What happens to the demand of a good when consumer's income changes? Explain.
Income of consumer is an important determinant of demand. The rise and fall of the demand for a good as per the rise in income of consumers depends upon the nature of good. Normal goods have a positive income elasticity of demand, so as consumers' income rises, more will be the demand. A rise in the income of the consumer will increase the demand for the good. In the case of Luxury goods and services, demand rises more than proportionate to a change in income. Inferior goods have a negative income elasticity of demand meaning that demand falls as income rises.
A consumer consumes only two goods. Explain consumer's equilibrium with the help of utility analysis.
State the behaviour of marginal product in the law of variable proportions. Explain the causes of this behaviour.
From the following information about a firm, find the firms equilibrium output in terms of marginal cost and marginal revenue. Give reasons. Also find profit at this output.
|
Output (units) |
Total Revenue (Rs.) |
Total Cost (Rs.) |
|
1 |
7 |
8 |
|
2 |
14 |
15 |
|
3 |
21 |
21 |
|
4 |
28 |
28 |
|
5 |
35 |
36 |
Market of a commodity is in equilibrium. Demand for the commodity 'increases'. Explain the chain of effects of this change till the market again reaches equilibrium. Use diagram.
Explain the conditions of consumer's equilibrium with the help of the indifference curve analysis.
