ELASTICITY OF THE DEMAND

                          ELASTICITY OF DEMAND 

E  Elasticity of demand shows that  how sensitive  the market is  , if the economics variable of some product changes than how it effects on its quantity  demand . Demand elasticity is calculated as percent change in quantity demanded to percent change in other economics variable . The higher the elasticity of demand for an economics variable means that consumers are more responsive . 

These variable are PRICE of the commodity , PRICE of the RELATED GOODS ,  INCOME of the consumers .

CONSIDER THE FOLLOWING SITUATIONS :

1. As a result of a fall in the price of radio from rupee 500 to 400 , the quantity demand increases from 100 radio to 150 . 

 

2. As a result of fall in the price of wheat from rupee 20 per kilogram to 18 per kilogram ,the quantity demanded increases from 500 kilogram to 520 kilogram .

interpretation of demand elasticity

Elasticity of demand measured in absolute term . 

If elasticity of demand is greater than 1 , then it is elastic .

If elasticity of demand is less than 1 , then it is inelastic .

If the elasticity of demand is equal to 1 , then it is unitary .

EXCEPTION OF LAW OF DEMAND - COMMERCE SCHOOL

A EXCEPTION OF LAW OF DEMAND

These are  the situations which contradict  law of demand. 

1. Law of demand states that with the rise in price of product , demand of it decreases or
 2. when the price of the products are reduced,  the demand for it increases.
3. In the law of demand price and quantity demanded for it INVERSELY RELATED. 

EXAMPLE,  Suppose the price of coffee decrease from rupee 100 to rupee 50 , the demand of coffee increase from 500 units to 1000 units. 

IN EXCEPTION CASES WHEN THE PRICE OF PRODUCT INCREASES THE DEMAND FOR IT ALSO INCREASES.

EXCEPTIONS WHERE LAW OF DEMAND DOESN'T APPLY .

GIFFIN GOODS - 

1. A GIFFIN goods considered to be an exceptions of law of demand.

2. Unique features of GIFFIN goods results in quantity demanded increase when price increase.

3. SIR ROBERT GIFFIN observed that when the price of the bread increases in late 19th century , Then , the British worker started purchasing more of breads  . 

4. Which is totally against the law of demand. 

5.The reason of this is that after increasing in the price of breads,  workers buying it more because bread is still cheaper than other commodities. 

6. We called 'GIFFIN GOODS ' Also a inferior goods. 

VEBLEN GOODS -

1. These goods are more visible in society.

2. The demand for these good increases with the increase in the price.

3. These goods tend to be status of symbol and is sign of wealth.

4. VEBLEN goods are also known as 'conspicuous ' and prestige ' goods '

5. EXAMPLE - ROLL ROYACE,  AUDI AND DIAMOND ETC.

Consumer Habits 

1 . Goods like alcohol , cigarette etc. 

2. If there is rise  in the price of that commodity, will not lead to change in demand. 

ECONOMICS FUNCTION CIRCULAR FLOW OF INCOME - COMMERCE SCHOOL

Circular flow in four sector economy consists of government , household , firm and foreign sector .  

HOUSEHOLD SECTOR 

Household provide factor service to -
1. GOVERNMENT SECTOR  - By working for government as government employee .
2. FIRM SECTOR  - As a worker and by buying  good and services .
3. FOREIGN SECTOR - Buy purchasing good and services .

HOUSEHOLD SPENDS THEIR INCOME ON

1. Payment for good and services which are purchased from firms and foreign sector .

2. To government in the form of TAXES . 

    EX- DIRECT AND INDIRECT .
             . DIRECT TAXES - Which are paid directly in the form of income tax .
             . INDIRECT TAXES - which are paid indirectly .    

FIRMS

1.Firms received revenue from household , government and foreign sector for sale of their of good and service .
2. Firms also gets subsidies form government . By giving subsidies to firm government helps firms to produce more of goods .

FIRM MAKE PAYMENT FOR 

1. Firms make payment to household for their work .
    EXAMPLE - SALARY , WAGES , INCENTIVES ETC 

2. Firms make payment to government in the form of TAXES .

3. To foreign sector for the import of goods and services .

GOVERNMENT 

  Government receive revenue form household , firm and foreign sectors in the form of  TAXES , FEES , FINES ETC .

  

GOVERNMENT make payment in the form of providing servies to the peoples of countries and help firms by giving them subsidies .

FOREIGN SECTOR 

Foreign sector receive revenue from firms , household and government for export of good and services .
Foreign sector make payment for import of goods and services from firms and government .

THE SAVING OF HOUSEHOLD , FIRMS AND THE GOVERNMENT SECTOR GET ACCUMULATED IN THE FINANCIAL MARKET . FINANCIAL MARKET INVESTS MONEY BY LENDING OUT MONEY TO HOUSEHOLD , FIRMS AND THE GOVERNMENT . THE INFLOW OF MONEY IN THE FINANCIAL MARKET ARE EQUAL TO OUTFLOW OF MONEY . IT MAKE THE CIRCULAR FLOW OF INCOME COMPLETE AND CONTINUOUS .

GOOD AND SERVICE TAX - COMMERCE SCHOOL

GST OR GOOD AND SERVICE TAX

 As the name implies , it is an indirect tax applied both on good and services at uniform rate . A single form  of tax known as GST tax will be applied throughout the country , replacing number of indirect tax like VAT , SERVICE TAX , CST AND CAD etc .

There is HSN  code for every product which comes under GST tax slabs. 

WHAT IS HSN CODE  ?

The Harmonized Description Number and coding system known as ' HARMONIZED SYSYEM OF NOMENCLATURE  , It is developed by World Custom Organisation. 

The motive of HSN is to classify the goods from the all over world in systematic and uniform manner. 

SLAB RATE OF GST 

. ZERO RATED ITEM - Those goods which are necessities for living and some agriculture products. 

EXAMPLE - Foodgrain used by common man .

. 5 % RATE  - 

Item of mass consumption including essential commodities will have low tax incidence .

. 12 % and 18 % RATE -

 Services 

. 28 % rate  - 

White goods like air conditioner , wachine machine , soaps , shampoo etc which was earlier taxed at 30 % to 31 % , now taxed at 28 % . 

NEGATIVE IMPACT OF GST ON COMMON MAN 

. COMPLIANCE BURDEN  - 

An individual have to file 3 returns monthly and 37 turn annually .

. Service like telecom , banking , airline etc BECOME MORE EXPENSIVE . 

. 12 % and 18 % RATE -

 Services 

. 28 % rate  - 

White goods like air conditioner , wachine machine , soaps , shampoo etc which was earlier taxed at 30 % to 31 % , now taxed at 28 % . 

NEGATIVE IMPACT OF GST ON COMMON MAN 

. COMPLIANCE BURDEN  - 

An individual have to file 3 returns monthly and 37 turn annually .

. Service like telecom , banking , airline etc BECOME MORE EXPENSIVE . 

. Increased in cost in service means , an ADD ON TO YOUR MONTHLY INCOME .

. If the actual profit is not to the customers and the seller increases his profit margin, then the price of the goods also sees a rising trends . 

. Time will be needed to understand and new software have made for it . 

PRODUCTION POSSIBILITY CURVE ( NCERT ) - COMMERCE SCHOOL

WHAT IS PRODUCTION POSSIBILITY CURVE ?

Production possibility curve help us in understanding how we use limited resources for satisfying our unlimited  needs .

In this curve we study how we produce combination of two goods with limited resources . This means that production of one good , is only increase when we reduced the production of other good  , due to limited  availability of resources . 

Therefor , the PPF measure the efficiency in which two good produced together , helping manager and leaders decide what kind of goods is most beneficial .

The PPF assume that technology is constant , resources are used efficiently , and that there is normally only a choice between two goods .

Suppose , we have two commodities capital and consumers . capital goods are depicted in X axis and consumers goods are in Y axis , if we want to produced more capital goods , we have decreased the production of consumer goods and if we want to produce more consumer goods we have to decrease production of capital goods this is because of limited resources .

Therefore , any mix of two commodities , given limited resources , only efficient when it lie on the PPF curve . Achieving the Pareto efficiency that an economy is operating at maximum potential . 

ECONOMY AND ITS PROBLEM ? - COMMERCE SCHOOL

          WHOLE ECONOMICS IS              DEPENDS ON 

        1- LIMITED RESOURCES 

        2- UNLIMITED WANTS 

The central purpose of the economy is to production of the good and services for satisfying our changing needs and wants . Economics is arise from principle of scarcity , every society has to decide :

WHAT TO PRODUCE : 

The problem of what to produce calls for deciding which goods to produce and in what quantities . The problem arises because of the scarcity of resources .

EX - bata India limited , since the resources ( leathers , capital and labour  are scarce , the company has to decide whether it has to produce shoe , sandals or chappals or a combination of these  .

HOW TO PRODUCE :

The second central problem how to produce , what combination of resources and technology should used for producing the good . 

Example - Take the case of shoes . shoe can either be hand produced by cobbler or produced by machines .

WHOM TO PRODUCE : 

After goods and services are produced , the question of distributing them among the various members of the economy arises . Essentially , this is a problem of sharing the national product and deciding the criteria for its distribution .
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