Theory of Supply

 

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SHIFTS & ROTATIONS IN PRODUCTION POSSIBILITY CURVE

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    Learning Contents:                                                                Shifts   in   PPC  Rotations in PPC Change in Production Possibility Curve (Shifting/Rotation) The change in the Production Possibility curve can be of two types:  Shift in PPC: PPC will shift when there is a change in productive capacity (resources or technology) with respect to both the goods. Rotation of PPC: PPC will rotate when there is a change in productive capacity (resources or technology) with respect to only one good. Shifts in PPC:   The shift in PPC can either be rightward or backward. These shifts bring about a change in the production of both goods in an economy. The shifts in PPC are of two types: Rightward shift in PPC: Rightward shift in PPC occurs when the resources are increased or technology is improved for the production of both goods that means we can produce more of both the goods. Accordingly, PPC shifts to the right from Initial PPC (AB) to Final PPC (CD).   Re
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Income Elasticity: Luxury Goods, Necessity Goods, and Inferior Goods.

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  Learning Contents:                                                               ·         Understanding Income Elasticity with respect of luxury goods, necessity goods and inferior goods. The demand for a commodity not only depends on the price of a commodity but also the income level of the consumer. It is a general understanding that a consumer usually prefers to spend more when his income rises and less when his income falls. Sometimes, we might also experience a fall in the demand of certain goods and services even when income rises. Therefore, income elasticity varies with respect to different types of goods and services. The income elasticity measures the percentage change in quantity demanded as a result of percentage change in the income of the consumer. The formula of income elasticity of demand is, The income elasticity measures the demand’s sensitivity or responsiveness to the change in income.   In simple words, it measures to what extent demand changes as a result o
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CONSUMER’S PREFERENCES AND INDIFFERENCE MAP

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    Learning Contents:                                                               ·          Understanding Consumer preferences and Indifference curve. ·          Understanding Indifference Map. Introduction: The concept of the indifference map is based upon the concept of consumer preferences. So, it is important to first understand the concept of consumer preferences. Consumer’s Preferences: Preferences indicate individual tastes, likings, etc. that determine the amount of pleasure, happiness people get from the consumption of the goods and services and measured by the utility of various bundles or combinations of goods. It allows the consumers to rank these bundles of goods according to the levels of utility it provides them. Note that preferences are independent of income and prices. The ability to purchase goods does not determine a consumer’s likes or dislikes. One can have a preference for Rolex watches over Titan but only have the financial means to wear a titan
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