Microeconomics

Concept: Price Elasticity of Demand (PED) measures the responsiveness of quantity demanded of a good to a change in its price.
Definition: It shows how sensitive consumers are to price changes.
Types (based on value):

• Elastic demand
• Inelastic demand
• Unit elastic

Factors Affecting Price Elasticity of Demand:
1. Availability of Substitutes:

• More substitutes more elastic demand.
• Fewer substitutes inelastic demand.

{Example:} Tea and coffee.
2. Nature of the Commodity:

• Necessities inelastic demand (e.g., salt, medicines).
• Luxuries elastic demand (e.g., cars, ACs).

3. Proportion of Income Spent:

• Goods taking large share of income elastic demand.
• Small expenditure goods inelastic demand.

{Example:} Cars vs matchboxes.
Other Factors (brief):

• Time period
• Habits and preferences
• Brand loyalty

Concept: Equilibrium in a market is determined by the intersection of demand and supply curves. When both demand and supply increase simultaneously:

• Demand curve shifts right
• Supply curve also shifts right

The final effect depends on the relative magnitude of the shifts.
Effect on Equilibrium Quantity: Both increases push quantity upward:

• Higher demand higher quantity
• Higher supply higher quantity

Effect on Equilibrium Price: Price effect is ambiguous because:

• Demand increase price rises
• Supply increase price falls

Thus outcome depends on which shift is stronger.

• If demand increase supply increase price rises
• If supply increase demand increase price falls
• If both equal price unchanged

Conclusion: