Learn Economics by Dr. Swati Gupta

  Market Equilibrium and Changes in Market Equilibrium Market equilibrium is a situation where the supply of a particular commodity is equal to the demand of that commodity in the market. The equilibrium price is defined as the price at which the quantity supplied and quantity demanded are equal. Quantity demanded is an inverse function of price, while quantity supplied is a direct function of price. Before Marshall, there were some disputes among economists. Few economists gave importance to the force of demand in determining the price while few emphasized the force of supply. Marshall has given equal importance to both demand and supply in the determination of price. According to him, neither the upper-blade of scissors nor the lower-blade can separately cut the paper but both have their importance in the process of cutting. Likewise, neither supply nor demand alone can determine the price of a commodity. Both are having equal importance but the relative i...

Elasticity of Supply The term elasticity shows the reaction of one variable with respect to a change in other variables on which it is dependent. In economics, the term elasticity refers to a ratio of the relative changes in two quantities. It measures the responsiveness of one variable to the changes in another variable. The elasticity of supply is a measure of the degree of responsiveness of quantity supplied to a given change in price. It can be expressed as follows:               % Δ Quantity Supplied PES = ————————————–                       % Δ Price Generally, the co-efficient of price-elasticity of supply always holds a positive sign because there is a direct relationship between the price and quantity supplied. It increases with a rise in price and decreases with a fall in price. Symbolically, The value of elasticity coefficients will vary from 0 to infinity.  There are 5 types of ...