Consumer Behaviour and Demand Test - 11

As per geomeric method for calculating price elasticity,we can say it can be different.

slope remains constant as it is linear curve but not the elsaticity, it can be different.

An agent 's  preferences  are said to be stronglymonotonic  if, given a consumption bundle , the agent prefers all consumption bundles that have more of at least one good, and not less in any other good.

MU &TU relationship  ;

MU is the rate of change of TU.

When the MU decreases, TU increases at decreasing rate.

When MU becomes zero, TU is maximum. It is a saturation point.

When MU becomes negative, TU declines

A consumer 's  preferences  are said to be stronglymonotonic  if, given a consumption bundle , the consumer  prefers all consumption bundles that have more of at least one good, and not less in any other good.

As per total outlay method

(i) If with a fall in price (demand increases) the total expenditure increases or with a rise in price (demand falls), the total expenditure falls, in that case the elasticity of demand is greater than one i.e. ED >1.

(ii) If with a rise or fall in the price (demand falls or rises respectively), the total expenditure remains the same, the demand will be unitary elastic or ED = 1.

(iii) If with a fall in price (Demand rises), the total expenditure also falls, and with a rise in price (Demand falls) the total expenditure also rises, the demand is said to be less classic or elasticity of demand is less than one (ED <1).

ed = % change in quantity demanded / % change in price

% change in quantity = (100-50) / 50 ) * 100 = 100%

% change in price = 25% 

by using above formula ;

100/25 = 4

If  elasticity of demand is equal to 1.

then,

% change in price = % change in quantity

there is 50% fall in quantity from 40 to 20 kg.

hence there should be 50% increase in price  

new price = 1.5

Other things remaining the same when a person takes successive units of a commodity, the marginal utility diminishes constantly

A relatively elastic demand curve has a steeper slope.A relatively elastic demand has a flatter curve because the percentage change in quantity demanded is greater than a percentage change in price.