The goods which have positive income effect is said to be normal good. i.e whose demand goes up when the income goes up. Thus there is positive relation between Income and demand for normal goods. Income demand curve of normal goods slopes upward leftwards. It may be shown as under:

The goods, which are of inferior quality good and constitute a major part of total consumption. These goods have negative income effect i.e. when the demand goes down the income goes up. Thus there is a negative relation between income and demand for inferior goods. Income curve of inferior goods slopes down rightwards as shown in the following figure:

Given:
Existing price(P)= Rs 8
Existing Supply (Q)=200 units
New Price (P₁)=Rs 10
Change in price ()= 10-8 =Rs 2
Price Elasticity of supply (E_s)=1.5
Price elasticity of supply=

New Supply=Existing Supply +change in supply
=200+75=275 units.

We know that every economy has limited resources, which can be used to produce different combination of goods and services. If we make our economy very simple with only two choices then Production possibility curve is a curve which shows all possible combinations of two goods that can be produced by making full use of given resources and technology. Suppose an economy decides to produce only wheat and cloth. If all the resources are used for the production of wheat only then 100 lake tones of wheat can be produced. Or all resources are used for the production of cloth then 4,000 bales of cloth can be produced. Between these two extremes there can be many combinations, which can be produced. These can be shown by a schedule.

The PPC shifts to the right only if there is growth of resources. In such case the production possibilities of both the commodities will increase.

Gross National Disposable Income = National Income+ Consumption of fixed Capital +Net Indirect Taxes +Net current transfers from rest of the world
      
        =2,000+100+250+200
        =Rs 2,550 crores

Price elasticity of supply

Gross National Disposable Income = National Income+ Consumption of fixed Capital +Net Indirect Taxes +Net current transfers from rest of the world
    = 1,000 +100+80+150
    = Rs 1,330 crores

Total Increase in income= Increase in investment x Multiplier
    =700x10
    =RS 7,000 crores
Increase in consumption expenditure=Increase in incomex Marginal propensity to consume
    =7,000x0.9
    =Rs 6,300 crores

Average propensity to consume refers to the ratio of aggregate consumption expenditure to aggregate income thus
                    APC= Consumption
                                  Income
The sum of average propensity to consume and average propensity to save is equal to one because,
                        Y = C + S

Dividing both sides by Y, we get,
                    Y/Y = C/Y  + S/Y
                      1  = APC + APS
        i.e. APC = 1 - APS
                    APS = 1 - APC

Total Variable Cost = Total of Marginal Cost

Average Variable Cost=    Total variable cost
                                                 Output

Changes in marginal revenue affect total revenue directly. Total Revenue increases so long as marginal revenue is positive. Total revenue is maximum when marginal revenue is zero. Total revenue decreases when marginal revenue is negative. We can explain the relationship between total revenue and marginal revenue with the help of the following table -