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Theory Of Consumer Behaviour

Question
CBSEENEC12013400
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The measure of price elasticity of demand of a normal good carries minus sign while
price elasticity of supply carries plus sign. Explain why?

Solution

The first law of demand states that as price increases, less quantity is demanded. This is
why the demand curve slopes down to the right. Because price and quantity move in
opposite directions on the demand curve, the price elasticity of demand is always negative.
Hence the measure of price elasticity of demand of a normal good carries minus sign as
there exists an inverse relationship between demand and price of the good.
On the other hand, a supply curve is characterized by a line that slopes up to the right.
Thus, as the price increases, more quantity is supplied. Because price and quantity move
in the same directions on the supply curve, the price elasticity of supply is usually positive.
Thus the price elasticity of supply always carries a plus sign.

Some More Questions From Theory Of Consumer Behaviour Chapter

What is demand function? State a consumer's demand function.

Distinguish between 'Change in demand' and 'Change in quantity demanded of a commodity'. 

Starting from an initial situation of consumer's equilibrium, suppose that marginal utility of a rupee increases. Will it increase or decrease the quantity demanded of the product?

What are two approaches to attain the state of consumer's equilibrium?

Define indifference curve.

What is meant by marginal rate of substitution (MRS)?

 Why is MRS always diminishing?

When does a consumer attain equilibrium according to indifference curve approach?

Give meaning of demand.

 Name two determinants of demand.

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