Browsing Category

Microeconomics

Determinants of Demand

17 The determinants of demand are factors that cause fluctuations in the economic demand for a product or a service. A shift in the demand curve occurs when the curve moves from D to D₁, which can lead to a change in the quantity demanded and the price. There are six determinants of demand. These six factors are not the same as a movement along…
Read More...

Income Elasticity of Demand (YED)

Income Elasticity of Demand (YED) is defined as the responsiveness of demand when a consumer's income changes. It is defined as the ratio of the change in quantity demand over the change in income. The higher the income elasticity, the more sensitive demand for a good is to changes in income. This means that a very high-income elasticity of…
Read More...

Economies of Scale

Economies of Scale is defined as a fall in the long run average costs because of an increased scale of production. This basically means the cost of production per unit reduces as you produce more units. Reducing the cost per unit of production is the most significant advantage of achieving economies of scale. For example, if we are producing a…
Read More...

Price Elasticity of Demand

Price Elasticity of Demand (PED) is defined as the responsiveness of quantity demanded to a change in price. It is also the slope of the demand curve. We calculate the slope as "rise over run." For example, if I increase the price of a phone from $300 to $500, then how much can I expect my demand to fall? This answer will depend on various…
Read More...

Marginal Rate of Substitution

The Marginal Rate of Substitution (MRS) is defined as the rate at which a consumer is ready to exchange a number of units good X for one more of good Y at the same level of utility. The Marginal Rate of Substitution is used to analyze the indifference curve. This is because the slope of an indifference curve is the MRS. Marginal Rate of…
Read More...

Indifference Curve

An indifference curve depicts a line representing all the combinations of two goods that consumers place equal value. That is to say, they would be indifferent to either good. The consumer has no preference for either combination of goods on the same line because they are understood to provide the same level of utility to the consumer.…
Read More...