The Market Forces of

Supply and Demand

 Prices are determined by Demand, Supply
Dynamics
• The Tata Harrier compact SUV witnesses a price hike of Rs.
31,000 across all variants with prices now starting at Rs. 12.99
lakh (ex-showroom), Jun 16, 2019
• While Tata has not announced the reason for the hike, it is likely that
rising input costs triggered the increase.

• Prices of two-wheelers to rise sharply amid slew of new

regulations, October 1, 2018
• Manufacturers are also facing cost increases by way of higher
commodity prices prompting some of them to announce price hikes.
• Prices of two-wheelers are expected to go up by almost a fourth as
a slew of new regulations on safety, emission, fuel efficiency take
effect over the next 21 months.
 Prices are determined by Demand, Supply
Dynamics
• THE ALMONDS PRICE CRASH WORRYING CALIFORNIA, JUL 30, 2018
U.S. almond farmers are braced for more fallout from global trade tensions.
The price of almonds has fallen 14 percent from this year’s high in March
after the U.S. crop was targeted by leading importers China and Turkey as
retaliation against Washington’s steel and aluminum import duties. Also
firing back against the metal levies is India — the top buyer of the U.S. nut
— which is set to impose additional tariffs in early August. As growers in
California, which produces all of the U.S. supplies, prepare to harvest this
year’s record crop, they are facing a drop in demand.

• TV and laptop prices are regularly falling over last several years.

• Gold prices rising over last several years, 2019.

 DEMAND
• Quantity demanded is the amount of a
good that buyers are willing and able to
purchase at a price.

• Law of Demand
– The law of demand states that, other things
equal (ceteris paribus), the quantity
demanded of a good falls when the price of
the good rises and vice versa.
The Demand Curve : The Relationship
Between Price & Quantity Demanded

• Demand Schedule

– The demand schedule is a table that shows

the relationship between the price of the good
and the quantity demanded ( at different
prices ).
Rita’s Demand Schedule
The Demand Curve : The Relationship
Between Price & Quantity Demanded

• Demand Curve

– The demand curve is a graph of the

relationship between the price of a good and
the quantity demanded. It depicts the demand
schedule graphically.

QD  QD(P)
 Demand
Price
(Rs per unit)

Vertical axis measures

price (P) paid
per unit in rupees

Horizontal axis measures

quantity (Q) demanded in
number of units per
time period

Quantity
 Demand
Price
(Rs per unit) The demand curve slopes
downward demonstrating
that consumers are willing
to buy more at a lower price
as the product becomes
relatively cheaper and the
consumer’s real income
increases.

Quantity
Figure 1 : Demand Schedule and Demand Curve

Price of
Ice-Cream Cone
$3.00

2.50

1. A decrease
2.00
in price ...

1.50

1.00

0.50

0 1 2 3 4 5 6 7 8 9 10 11 12 Quantity of
Ice-Cream Cones
2. ... increases quantity
of cones demanded.
Market Demand Vs Individual Demand

• Market demand refers to the sum of all

individual demands for a particular good or
service.

• Graphically, individual demand curves are

summed horizontally to obtain the market
demand curve.
 Movement Along The Demand
Curve

• Change in Quantity Demanded

– Movement along the demand curve.

– Caused by a change in the price of the

product.
 Changes in Quantity Demanded
Price of Ice-
Cream A tax that raises the
Cones
price of ice-cream
B cones results in a
$2.00
movement along the
demand curve.

1.00 A

D
0 4 8 Quantity of Ice-Cream Cones
Shifts In The Demand Curve

• Consumer income
• Prices of related goods
• Tastes
• Expectations
• Number of buyers
 Shifts In The Demand Curve

• Change in Demand

– A shift in the demand curve, either to the left

or right.

– Caused by any change that alters the quantity

demanded at every price.
 Figure 3 : Shifts in the Demand Curve

Price of
Ice-Cream
Cone

Increase
in demand

Decrease
in demand
Demand
curve, D2
Demand
curve, D1
Demand curve, D3
0 Quantity of
Ice-Cream Cones
 Shifts In The Demand Curve

• Consumer Income

– As income increases the demand for a good

will increase.
 Effect Of Consumer Income On Demand
Price of Ice-
Cream Cone
$3.00 An increase
2.50 in income...
Increase
2.00 in demand

1.50

1.00

0.50
D2
D1 Quantity of
Ice-Cream
0 1 2 3 4 5 6 7 8 9 10 11 12 Cones
 Shifts In The Demand Curve

• Prices of Related Goods

– When a fall in the price of one good reduces

the demand for another good, the two goods
are called substitutes.

– When a fall in the price of one good increases

the demand for another good, the two goods
are called complements.
Table 1: Variables That Influence
Buyers
 SUPPLY
• Quantity supplied is the amount of a
good that sellers are willing and able to
sell at a price.

• Law of Supply
– The law of supply states that, other things
equal (ceteris paribus), the quantity supplied
of a good rises when the price of the good
rises and vice versa.
The Supply Curve : The Relationship
Between Price & Quantity Supplied

• Supply Schedule

– The supply schedule is a table that shows

the relationship between the price of the good
and the quantity supplied (at different prices).

Qs  QS (P )
Raj’s Supply Schedule
Price of Quantity of
Ice-cream cone cones supplied

$0.00 0
0.50 0
1.00 1
1.50 2
2.00 3
2.50 4
3.00 5
The Supply Curve : The Relationship
Between Price & Quantity Supplied

• Supply Curve

– The supply curve is the graph of the

relationship between the price of a good and
the quantity supplied. It depicts the supply
schedule graphically.
 Supply
Price
The Supply
(Rs per unit) Curve Graphically

Vertical axis measures

price (P) received
per unit in rupees

Horizontal axis measures

quantity (Q) supplied in
number of units per
time period

Quantity
 Supply
The Supply
Price S Curve Graphically
(Rs per unit)

P2
The supply curve slopes
upward demonstrating that
P1 at higher prices firms
will increase output

Q1 Q2 Quantity
 Figure 5: Raj’s Supply Schedule and Supply Curve

Price of
Price of Quantity of
Ice-Cream
Ice-cream cone cones supplied
Cone
$3.00 $0.00 0
0.50 0
1.00 1
2.50 1.50 2
1. An
2.00 3
increase
2.00 2.50 4
in price ... 3.00 5

1.50

1.00

0.50

0 1 2 3 4 5 6 7 8 9 10 11 12 Quantity of
Ice-Cream Cones
2. ... increases quantity of cones supplied.
Market Supply Vs Individual Supply

• Market supply refers to the sum of all

individual supplies for all sellers of a
particular good or service.

• Graphically, individual supply curves are

summed horizontally to obtain the market
supply curve.
Shifts In The Supply Curve

• Input prices
• Technology
• Expectations
• Number of sellers
 Movement Along The Supply
Curve
• Change in Quantity Supplied

– Movement along the supply curve.

– Caused by a change in the price of the

product.
 Change in Quantity Supplied
Price of Ice-
Cream S
Cone
C
$3.00
A rise in the price
of ice cream
cones results in a
movement along
A the supply curve.
1.00

Quantity of
Ice-Cream
0 1 5 Cones
 Shifts In The Supply Curve

• Change in Supply

– A shift in the supply curve, either to the left or

right.

– Caused by a change in a determinant other

than price.
 Figure 7 : Shifts in the Supply Curve

Price of
Ice-Cream Supply curve, S3
Supply
Cone
curve, S1
Supply
Decrease curve, S2
in supply

Increase
in supply

0 Quantity of
Ice-Cream Cones
Table 2: Variables That Influence Sellers
 SUPPLY AND DEMAND
TOGETHER
• Equilibrium refers to a situation in which
the price has reached the level where
quantity supplied equals quantity
demanded.

• Equilibrium gives market clearing price

and quantity.
 SUPPLY AND DEMAND
TOGETHER
• Equilibrium Price
– The price that balances quantity supplied and
quantity demanded.
– On a graph, it is the price at which the supply
and demand curves intersect.
• Equilibrium Quantity
– The quantity supplied and the quantity
demanded at the equilibrium price.
– On a graph it is the quantity at which the
supply and demand curves intersect.
SUPPLY AND DEMAND TOGETHER
Demand Schedule Supply Schedule

At $2.00, the quantity demanded

is equal to the quantity supplied!
 Figure 8: The Equilibrium of Supply and Demand

Price of
Ice-Cream
Cone Supply

Equilibrium price Equilibrium

$2.00

Equilibrium Demand
quantity

0 1 2 3 4 5 6 7 8 9 10 11 12 13
Quantity of Ice-Cream Cones
Figure 9 : Markets Not in Equilibrium

(a) Excess Supply

Price of
Ice-Cream Supply
Cone Surplus
$2.50

2.00

Demand

0 4 7 10 Quantity of
Quantity Quantity Ice-Cream
demanded supplied Cones
 EQUILIBRIUM
• Surplus

– When price > equilibrium price, then quantity

supplied > quantity demanded.

• There is excess supply or a surplus.

• Suppliers will lower the price to increase sales,

thereby moving toward equilibrium.
 EQUILIBRIUM
• Shortage

– When price < equilibrium price, then quantity

demanded > the quantity supplied.

• There is excess demand or a shortage.

• Suppliers will raise the price due to too many

buyers chasing too few goods, thereby moving
toward equilibrium.
Figure 9 : Markets Not in Equilibrium

(b) Excess Demand

Price of
Ice-Cream Supply
Cone

$2.00

1.50
Shortage

Demand

0 4 7 10 Quantity of
Quantity Quantity Ice-Cream
supplied demanded Cones
 EQUILIBRIUM

– The condition that the price of any good

adjusts to bring the quantity supplied and the
quantity demanded for that good into balance.
 Three Steps To Analysing Changes
In Equilibrium

• Decide whether the event shifts the supply

or demand curve (or both).

• Decide whether the curve(s) shift(s) to the

left or to the right.

• Use the supply-and-demand diagram to

see how the shift affects equilibrium price
and quantity.
 Figure 10 : How an Increase in Demand Affects
the Equilibrium
Price of
Ice-Cream 1. Hot weather increases
Cone the demand for ice cream . . .

Supply

$2.50 New equilibrium

2.00
2. . . . resulting Initial
in a higher
equilibrium
price . . .
D

0 7 10 Quantity of
3. . . . and a higher Ice-Cream Cones
quantity sold.
 Three Steps To Analysing Changes
In Equilibrium
• Shifts in Curves versus Movements along
Curves
– A shift in the supply curve is called a change in
supply.
– A movement along a fixed supply curve is
called a change in quantity supplied.
– A shift in the demand curve is called a change
in demand.
– A movement along a fixed demand curve is
called a change in quantity demanded.
 Figure 11: How a Decrease in Supply Affects the
Equilibrium
Price of
Ice-Cream 1. An increase in the
Cone price of sugar reduces
the supply of ice cream. . .
S2
S1

New
$2.50 equilibrium

2.00 Initial equilibrium

2. . . . resulting
in a higher
price of ice
cream . . . Demand

0 4 7 Quantity of
3. . . . and a lower Ice-Cream Cones
quantity sold.
Table 4 : What Happens to Price and Quantity
When Supply or Demand Shifts?
Shifts in Supply and Demand
• When supply and demand change
simultaneously, the impact on the equilibrium
price and quantity is determined by:

1) The relative size and direction of the

change
2) The shape of the supply and demand
models
 Example : The Price of Gold

• The real price of gold has risen sharply

from 2000 to 2018.

• Supply decreased due to shortfall in global

production.

• Demand increased due to the fact that

investing in gold is considered safe as
compared to other assets.
Example : Market for Gold
S2018
P

P2018
S2000

P2000

D2018
D2000

Q2000 Q2018 Q
 Ever-falling prices

One overriding characteristic of all consumer electronic

products is the trend of ever-falling prices. This is driven by
gains in manufacturing efficiency and automation, lower
labor costs as manufacturing has moved to lower-wage
countries, and improvements in semiconductor design.
Semiconductor components benefit from Moore's Law, an
observed principle which states that, for a given price,
semiconductor functionality doubles every two years.
Due to this, despite rising incomes and increasing demand
for such products, their prices are falling.
Elasticity and Its
Applications
 Elasticity . . .

• … allows us to analyze supply and

demand with greater precision.

• … is a measure of how much buyers and

sellers respond to changes in market
conditions
 THE ELASTICITY OF DEMAND
• Price elasticity of demand is a measure of how
much the quantity demanded of a good responds
to a change in the price of that good.

• Price elasticity of demand is the percentage

change in quantity demanded given a percent
change in the price.

Q/Q P Q
EP  
P/P Q P
 The Variety Of Demand Curves
• Because of the inverse relationship between
P and Q; EP is always negative, whether explicitly
stated or not.

• Inelastic Demand
Quantity demanded does not respond strongly to price
changes.
Price elasticity of demand is less than one ( EP < 1 ).

• Elastic Demand
Quantity demanded responds strongly to changes in
price.
Price elasticity of demand is greater than one ( EP > 1 ).
 The Price Elasticity Of Demand & Its
Determinants

• Availability of Close Substitutes

• Necessities versus Luxuries
• Definition of the Market
• Time Horizon
 Price Elasticity Of Demand And Its
Determinants

• Demand tends to be more elastic :

– the larger the number of close substitutes.

– if the good is a luxury.
– the more narrowly defined the market.
– the longer the time period.
Computing The Price Elasticity Of Demand

• The price elasticity of demand is computed

as the percentage change in the quantity
demanded divided by the percentage
change in price.

Percentage change in quantity demanded

Price elasticity of demand =
Percentage change in price
Computing The Price Elasticity Of Demand

Percentage change in quantity demanded

Price elasticity of demand =
Percentage change in price
• Example: If the price of an ice cream cone
increases from $2.00 to $2.20 and the amount
you buy falls from 10 to 8 cones, then your
elasticity of demand would be calculated as:
(10  8)
 100 20%
10  2
(2.20  2.00)
 100 10%
2.00
Point elasticity formula
 The Midpoint Method : A Better Way To
Calculate Elasticities

• The midpoint formula is preferable when

calculating the price elasticity of demand
because it gives the same answer
regardless of the direction of the change.
(Q2  Q1 ) / [(Q2  Q1 ) / 2]
Price elasticity of demand =
(P2  P1 ) / [(P2  P1 ) / 2]
 The Midpoint Method : A Better Way To
Calculate Elasticities
• Example: If the price of an ice cream cone
increases from $2.00 to $2.20 and the
amount you buy falls from 10 to 8 cones,
then your elasticity of demand, using the
midpoint formula, would be calculated as:
(10  8)
(10  8) / 2 22%
  2.32
(2.20  2.00) 9.5%
(2.00  2.20) / 2
Computing The Price Elasticity Of Demand

(100 - 50)
(100  50)/2
ED 
Price (4.00 - 5.00)
(4.00  5.00)/2
$5
4
Demand 67 percent
  -3
- 22 percent

0 50 100 Quantity
Demand is price elastic
 The Variety Of Demand Curves

• Perfectly Inelastic
– Quantity demanded does not respond to price
changes.

• Perfectly Elastic
– Quantity demanded changes infinitely with
any change in price.

• Unit Elastic
– Quantity demanded changes by the same
percentage as the price.
 The Variety Of Demand Curves

• Because the price elasticity of demand

measures how much quantity demanded
responds to the price, it is closely related
to the slope of the demand curve.

• But it is NOT the slope.

Figure 1 : The Price Elasticity of Demand

(a) Perfectly Inelastic Demand: Elasticity Equals 0

Price
Demand

$5

4
1. An
increase
in price . . .

0 100 Quantity

2. . . . leaves the quantity demanded unchanged.

 Figure 1 : The Price Elasticity of Demand

(b) Inelastic Demand: Elasticity Is Less Than 1

Price

$5

4
1. A 22% Demand
increase
in price . . .

0 90 100 Quantity

2. . . . leads to an 11% decrease in quantity demanded.

Figure 1 : The Price Elasticity of Demand

(c) Unit Elastic Demand: Elasticity Equals 1

Price

$5

4
1. A 22% Demand
increase
in price . . .

0 80 100 Quantity

2. . . . leads to a 22% decrease in quantity demanded.

 Figure 1 : The Price Elasticity of Demand

(d) Elastic Demand: Elasticity Is Greater Than 1

Price

$5

4 Demand
1. A 22%
increase
in price . . .

0 50 100 Quantity

2. . . . leads to a 67% decrease in quantity demanded.

 Figure 1 : The Price Elasticity of Demand

(e) Perfectly Elastic Demand: Elasticity Equals Infinity

Price

1. At any price
above $4, quantity
demanded is zero.
$4 Demand

2. At exactly $4,
consumers will
buy any quantity.

0 Quantity
3. At a price below $4,
quantity demanded is infinite.
Total Revenue & The Price Elasticity
Of Demand

• Total revenue is the amount paid by

buyers and received by sellers of a good.
• Computed as the price of the good times
the quantity sold.

TR = P x Q
 Figure 2 : Total Revenue

Price

$4

P × Q = $400
P
(revenue) Demand

0 100 Quantity

Q
Elasticity & Total Revenue Along A
Linear Demand Curve

• With an inelastic demand curve, an

increase in price leads to a decrease in
quantity that is proportionately smaller.
Thus, total revenue increases.
 Figure 3 : How Total Revenue Changes When
Price Changes: Inelastic Demand

Price Price
An Increase in price from $1 … leads to an Increase in
to $3 … total revenue from $100 to
$240

$3

Revenue = $240
$1
Revenue = $100 Demand Demand

0 100 Quantity 0 80 Quantity

 Elasticity & Total Revenue Along A
Linear Demand Curve

• With an elastic demand curve, an increase

in the price leads to a decrease in quantity
demanded that is proportionately larger.
Thus, total revenue decreases.
 Figure 4 : How Total Revenue Changes When
Price Changes: Elastic Demand

Price Price

An Increase in price from $4 … leads to an decrease in

to $5 … total revenue from $200 to
$100

$5

$4

Demand
Demand

Revenue = $200 Revenue = $100

0 50 Quantity 0 20 Quantity
Elasticity of a Linear Demand
Curve

Percentage change in quantity and price have been calculated using

the arc formula.
Price Elasticities of Demand Along A
Linear Demand Curve
Price
EP  -  The lower portion of
4 a downward sloping
demand curve is less elastic
Q = 8 - 2P than the upper portion.

Ep = -1
2
Linear Demand Curve
Q = a - bP
Q = 8 - 2P

Ep = 0

4 8 Q
 Income Elasticity Of Demand

• Income elasticity of demand measures

how much the quantity demanded of a
good responds to a change in consumers’
income.

• It is computed as the percentage change

in the quantity demanded divided by the
percentage change in income.
 Computing Income Elasticity

Percentage change
in quantity demanded
Income elasticity of demand =
Percentage change
in income

Q/Q I Q
EI  
I/I Q I
 Income Elasticity Of Demand

• Types of Goods
– Normal Goods
– Inferior Goods

• Higher income raises the quantity

demanded for normal goods but lowers
the quantity demanded for inferior goods.
 Income Elasticity Of Demand

• Goods consumers regard as necessities tend

to be income inelastic
– Examples include food, fuel, clothing, utilities, and
medical services.
• Goods consumers regard as luxuries tend to
be income elastic.
– Examples include sports cars, furs, and expensive
foods.

Income elasticity > 1 : normal – Income elastic goods

Income elasticity > 0, and <1 : normal - income
inelastic goods
Income elasticity < 0 : inferior goods
 THE ELASTICITY OF SUPPLY
• Price elasticity of supply is a measure of how
much the quantity supplied of a good responds
to a change in the price of that good.

• Price elasticity of supply is the percentage

change in quantity supplied resulting from a
percent change in price.

• The elasticity is positive because price and

quantity supplied are directly related.
Computing The Price Elasticity Of
Supply

• The price elasticity of supply is computed

as the percentage change in the quantity
supplied divided by the percentage
change in price.
Percentage change
in quantity supplied
Price elasticity of supply =
Percentage change in price
 Determinants Of Price Elasticity
Of Supply

• Ability of sellers to change the amount

of the good they produce.
– Beach-front land is inelastic.
– Books, cars, or manufactured goods are
elastic.

• Time period.
– Supply is more elastic in the long run.
Figure 6 : The Price Elasticity of Supply

(a) Perfectly Inelastic Supply: Elasticity Equals 0

Price
Supply

$5

4
1. An
increase
in price . . .

0 100 Quantity

2. . . . leaves the quantity supplied unchanged.

Figure 6 : The Price Elasticity of Supply

(b) Inelastic Supply: Elasticity Is Less Than 1

Price

Supply
$5

4
1. A 22%
increase
in price . . .

0 100 110 Quantity

2. . . . leads to a 10% increase in quantity supplied.

Figure 6 : The Price Elasticity of Supply

(c) Unit Elastic Supply: Elasticity Equals 1

Price

Supply
$5

4
1. A 22%
increase
in price . . .

0 100 125 Quantity

2. . . . leads to a 22% increase in quantity supplied.
Figure 6 : The Price Elasticity of Supply

(d) Elastic Supply: Elasticity Is Greater Than 1

Price

Supply

$5

4
1. A 22%
increase
in price . . .

0 100 200 Quantity

2. . . . leads to a 67% increase in quantity supplied.

Figure 6 : The Price Elasticity of Supply

(e) Perfectly Elastic Supply: Elasticity Equals Infinity

Price

1. At any price
above $4, quantity
supplied is infinite.

$4 Supply

2. At exactly $4,
producers will
supply any quantity.

0 Quantity
3. At a price below $4,
quantity supplied is zero.
 Other Demand Elasticities

• Cross elasticity of demand measures the

percentage change in the quantity
demanded of one good that results from a
one percent change in the price of another
good.

• For example consider the substitute

goods, butter and margarine.
 Other Demand Elasticities

• The cross elasticity of demand is:

Qb/Qb Pm Qb
EQbPm  
Pm/Pm Qb Pm

• The cross elasticity for substitutes is positive,

while that for complements is negative.
 Example
• Suppose the demand curve for a product is given by –
Q = 10 – 2P + PS
where P is the price of the product and PS is the price
of a substitute good. The price of the substitute good is
Rs. 20.

a) Suppose P = Rs.10. what is the price elasticity of

demand? What is the cross price elasticity of demand?

b) Suppose the price of good, P, falls to Rs.5. Now what

is the price elasticity of demand? What is the cross
price elasticity of demand?
• Surya Products Ltd. is a manufacturer of bicycles. The
firm is currently facing the following annual demand
and supply curves for its bicycles, respectively-
QD = 1,00,000 – 250P and QS = 200P – 12,500

– What will be the equilibrium quantity and equilibrium price for

the firm?
– Suppose the government introduces a subsidy of Rs 45 per
bicycle which is paid to suppliers. What is the new equilibrium
price and quantity? Draw graphs also and explain your answer
clearly. Do consumers benefit from this subsidy? If yes explain
how, if not explain how not.
– How much does the subsidy cost the government per year?
– How can we define an industry using cross elasticities of
demand. Give examples to explain your answer.
• International Video Machines, Inc., is a manufacturer of a
television video-recording device. The firm is considering lowering
the price of its product from $800 to $600. The company’s market
analysts have estimated the price elasticity of demand to be -2
over this price range. Presently, this firm sells 1,000 video
recorders per month.

– What will be the new quantity sold if the price is lowered to $600?
– What will be the new level of total revenue in Part a?
– What additional information does International Video Machines, Inc.,
need to know before it can determine whether or not a price decrease
will increase the firm’s profit?
– Suppose that after International Video Machines lower its price, its
competitor, Videoview, lowers the price of its machine from $900 to
$800. The cross price elasticity of demand between the quantity sold
of International Video Machines’ video recorders and the price of
Videoview’s machine is 0.5. What will be the effect of Videoview’s
price decrease on the quantity sold by International Video Machines?
(Use the quantity you found in part a) as Q1. Round your answer to
the nearest whole number).
• [Note: Use arc elasticity concepts for answering parts (a) and
(d)].
 Example
American Mining Company is interested in obtaining
quick estimates of the supply and demand curves for
coal. The firm's research department informs you that
the elasticity of supply is approximately 1.7, the elasticity
of demand is approximately -0.85, and the current price
and quantity are $41 and 1,206, respectively. Price is
measured in dollars per ton, quantity the number of tons
per week.

a) Estimate linear supply and demand curves at the

current price and quantity.

b) What impact would a 10% increase in demand have on

the equilibrium price and quantity?

c) If the government refused to let American raise the price

when demand increased in (b) above, what shortage is
created?
 ELASTICITY CONCEPTS
A publisher of novels hires an economist to find out the demand
for its product. The analyst submits that the demand for
publisher’s novels (Qx) is given by the equation :
Qx = 12000 – 5000Px + 5I + 500Pc
where Px = price of novels
I = income per capita
Pc = price of books from competitors
Using this information, the publishing house manager wants to –

a) determine what effect a price increase would have on total

revenues

b) evaluate how sale of novels would change during a period of

rising incomes

c) assess the probable impact if competitors raise their prices.

Assume that initial values of Px, I, and Pc are $5, $10000 and $6
respectively.
 ELASTICITY CONCEPTS

Explain why the govt of USA has resorted to

setting up of rehabilitation centres to cure the
menace of drug addiction instead of pricing
drugs highly?