Economics Essay Example | Topics and Well Written Essays - 2500 words - 3

Economics - Essay Example Some of the other factors as determinants of demand have been introduced in the theory of demand recently. The traditional theory of demand starts with the examination of the behaviour of the consumer since the market demand is assumed to be the summation of the demands of the individual consumers. Thus, the demand for a given commodity is the horizontal summation of the demands of the individual consumers. In other words the quantity demanded in the market at each price is the sum of the individual demands of all consumers at that price. The responsiveness of the demand in relation to the price or income of the consumer is referred as the elasticity of demand. There are as many elasticities of demand as its determinants. The most important of these elasticities are (a) the price Elasticity, (b) the income elasticity, and (c) the cross elasticity. The concept of elasticity of demand is important in that it s being used by the economists to explain the consumer behaviour in different market conditions. With this background this paper illustrates the importance of different kinds of elasticities of demand and the ways in which they are helpful to the economists to report on the consumer behaivour... The laws of demand and supply are an important part of in the study of economics. They help the economists to measure the relative changes in the demand due to changes in prices with the concept of elasticity of demand. (Pink Monkey) The price elasticity is a measure of the responsiveness of demand to changes in the commodity’s own price. Depending on the magnitude of the changes in demand it can be termed as either point elasticity or arc elasticity of demand. If the changes in the prices are very small, the point elasticity of demand is used as the measure of responsiveness of demand. If the changes in the prices are large then arc elasticity of demand is used as the relevant measure of responsiveness. The laws of demand and supply form the basic