Question

1.     Elucidate the following

a.      Scarcity

b.     Income Effect

c.      Substitution Effect

d.     Arc elasticity

Answer 1

a)Scarcity

Its a situation experienced when the demand for a good or service is more than the available goods and services.

b) Income Effect

is the change in the consumption of goods and services by people based on their income. 

For example when there have more income they spend more on goods and vice versa.

c) Substitution effect

It is a situation where there is decrease in sales for a product that can be as result of consumers switching to cheaper alternatives when its price rises. For examples consumers switching to white meat because of increased price of red meat.

d) Arc elasticity

Arc elasticity is elasticity of a single variable with respect to another between two given points