৪৯তম বিসিএস ⎯ অর্থনীতি [৩৩১]

When consumer income increases, the demand for normal goods increases. Because of the increase in income, they are willing to spend more. However, in the case of low-quality goods, demand may decrease due to an increase in income.

If the price of substitute goods increases, then people are more interested in the current product, as a result, demand increases and the demand curve shifts to the right. For example, the substitute goods of rice are flour. If the price of flour increases, the demand for rice increases further, so the demand curve shifts to the right.

Consumer taste, preference and attraction to fashion are psychological determinants. When a product becomes trendy in the market, its demand naturally increases. Its application is equally applicable to food, clothing, cosmetics and electronic products.

In the case of Giffen goods, demand also increases when the price increases. This is an exception to the 'law of demand'. This behavior is usually seen in low-quality products used by the poor. Any good can be a Giffen good under certain circumstances. 
​For example, a few years ago, after hearing rumors that the supply of salt would be cut off, the demand for salt increased, and at the same time the price of salt also increased. In that situation, salt is a Giffen good.

Advertising attracts the attention of consumers and helps in increasing the demand for the product. 
​It plays a role in creating artificial demand. Such demand is called induced demand.

When the price of a product decreases, demand generally increases, which is why the demand curve generally slopes from top left to bottom right.

Luxury goods are not necessary, but depend on social prestige. Changes in prices and income have a special impact on demand for these goods. For example, expensive cars, iPhones, private jets.

The use of advanced technology increases production efficiency, resulting in reduced production costs and increased supply. For example, in the agricultural sector of Bangladesh, cultivation was previously done using traditional methods. Instead, production has increased due to the use of improved tractors and power tillers.

When the price of a product increases, producers are interested in supplying more products, so the supply curve usually slopes from bottom to top.

If taxes increase, production costs increase, resulting in reduced profits and reduced supply.

If the cost of production remains unchanged, the profit-loss ratio will remain unchanged, as a result, there will be no change in supply or demand.

Agricultural production decreases in natural disasters, while supply increases in favorable weather—as a result, uncertainty is seen in supply. Therefore, weather and climate act as one of the determinants of supply.

If there is a possibility of a future price increase and the seller has reliable information about this, then the producers do not want to sell the product quickly in the hope of higher profits in the future, resulting in a decrease in supply.

Consumer income is a direct determinant of demand, not supply. Supply is determined by factors related to production. Such as price of inputs, taxes and subsidies, weather, buyer demand, etc.

If the government subsidizes a product, then the cost of production decreases, as a result, the producer is encouraged to supply more products. Therefore, it can be said that the subsidy plays a role in increasing supply.

Let us assume that the quantity demanded is
10 100
9 115
E = ∆Q/∆P × P/Q
​ = (115-100)/(9-10) × 10/100
​= 15/(-1) × 1/10
​= 15/(-10)
​= -1.5 ≅ 1.5

​Elasticity = % change in demand / % change in price = 15/10 = 1.5

If it is greater than 1, it indicates elastic demand. This means that consumers are sensitive to price changes.

In case of elastic demand, demand decreases significantly when price increases, resulting in a decrease in total revenue (TR).

Elasticity = 0 means that no matter how much the price changes, the demand remains unchanged. This property is seen in life-saving medicines. No matter how much the price increases or decreases, the demand for such goods neither decreases nor increases.

Rice is a necessary food product, which has no substitute. Even if the price increases, people are forced to buy it, so its demand is inelastic.

If elasticity is 1, total income does not change as a result of a change in price. This is called Unitary Elastic Demand. In this case, the demand curve slopes uniformly upwards.

Those with limited income will buy essential goods such as rice and pulses anyway. As a result, the demand for these goods is less sensitive to price. As a result of relative changes in price, the relative change in demand is less, in some cases it does not change at all.

Life goes on without luxury goods, so when the prices of these increase, people refrain from buying. As a result, elasticity is high. Since income is limited after retirement, there is no demand for luxury goods. Therefore, demand changes greatly due to changes in price. Therefore, such demand is elastic.

Elasticity = 20/20 = 1 → unit elasticity.
This means that supply also increases proportionally with the increase in price.

In industrial products, production can be increased quickly, because it is machine-based and easy to scale up. So supply is elastic.

The supply of products that take a long time to produce (such as wheat, rice), cannot be increased immediately, so the supply is inelastic.

Elastic supply means that the producer is able to increase supply quickly if the price increases. This is mainly seen in industrial goods or perishable goods.

​For example: An asset like land that cannot be increased. Its supply cannot be increased in any way with price—this is zero elasticity.

If the necessary materials for production are easily available, then the producer can increase production quickly. This increases the elasticity of supply.

Due to the seasonal nature and time-consuming production of agricultural products, their supply cannot be increased immediately. Therefore, it is inelastic.

In the case of elastic supply, if the government provides subsidies, producers benefit, increase production quickly, and as a result, supply increases significantly.