This document provides an overview of key concepts in managerial economics including: 1. Definitions of economics, microeconomics, macroeconomics, and managerial economics. Managerial economics applies economic theory to business problems. 2. The four factors of production - land, labor, capital, and entrepreneurship. These are combined by businesses to produce goods and services. 3. The circular flow of economic activity between households, firms, government, and foreign sectors. Income and expenditure flow continuously between these groups.

1. Managerial Economics
Module-I
(Introduction to Microeconomics and Consumption
Decision)
-Dr Diksha Bisht
Assistant Professor
School of Commerce

2. CONTENT
- Introduction to Economics and definitions
- Factors of production
- The circular flow of economic activity
- Choice as an economic problem-Opportunity cost, PPF.
- Law of demand, price quantity relationship, determinants, exceptions, Demand schedule,
equations and diagrams, shift and movement along the demand curve.
- Law of supply, determinants, shift and movement, Equilibrium, Elasticity of Demand and
supply, Calculating Price Elasticity of Demand, Categories of Price Elasticity of demand,
determinants of price elasticity of demand, cross price elasticity, income elasticity.

3. Introduction to Economics
• Economics is the social science that deals with the production, distribution, and consumption of goods and
services.
• It studies how individuals, businesses, governments, and societies make choices to allocate limited
resources to satisfy their unlimited wants and needs.
Definition of Economics:
“Economics is the study of how human beings make choices to allocate scarce/limited resources to satisfy
their unlimited wants in such a manner that consumers can maximize their satisfaction, producers can
maximize their profits and the society can maximize its social welfare”

4. Managerial economics
• It generally refers to the integration of economic theory with business practice.
• In simple terms, managerial economics means the application of economic theory
to the problem of management.

5. Definitions of ME
According to E.F. Brigham and J. L. Pappar,
“Managerial Economics is the application of economic theory and
methodology to business administration practice”
According to Christopher Savage and John R. Small,
“Managerial Economics is concerned with business efficiency”

6. • Economics can be broadly divided into two main branches:
• Microeconomics
• Macroeconomics

7. Microeconomics
• In microeconomics, we study the behaviour of individual
economic agents in the markets for different goods and
services and
• try to figure out how prices and quantities of goods and
services are determined through the interaction of individuals
in these markets.

8. Macroeconomics
• In macroeconomics, on the other hand, we try to get an
understanding of the economy as a whole by focusing our attention
on aggregate measures such as total output, employment and
aggregate price level.
• Here, we are interested in finding out how the levels of these
aggregate measures are determined and how the levels of these
aggregate measures change over time.

9. Some of the important questions that are studied in macroeconomics are as
follows:
• What is the level of total output in the economy?
• How is the total output determined?
• How does the total output grow over time?
• Are the resources of the economy (eg labour) fully employed?
• What are the reasons behind the unemployment of resources?
• Why do prices rise?
Thus, instead of studying the different markets as is done in microeconomics, in
macroeconomics, we try to study the behaviour of aggregate or macro measures
of the performance of the economy.

11. Economists divide the main factors of production into four categories: land, labor, capital, and
entrepreneurship.
• Land: This includes all natural resources used in the production process. It
encompasses not only the physical land itself but also everything that comes from
the land, such as minerals, water, forests, oil, and agricultural products.
• Labor: This refers to the human effort and skills applied in the production process. It
includes both physical and mental work carried out by individuals, such as manual
laborers, skilled workers, and professionals.

12. • Capital: Capital represents the machinery, tools, equipment, and infrastructure used in
production. It is not just financial capital (money) but also includes physical capital, like factories
and technology, that aids in the production process.
• Entrepreneurship: This factor represents the individuals who take the initiative to combine the
other three factors of production (land, labor, and capital) to create and organize the production
process. Entrepreneurs are risk-takers who bring together the necessary resources and coordinate
their utilization to produce goods and services.
• These factors of production are interdependent and work together to generate output. The
effectiveness and efficiency with which these factors are combined and utilized contribute to the
overall productivity and economic growth of a country or an enterprise. Economists often refer to
the factors of production as the building blocks of economic activity.

13. More information on Factor of Production
• Land includes any natural resource used to produce goods and services; anything
that comes from the land. Some common land or natural resources are water, oil,
copper, natural gas, coal, and forests. Land resources are the raw materials in the
production process. These resources can be renewable, such as forests, or
nonrenewable such as oil or natural gas.

14. • Labor is the effort that people contribute to the production of goods and services. Labor
resources include the work done by the waiter who brings your food at a local restaurant as
well as the engineer who designed the bus that transports you to school. It includes an
artist's creation of a painting as well as the work of the pilot flying the airplane overhead. If
you have ever been paid for a job, you have contributed labor resources to the production of
goods or services.

15. • Think of capital as the machinery, tools and buildings humans use to produce goods and
services. Some common examples of capital include hammers, forklifts, conveyer belts,
computers, and delivery vans. Capital differs based on the worker and the type of work being
done. For example, a doctor may use a stethoscope and an examination room to provide
medical services. Your teacher may use textbooks, desks, and a whiteboard to produce
education services.

16. • An entrepreneur is a person who combines the other factors of production - land, labor, and
capital - to earn a profit. The most successful entrepreneurs are innovators who find new
ways to produce goods and services or who develop new goods and services to bring to
market. Without the entrepreneur combining land, labor, and capital in new ways, many of
the innovations we see around us would not exist. Entrepreneurs are a vital engine of
economic growth helping to build some of the largest firms in the world as well as some of
the small businesses in your neighborhood. Entrepreneurs thrive in economies where they
have the freedom to start businesses and buy resources freely.

17. Circular flow of Money/Economic Activity
• The circular flow of money refers to the process whereby money payments
and receipts of the economy, flow in a circular manner continuously, over a
period of time.
• The various components of money payments and receipts are savings,
investment, taxation, loans, government purchases, exports, imports etc.
• This flow of income and expenditure explains the process that determines
national income and national expenditure simultaneously.

18. Sectors of an Economy
• The Household Sector: This sector includes all the individuals in the economy. The
primary function of this sector is to provide the factors of production. The factors of
production include land, labor, capital and enterprise. The household sectors are the
consumers who consume the goods and services produced by the firms and in return
make payments for the same.
• The Business Firms Sector: This sector includes all the business entities, corporations
and partnerships. The primary function of this sector is to produce goods and services
for sale in the market and make factor payments to the household sector.

19. • The Government Sector: This sector includes the center, state, and local governments.
The prime function of this sector is to regulate the functioning of the economy. The
government sector incurs both revenue as well as expenditure. The government earns
revenue from tax and non-tax sources and incurs expenditure for providing essential
public services to the people.
• The Foreign Sector: This sector includes transactions with the rest of the world. Foreign
trade implies net exports (exports minus imports). Exports include goods and services
produced domestically and sold to the rest of the world and imports include goods and
services produced abroad and sold domestically.

20. The Three Markets
• The Goods Market: In this market the goods and services are exchanged among the four
macroeconomic sectors. The consumers are the household, government and the foreign sector
while the producers are the firms.
• The Factor Market: The factors of production are traded through this market. For the production
of final goods and services, the firms obtain the factor services and make payments in the form
of rent, wages and profits for the services to the household sector.
• The Financial Market: This market consists of financial institutions such as banks and non-bank
intermediaries who engage in borrowing (savings from households) and lending of money.

22. Simple economy (Without Investment)
• In this simplified economy (Fig 1a), there is only one way in which the
households may dispose off their earnings
• by spending their entire income on the goods and services produced by the domestic firms.
• The other channels of disposing their income are closed:
• we have assumed that the households do not save,
• they do not pay taxes to the government – since there is no government, and
• neither do they buy imported goods since there is no external trade in this simple economy.

23. • The aggregate consumption by the households of the economy is equal to the aggregate
expenditure on goods and services produced by the firms in the economy.
• The entire income of the economy, therefore, comes back to the producers in the form of
sales revenue.
• There is no leakage from the system.
Suggested links:
• https://www.edumple.com/cbse-class-12/economics/circular-flow-of-income-two-sector-
economy-model/notes

24. Modernised economy (With Investment)
• In reality household saves portion of their income for many
reasons like precautionary purposes.
• On the other way they borrow money from financial market for
both development and non-development purposes.
• Similarly firms also save part of their receipts for the expansion
of business and many other purposes.

25. • Moreover the firms also collect funds from banking and non-
banking financial institutions (in the form of investment).
• Thus the inclusion of saving (Leakage i.e., outflow) and
investment (Injection i.e., Inflow) in two-sector economy is
more meaningful and modernised.

26. Circular flow in 3-Sector

28. • https://www.google.com/url?sa=i&url=https%3A%2F%2Fecontips.co
m%2Fcircular-flow-of-economic-
activity%2F&psig=AOvVaw0MpgXSejyeDlSN2s12XNry&ust=16911649
43518000&source=images&cd=vfe&opi=89978449&ved=0CBEQjRxq
FwoTCLjB5L_uwIADFQAAAAAdAAAAABAE

29. Types of Economy

30. • https://www.brainkart.com/article/Economic-Systems_37052/

31. Central Problems Or Choice As An Economic Problem
• Production, exchange and consumption of goods and services are
among the basic economic activities of life.
• In the course of these basic economic activities, every society has to
face scarcity of resources and it is the scarcity of resources that gives
rise to the problem of choice.
• The scarce resources of an economy have competing usages and
every society has to decide on how to use it.

32. What is to be produced and in what quantities?
• Every society must decide on whether to produce more of food, clothing, housing or
to have more of luxury goods.
• Whether to have more agricultural goods or to have industrial products and services.
• Whether to use more resources in education and health or to use more resources in
building military services.
• Whether to have more of basic education or more of higher education.
• Whether to have more of consumption goods or to have investment goods (like
machine).
• How much of each of the many possible goods and services it will produce.

33. How are these goods produced?
• Every society has to decide which of the resources to use in the production of the
different goods and services.
• Whether to use more labour or more machines.
• Which of the available technologies to adopt in the production of each of the goods?

34. For whom these goods are produced?
• Who gets how much of the goods that are produced in the economy?
• How should the produce of the economy be distributed among the
individuals in the economy?
• Who gets more and who gets less?
• Whether or not to ensure a minimum amount of consumption for
everyone in the economy.

35. • Thus, every economy faces the problem of allocating the scarce
resources to the production of different possible goods and services
and of distributing the produced goods and services among the
individuals within the economy.
• The allocation of scarce resources and the distribution of the final
goods and services are the central problems of any economy.

36. Introduction to Production Possibility
• An allocation of the scarce resource of the economy gives rise to
allocate the resources in many different ways and, thereby achieving
different mixes of all possible goods and services.
• A production possibilities curve is a graphical representation of the
potential outputs based on a shared resource.
• Businesses and government organizations use production
possibilities curves to optimize resource usage, improve efficiency
and fulfill demand.

37. Production Possibility Frontier
• The production possibility frontier gives the combinations of corn
and cotton that can be produced when the resources of the economy
are fully utilized.
• Note that a point lying strictly below the production possibility
frontier represents a combination of corn and cotton that will be
produced when all or some of the resources are either
underemployed or are utilized in a wasteful fashion.
• If more of the scarce resources are used in the production of corn,
less resources are available for the production of cotton and vice
versa.

38. • Thus, there is always a cost of having a little more of one good in
terms of the amount of the other good that has to be forgone. This is
known as the opportunity cost of an additional unit of the goods.

39. Consider an economy which can produce corn or cotton by using its resources. Table 1.1 gives some of
the combinations of corn and cotton that the economy can produce. When its resources are fully
utilized.
Table 1.1 Production Possibilities
Possibilities Corn Cotton
A 0 10
B 1 9
C 2 7
D 3 4
E 4 0

40. • If all the resources are used in the production of corn, the maximum
amount of corn that can be produced is 4 units and if all resources
are used in the production of cotton, at the most, 10 units of cotton
can be produced.
• The economy can also produce many other possibilities as shown in
Table 1.1.
• Any point on or below the curve as illustrated in the figure 1.1,
represents a combination of corn and cotton that can be produced
with the economy’s resources.
• The curve gives the maximum amount of corn that can be produced
in the economy for any given amount of cotton and vice-versa. This
curve is called the production possibility frontier.

41. Fig 1.1: Production Possibilities Curve/Frontier
10
9
7
4
0
0
2
4
6
8
10
12
0 0.5 1 1.5 2 2.5 3 3.5 4 4.5
Cotton
Corn

43. Opportunity cost
• When there are alternative uses of scarce resource, one should know which among them is the best
alternative.
• Opportunity cost is the cost of the forgone alternative — when you give up one choice in favor of another.
• Businesses can evaluate the opportunity cost of a decision to improve the financial outcome.
• Opportunity cost examples involve any scenario requiring the individual or business to determine what value
a decision requires them to miss.

44. Marginal rate of Transformation (MRT)
• MRT/ MOC is the slope of PPC.
• The Marginal Rate of Transformation (MRT) is the rate at which one
good must be sacrificed to produce an additional unit of another
good while keeping the overall level of production constant.
• It can change over time due to technological advancements, changes
in resource availability, preferences shifts, and production technique
improvements.
• A lower MRT indicates a more efficient allocation of resources, where
fewer units of one good need to be sacrificed to produce an
additional unit of another good.
•

45. The formula for calculating the Marginal Rate of Transformation
(MRT) is as follows:
MRT = ΔY/ΔX
Where:
• MRT represents the Marginal Rate of Transformation.
• ΔY represents the change in the quantity of one good
(sacrificed).
• ΔX represents the change in the quantity of the other good
(gained).

46. Practice
• The opportunity cost of 100kg of rice produced on a land which
can also produce 80 tonnes of wheat is _____________.
• When output of Good - 1 increases from 100 units to 110 units
and output of Good - 2 decreases from 400 units to 350 units,
What will be the marginal opportunity cost?

47. • https://www.indeed.com/career-advice/career-
development/opportunity-cost-examples
• https://www.indeed.com/career-advice/career-
development/production-possibilities-curve

48. Meaning of Demand
• Demand for a commodity refers to the desire to buy a commodity backed
with sufficient purchasing power and the willingness to spend.
• Three elements of demand
1. Desire to acquire a commodity.
2. Willingness to pay price for it.
3. Ability to pay for it.

49. • You desire to have a Car, but you do not have enough money to buy it. Then,
this desire will remain just a wishful thinking,.
• In spite of having enough money, you do not want to spend it on Car, again
The desire become demand only when you are ready to spend money to buy
Car.
Example

50. Law of Demand
• Other things remaining the same, the quantity demanded of a commodity is
inversely related to its price.
• In other words if a price of a commodity falls, the quantity demanded of it
will rise if the price of the commodity rises its quantity demanded will
decline.

51. Demand Function
• The demand function is a relation between the consumer’s demand for a
good and its price when other things are given.
• Instead of studying the relation between the demand for a good and its price,
we can also study the relation with the other factors like income of the
consumer.

52. • So Demand is a function of price, price of related goods, income and taste
& preference
• It is expressed as:
D = f(p, pr, y, t)

53. Types of Goods based on income effect
• The quantity of a good that the consumer demands can increase or
decrease with the rise in income depending on the nature of the
good.
• For most goods, the quantity that a consumer chooses, increases as
the consumer’s income increases and decreases as the consumer’s
income decreases. Such goods are called normal goods.
• Thus, a consumer’s demand for a normal good moves in the same
direction as the income of the consumer.
53

54. • However, there are some goods the demands for which move in the
opposite direction of the income of the consumer. Such goods are
called inferior goods.
• As the income of the consumer increases, the demand for an inferior
good falls, and as the income decreases, the demand for an inferior
good rises.
54

55. Based on the Price of Related Goods
• Complimentary goods
• Substitute goods
55

56. Demand Schedule and Demand Curve
Price (Rs.) Quantity demanded
12 10
10 20
8 30
6 40
4 50
2 60

57. Demand Curve
• The demand curve is a relation
between the quantity of the good
chosen by a consumer and the
price of the good.
• The independent variable (price)
is measured along the vertical
axis and dependent variable
(quantity) is measured along the
horizontal axis.
• The demand curve gives the
quantity demanded by the
consumer at each price.
57

58. Exceptions tothe Law of Demand
Note that the law of demand holds true in most cases. The price
keeps fluctuating until an equilibrium is created. However, there are
some exceptions to the law of demand.
1. Veblen Effect (Goods having prestige value)
2. Giffin Goods
3. Necessity Goods
4. War condition
5. Natural calamities

59. Giffen Goods
• Giffen Goods is a concept that was introduced by Sir Robert
Giffen.
• These goods are goods that are inferior and the unique
characteristic of these goods is that as its price increases, the
demand also increases.
• And this feature is what makes it an exception to the law of
demand.
59

60. • The Irish Potato is a classic example of the Giffen goods
concept.
• Potato is a staple food in the Irish diet.
• During the potato famine, when the price of potatoes increased,
people spent less on luxury foods such as meat and bought
more potatoes to stick to their diet.
• So as the price of potatoes increased, so did the demand,
which is a complete reversal of the law of demand.
60
Example

61. Veblen Goods
• The second exception to the law of demand is the concept of
Veblen goods.
• This is a concept that is named after the economist Thorstein
Veblen, who introduced the theory of
“conspicuous consumption”.
• According to Veblen, there are certain goods that become more
valuable as their price increases.
• If a product is expensive, then its value and utility are perceived
to be more, and hence the demand for that product increases.
61

62. Veblen Goods Examples
• And this happens mostly with precious metals and stones such
as gold and diamonds and luxury cars such as Rolls-Royce.
• As the price of these goods increases, their demand also
increases because these products then become a status
symbol.
62

63. 63

64. Necessary Goods and Services
• Another exception to the law of demand is necessary or basic
goods.
• People will continue to buy necessities such as medicines or
basic staples such as sugar or salt even if the price increases.
The prices of these products do not affect their associated
demand.
64

65. • https://brandmarketingblog.com/articles/branding-
definitions/veblen-good/
65

66. Determinants of Demand
1. Tastes and preference of the consumers
2. Income of the people
3. Changes in the prices of the related goods
4. The number of consumers in the market
5. Changes in propensity to consume
6. Consumers’expectation with regard to future prices
7. Income distribution

67. Increase and Decrease Vs. Extension
and Contraction of Demand
• When the quantity demanded changes because the price has changed, it is a
case of extension or contraction.
• If the change in demand due to a factor other than the price, it is known as
increase or decrease in demand.

68. Extension and Contraction of Demand
Y
X
0
Price
P
Q
R
A B C
Quantity
P1
P2
P3

69. Increase and Decrease of Demand
Y
X
0
Quantity
Income

70. Shift in Demand Curve
• The demand curve tells us how much of a good or service people are willing
to buy at any given price.
• However, we know that demand is not constant over time.
• As a result, the demand curve constantly shifts left or right.
• Depending on the direction of the shift, this equals a decrease or an increase
in demand.
• There are five significant factors that cause a shift in the demand curve:
income, trends and tastes, prices of related goods, expectations as well
as the size and composition of the population.
70

71. Income
• A change in income can affect the demand curve in different ways, depending
on the type of goods we are looking at; normal goods or inferior goods.
• In the case of a normal good, demand increases as the income grows.
• By contrast, in the case of an inferior good, demand decreases as the income
grows.
• That means an increase in income results in a leftward shift of the demand
curve.
71

72. Trends and Tastes
• When a good or service comes into fashion, its demand curve shifts to the
right (all other things equal). By contrast, the demand curve shifts to the left
once another trend emerges, and the good or service goes out of fashion
again.
72

73. Prices of Related Goods
• Meanwhile, we speak of complements when a fall in the price of one good
results in an increase in the demand for another good.
• This is usually the case when the two goods are used together (i.e., when
they complement each other).
• To give an example, think of cars and gas. When cars become cheaper, the
quantity demanded of cars increases.
• As a consequence, the demand for petrol increases as well (i.e., the demand
curve for gas shifts to the right) because the newly purchased vehicles also
need gas.
73

74. • People’s expectations about the future can have a significant impact on
demand. Or, more specifically, their expectations of future prices or other
determinants that can change demand. If consumers expect prices to
increase in the short run, current demand often increases, i.e., the demand
curve shifts to the right, and vice versa.
74

75. Size and Composition of the Population
• As a rule of thumb, a larger population results in a higher demand for most
goods. As a result, the demand curve shifts to the right. For example, as the
population grows, the aggregated demand for food increases as well, simply
because there are more mouths to feed.
75

76. 76

77. Elasticity
• Alfred Marshall introduce the concept of elasticity of demand
in economics.
• The concept of elasticity of demand measures the degree of
responsiveness of demand/quantity demand of a good to a
change in its price, income or price of related goods.

78. There are 3 kinds of demand elasticity:
1. Price elasticity
2. Cross elasticity
3. Income elasticity

79. Price Elasticity of Demand
• The degree of responsiveness or sensitiveness of quantity demanded of a
good to a change in its prices.
• In other words, price elasticity of demand is a measure of the relative
change in quantity purchased of a good in response to a relative change
in its price.

80. Percentage Method of Measurement of Ped
Price elasticity of demand (Ped) =
𝑷𝒆𝒓𝒄𝒆𝒏𝒕𝒂𝒈𝒆 𝒄𝒉𝒂𝒏𝒈𝒆 𝒊𝒏 𝑸𝒖𝒂𝒏𝒕𝒊𝒕𝒚 𝒅𝒆𝒎𝒂𝒏𝒅𝒆𝒅
𝑷𝒆𝒓𝒄𝒆𝒏𝒕𝒂𝒈𝒆 𝒄𝒉𝒂𝒏𝒈𝒆 𝒊𝒏 𝒑𝒓𝒊𝒄𝒆 𝒐𝒇 𝒕𝒉𝒆 𝒈𝒐𝒐𝒅
=
%△𝑸
%△𝑷
=
(𝑸𝟏−𝑸/𝑸) 𝟏𝟎𝟎
(𝑷𝟏−𝑷/𝑷) 𝟏𝟎𝟎
Here, Q1=New Quantity
Q= Initial Quantity
P1=New Price
Q= Initial price

81. Price Elasticity of Demand
There are 5 types(degrees) of price elasticity of demand:
1. Perfectly Elastic (ed=∞)
2. Relatively Elastic/ More than Unitary elastic/Elastic (ed>1)
3. Unitary elastic (ed=1)
4. Relatively Inelastic/Less than Unitary elastic/Inelastic (ed<1)
5. Perfectly Inelastic (ed=0)

82. Perfectly Elastic
• Quantity demanded changes infinitely due to slightly change in prices,
i.e., ep = ∞
• Demand curve is horizontal to “X Axis”

83. Relatively Elastic
Quantity demanded changes by a larger percentage than does price, i.e.,
ep > 1

84. Unitary elastic:
Quantity demanded changes by exactly the same percentage as does
price, i.e., ep = 1.
The shape of DD curve is “Rectangular Hyperbola”

85. Relatively Inelastic demand
Quantity demanded changes by a smaller percentage than does price,
i.e., 1>ep

86. Perfectly inelastic
• Quantity demanded does not change as prices changes, i.e., ep = 0
• Demand Curve is vertical to “Y Axis”

87. Cross elasticity of demand
The cross elasticity is the measure of responsiveness of demand for a
commodity to the changes in the price of its related goods.
Cross Elasticity of Demand Ec
Qx=Quantity of good x
Py=Price of good y
Ec of demand for substitute goods is positive where as for complementary
goods is negative.

88. Income Elasticity of Demand
• The income elasticity is the measure of responsiveness of demand
for a commodity to the changes in the income level of consumer.
• D0​=Initial quantity demanded
• D1​=Final quantity demanded
• I0​=Initial real income
• I1​=Final real income

89. Various degree of elasticity
89

90. Supply
Supply refers to the quantity of goods that is made available in the
market for the purpose of purchase by the consumers.

91. Law of supply
• Law of Supply states that ‘Other things being constant, the rise in
price of the commodity will increase the supply of the commodity,
and the fall in the price of the commodity leads to decrease in the
supply of the commodity.
• In other words, there is a direct relationship between Price of the
commodity and quantity supplied.’

92. Supply curve

93. Determinants of supply
• Price of the good.
• Prices of related goods
• Prices of factors of production
• State of technology
• Government policy
• Nature of competition
• Future expectations
• Other factors

94. • https://www.toppr.com/guides/fundamentals-of-economics-and-
management/supply/supply-function/
94

95. Elastic supply
• The co-efficient of elastic supply is greater than 1(Es > 1). One
percent change in the price of a commodity causes more than one
per cent change in the quantity supplied of the commodity.
• Supply curve will originate from Y Axis

96. Inelastic supply
The coefficient of elasticity is less than one (Es < 1). One percent change in
the price of a commodity causes a less than one per cent change in the
quantity supplied of the commodity.
Supply curve will originate from X Axis

97. Unitary elastic
The coefficient of elastic supply is equal to 1 (Es = 1). One percent
change in the price of a commodity causes an equal ( one per cent)
change in the quantity supplied of the commodity.
Supply curve will originate from Origin

98. Perfectly elastic
The coefficient of elasticity of supply is infinity. (Es = α ). One percent
change in the price of a commodity causes an infinite change in the
quantity supplied of the commodity.

99. Perfectly inelastic
The coefficient of elasticity is equal to zero (Es = 0). One percent
change in the price of a commodity causes no change in the quantity
supplied of the commodity.

100. Elasticity of supply
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101. Changes in supply curve
When the price of a product changes it will result in a movement along
either a demand or supply curve.
When a non-price determinant of demand or supply changes (assuming
price is constant) it will cause a shift in the position of the demand or
supply curve.

102. Movement along the Supply curve

103. Shift in demand curve

104. Equilibrium of demand and supply
• Equilibrium is the state in which market supply and demand balance
each other, and as a result prices become stable.