumer’s preferences can be revealed by the purchases they make under different income and price circumstances. The revealed preference theory was proposed by an American economist Paul Samuelson in his article ‘Consumption Theory in Terms of Revealed Preference’ in 1948. Table of Content [Show] The revealed preference…
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Consumer Equilibrium
What is Consumer Equilibrium? Consumer Equilibrium refers to a situation where the consumer has achieved the maximum possible satisfaction from the quantity of the commodities purchased given his/her income and prices of the commodities in the market. Table of Content [Show] The ordinal utility approach (which follows the two-commodity model explanation) provides two conditions with respect to…
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What is Budget Line? Definition, Concept, Shift, Slope
What is Budget Line? Budget line represents various combinations of two commodities, which can be purchased by a consumer at the given income level and market price. The budget line is an important element of consumer behaviour analysis. In this section, let us study about the concept and importance of the budget line in detail. Table…
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What is Marginal Rate of Substitution?
What is Marginal Rate of Substitution? Marginal rate of substitution (MRS) refers to the rate at which one commodity can be substituted for another commodity maintaining the same level of satisfaction. Table of Content [Show] The MRS for two substitute goods X and Y may be defined as the quantity of commodity X required to replace…
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What is Indifference Curve
What is Indifference Curve? Indifference curve can be defined as the locus of points each representing a different combination of two good, which yield the same level of utility and satisfaction to a consumer. Table of Content [Show] Therefore, the consumer is indifferent to any combination of two commodities if he/she has to make a choice between…
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What is Cardinal and Ordinal Utility? Assumptions
What is Cardinal Utility? Cardinal Utility explains that the satisfaction level after consuming a good or service can be scaled in terms of countable numbers. The cardinal utility theory or approach was proposed by classical economists, Gossen (Germany), William Stanley Jevons (England), Leon Walras (France), and Karl Menger (Austria). Later on a neo-classical economist, Alfred Marshall…
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What is Law of Diminishing Marginal Utility
What is Law of Diminishing Marginal Utility? The law of diminishing marginal utility states that as the quantity consumed of a commodity continues to increase, the utility obtained from each successive unit goes on diminishing, assuming that the consumption of all other commodities remains the same. Table of Content [Show] To put simply, when an individual continues to…