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Elasticity, Consumer Surplus and Producer SurplusPrice Elasticity of Demand is the degree of responsiveness of demand for product due to a change in the price of that product.-Perfectly inelastic demandInelastic demand vs elastic demand Unit elasticity Perfectly elastic demand Measuring price elasticity of demand: Total revenue method Price per litre (Rs)Quantity demanded Total revenue Elasticity 1.01818Elastic0.92219.80.82721.60.73323.10.64024Unitary0.548240.45823.2Inelastic0.370210.28416.8Measuring price elasticity of demand: Point methodElasticity = percentage change in quantity demanded, between two points divided by percentage change in price between two points.

Numeral Example Midpoint formula ? Types of Elasticity for Demand Price elasticity of demand: Already discussed

Income elasticity of demand: Measures how the quantity demanded of the product responds to a change in income. Cross elasticity of demand: Measures how the quantity demanded of one product responds to changes in the price of another product.

Elasticity of Supply Perfectly elastic supply Inelastic supply Unit elasticityElastic supply Complete elastic supply

Measuring elasticity of supply

Assignment Discuss the factors that affect elasticity of demand and supply Submission date: November 14, 2012Consumer Behavior Total Utility Marginal Utility Law of Diminishing Marginal Utility

Numeral Example and graphical presentation Units Total Utility Marginal Utility 0001101021883246428453026300728-2

Marginal Utility and DemandAre marginal utility and demand related?

Why consumer pay lower purchase when they want purchase more quantity Demand curve: Marginal Utility = Price of the product Consumer Choice and Budget Constraint Rational Behavior

Clear-cut preference

Budget constraints

Prices are given Utility-Maximizing Rule To Maximize satisfaction, the consumer should allocate his or her money so that the last rupee spent on each product yields the same amount of extra (marginal) utility.

Utility Maximization and Demand Curve

Indifference Curve AnalysisThe budget line: What is attainable; the consumers budget line shows all the combinations of any two products that can be purchased, given the prices of the products and the consumers money income.

Budget line

Indifference Curve Every point on indifference curve represents some combinations of products A and B, and all those combinations are equally satisfactory to the consumer. That is, each combination of A and B on the curve yields the same total utility. Indifference Curve

The Indifference Map

Marginal Rate of substitution (MRS)MRS is the rate at which consumer substitutes one good for the other to remain equally satisfied.

The Slope of Indifference Curve = MRSEquilibrium at Tendency Slope of indifference curve = slope of budget line

Consumers Equilibrium

The Derivation of the Demand Curve

The Cost of ProductionEconomic costs Explicit vs implicit costs Normal profit as a cost

Production in Short runSort run vs Long run Total output Marginal output Average outputThe relationship between input and outputLaw of Diminishing ReturnAs a variable resource (labor) is added to fixed amount of other resources (land and capital), the total product that results will eventually increase by diminishing amounts, reach a maximum, and then decline. Law of Diminishing Return

Total Cost

Marginal and Average Costs

The Relationship b\w Output and Costs

Long-Run Cost Curves

Long-Run ATC

Market Structure Perfect (pure) CompetitionMonopoly Monopolistic Competition Oligopoly Total, Marginal and Average Revenue under Perfect Competition

Cost Curves

Maximizing Profit

Economic Profit

Loss

Shutdown Point

Competitive Firms Short-run Supply

Single Firm vs Industry

Long-run Equilibrium under Perfect Competition