When we measure what type of demand we assume that effects of other variables is constant?
Income elasticity of demand
Income elasticity of demand — option 3, as recorded in the official NTA key.
What income elasticity measures. The responsiveness of quantity demanded to a change in consumer income, with the price of the good, the prices of related goods, tastes and every other determinant held constant — the ceteris paribus assumption the question is pointing at.
\(E_{y}=\dfrac{\%\ \text{change in quantity demanded}}{\%\ \text{change in income}}=\dfrac{\Delta Q}{\Delta Y}\times\dfrac{Y}{Q}\)
What the sign and size tell you — this is the whole practical value of the measure :
| Value of Ey | Type of good | Behaviour |
|---|---|---|
| Negative | Inferior | Demand falls as income rises — coarse grain, low-end transport |
| Zero | Neutral | Demand unaffected by income — salt |
| Between 0 and 1 | Necessity | Demand rises, but proportionately less than income — staple food |
| Greater than 1 | Luxury / superior | Demand rises faster than income — cars, holidays, jewellery |
Why it matters commercially. Income elasticity tells a firm what a growing economy will do to its market. A product with high positive income elasticity grows faster than national income in a boom — and contracts faster in a recession, which is why luxury businesses are cyclical while staple-food businesses are defensive. It also drives long-run product-mix and capacity decisions in developing economies, where rising incomes shift demand from necessities toward consumer durables.
The other elasticities, for completeness. Price elasticity relates quantity to the good’s own price; cross elasticity relates it to the price of another good, and its sign distinguishes substitutes (positive) from complements (negative); promotional or advertising elasticity relates it to advertising expenditure. Note that “Gross elasticity of demand” in option 2 is not a standard term at all, and every one of these measures is defined holding the remaining variables constant — the key records income elasticity as the intended answer.
Hence, the answer is Income elasticity of demand.
Similar Questions
For the following two statements of Assertion (A) and Reasoning (R), indicate the correct code :
Assertion (A) : Ridge Lines in isoquant map set the limits for the positive productivities of the respective inputs used in the production process.
Reasoning (R) : Isoquants will slope positively if the use of an input is increased beyond the limit set by the ridge lines.
Code :
If a 100% scale-efficient plant has 92% technical efficiency and 88.5% allocative-efficiency, then its overall efficiency will be :
Match the production functions List - I with the return to scale List - II.
List - I (Production function) List - II (Return to scale) (a) \( Q = 10\,K^{0.5}L^{0.4}E^{0.15}M^{0.1} \) (i) increasing (b) \( Q = 12\,K^{0.5}L^{0.5} \) (ii) constant (c) \( Q = 100\,K + 15\,L \) (iii) decreasing (d) \( Q = 40\,K^{0.3}L^{0.5} \) Code :
It costs a firm ₹ 90 per unit to produce product A, and ₹ 60 per unit to produce B individually. If the firm can produce both products together at ₹ 160 per unit of product A and B, this exhibits signs of:
Production function is not based on the assumption of the:
Arrange the steps in demand forecasting from beginning to end
A. Specifying objectives
B. Making choice of methods
C. Determing the perspective
D. Estimation and interpretation of results
E. Collection of data and data adjustment
Choose the correct answer from the options given below:
Managerial economics is concerned with which combination of the following ?
(a) Investment Analysis and Decisions
(b) Production Behaviour and Cost Analysis
(c) Input Reward Analysis and Decisions
(d) Economic Environment Analysis
Code :
When P0 and P1 and Q0 and Q1 denote before and after change in the price and quantity respectively and in both the situations, total outlay remains the same, which of the following formulae give the similar value of the arc price - elasticity of demand ?
(a) \(\dfrac{Q_{0}-Q_{1}}{P_{0}-P_{1}}\times\dfrac{P_{0}+P_{1}}{Q_{0}+Q_{1}}\)
(b) \(\dfrac{Q_{0}-Q_{1}}{P_{0}-P_{1}}\times\dfrac{P_{0}}{Q_{1}}\)
(c) \(\dfrac{Q_{0}-Q_{1}}{P_{0}-P_{1}}\times\dfrac{P_{0}}{Q_{0}}\)
(d) \(\dfrac{Q_{0}-Q_{1}}{P_{0}-P_{1}}\times\dfrac{P_{1}}{Q_{1}}\)
(e) \(\dfrac{Q_{0}-Q_{1}}{P_{0}-P_{1}}\times\dfrac{P_{1}}{Q_{0}}\)
Code :
In case the producer's equilibrium shifts to a higher isoquant due to decrease in price of an input, the curve combining the successive equilibrium positions is known as :
Which one of the following statements is not correct ?
Important Questions from Production Function
In which one of the following concepts, a buyer is passively involved in an exchange transaction, and he accepts whatever is offered to him by a marketer?
For the following two statements of Assertion (A) and Reasoning (R) suggest the correct code:
Assertion (A): Low initial price regarded as the principal means for entering into mass market for some new products.
Reasoning (R): Firms generally enter into production of new products with excess capacity of the plant initially.
Code:
Indicate the correct code from the following types of the long run average cost curves on which the minimum average cost of production in long run can be determined:
(i) Long run average cost curve under normal production function
(ii) Long run average cost curve under linearly homogeneous production function
(iii) Planning curve
(iv) Envelope curve
Choose the correct answer from the code given below :
Match List I with List II
LIST I
(Production Cost)
LIST II
(Underlying Meaning)
A.
Implicit Costs
I.
Change in the total cost per unit change in output.
B.
Marginal cost
II
Total increase in costs resulting from the implementation of a particular managerial decision.
C.
Incremental Cost
III.
Inputed value of inputs owned and used by the firm.
D.
Sunk Cost
IV.
The costs that are not affected by managerial decision.
Choose the correct answer from the options given below:
Which of the following is not an attribute of production function?
