Following are the main factors which determine the price elasticity of demand for a commodity:

•    Availability of close substitutes for the commodity: A commodity will have elastic demand if there are good substitute available. A commodity having no substitute will have inelastic demand.
•    Uses of the commodity: If commodity has only a few uses, its demand is likely to be elastic
•    Total expenditure on the commodity: The demand for such commodities where a small part of income spent is generally inelastic such as commodities like needle, match box, button etc. but the demand for the commodities on which large part of income is spent is elastic.

Following are the two points of distinction between a change in quantity demanded and a change in a demand:

• Change in quantity demanded is caused by change in price of the product while change in demand is caused by factors other than price of the commodity i.e. change in the income of the consumer, tastes of consumer and prices of related goods.

• Change in quantity demanded is movement along a demand curve whereas change in demand is a shift of the demand curve. For e.g., when price of oranges increases from Rs 10 per dozen to Rs 15 per dozen, there will be change in quantity demanded. On the other hand when income of the consumer decreases, the demand for oranges also decline, then such a change is called change in demand.

   Change in Demand

There are following three reasons of leftward shift of supply curve-
(i)  Cost of factors of Production: When the cost of factor of production goes up the supply of commodities decreases, because at higher cost of production the firm will produce less. This leads to a leftward shift in supply curve.

(ii) Use of less productive technology: If the firm uses less productive technology, the cost of production per unit increases. With the higher cost of production less would be supplied at the same price and the supply curve wouyld shift leftward.

 
(iii)  Price of related goods: The supply of a commodity also depends upon the prices of related goods. Related goods may be of two types (1) Substitute goods (ii) Complementary goods. If the market price of related commodity rises, the producer would prefer to produce the related or substitute good and the demand for this good will decrease. This will lead to a leftward shift in the supply curve.

Monopolistic Competition is a market structure in which there are  many sellers producing slightly differentiated products. Each producer can set its price and quantity with their independent decision.

Features of Monopolistic Market:
1. Large number of sellers and buyers
2. Freedom of entry and exit 
3. Product differentiation

Product differentiation:

Product differentiation means that products, which can be substituted from one another are differentiated from each other in terms of brand name, colour, shape, quality etc. As a result the products of different firms are not homogeneous but are close substitutes. Products are sold at different prices by different sellers.

Product differentiation is a feature of monopolistic competition. But product differentiation does not always mean that there are necessarily real differences in the products of different firms. Quite often the differences are imaginary. For example: Pepsi, Coca Cola, Thumps up are similar but differentiated products.

Revenue Deficit in government budget refers to the excess of revenue expenditure over revenue receipts.In terms of formula
Revenue Deficit =Revenue expenditure – Revenue receipts
The implication of revenue deficit is:
1) A part of revenue deficit is financed through borrowed funds from the capital account. This implies that the government investment is reduced to the extent of deficit on the revenue account. This effects economic growth of the economy.
2) Due to high revenue deficit government has to borrow from the market which reduces the resources available for private investment.This again lowers the rate of economic growth.

Net National Disposable Income= Gross National Product at Factor Cost + Net Indirect Taxes+ Net Current transfer from rest of the world – Consumption of Fixed Capital
= 800 + 70 + 50 - 60
= Rs 860 crores

Average propensity to save is the ratio of total savings to total income:

 APS =

         
Marginal Propensity to save is the ratio of change in saving to change in income.

MPS=

The value of APS can be negative when consumption expenditure exceeds income. At low level of income, consumption is more than the income and saving is negative. For example, if income is Rs 1,000 and consumption expenditure is Rs 1,200 then savings is Rs - 200 or dissaving.

It means that APS = -0.2 (-200/1000)

Marginal Propensity to Consume=0.75

Multiplier =

Total increase in investment=Rs 200 crores

Total Increase in income = Increase in investment x Multiplier

=200x4

=Rs 800 crores

Increase in consumption Expenditure =Increase in income x Marginal propensity to consume

=800 x 0.75

=Rs 600 crores

(i)It is the degree of responsiveness of change in demand due to change in price. In other words, it is the ratio of percentage  change in demand and percentage change in price.

Price elasticity of demand

                                                                                                            (ii) The products are homogeneous under Perfect Competition.

(iii) Marginal revenue may be defined as the change in total revenue resulting from the sale of an additional unit of Firm’s product.

MR =  Change in total Revenue
          Change in units sold

(iv) Law of supply states that quantity offered for sale will increase as the price of the product rises and decrease as the price of the product falls.

New Price = Existing Price +Change in Price

                 = 8 + 2  = Rs 10