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Q: Assumption of transitivity means that indifference
curve does not cross each other?
Ans) Indifference curves cannot intersect each other:
Third important property of indifference curves is that they cannot
intersect each other In other words only one indifference curve will
pass through a point in the indifference map 1 his property can be
easily proved by first making the two indifference curves cut each
other and then showing the absurdity or self-contradictory result it
leads to
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8
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Now take point on indifference curve IC2 and point B on
indifference curve IC1 vertically below A
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Likewise, the combinations B and C will give equal satisfaction to the
consumer; both being on the same indifference curve IC1
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But a

glance at Fig
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5 will show that this is absurd conclusion since
combination A contains more of good Y than combination B, while the
amount of good X is the same in both the combinations
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Samuelson‟s Revealed Preference Theory is a behavioral ordinal
utility study as different from the contemplative ordinal theory of
Hicks and Allen
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Thus theory analyses customer‟s inclination for a
combination of commodities on the basis of pragmatic customer
performance in the market
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Keeping this detail into outlook a customer buys goods of
two combinations one of the causes he likes it or is cheaper when
compared
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Then, article X is said
to be „Revealed Preference‟ with the cause of liking
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There are certain postulations with which Samuelson‟s Law of
Demand is based
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He chooses
combinations with the prescribed price-earnings streak and any
variation in relative prices will always escort to some variation in the
articles he purchases
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His choices are based on strong ordering
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And the theory is based on the
hypothesis of transitivity, nevertheless demotes to three term
consistency
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” It means that when earnings elasticity of
demand is positive price elasticity of demand is negative
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”
Derivation of Indifference Curve From Revealed Preference
Let us now discuss work of Samuelson on this topic of constructing
indifference curve with mush methodical way
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4
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Postulations
There is transitivity in customer‟s inclinations
He prefers combination of more articles to less in any condition
His likings have not been changed
There is consistency in his market performance
There are two commodities R and S
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Let us now see the first picture representation
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On the other hand points above and / or to the right of C
in the vicinity ECD are favoured to C as they have more of article R
and / or S
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Still more there are combinations of the articles in the vicinity below
ECD and above the line AB to the left and right of C that are not
ordered by the customer
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It follows that the indifference curve must pass through C and lie
below the vicinity ECD and above the budget line AB
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Now let us discuss
about the second sketch
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Now the customer will choose one of the combinations P or any other
combination on the PK fragment on the like JK
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Thus the triangle
PKB is sliced off from the lower ignorance zone
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Likewise we can slice off points to the left of C in the
upper ignorance zone of this sketch
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Consider that the customer chooses a new point, say H on the budget
line VM
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But all combinations in the vicinity FHG to the right
and above H are favoured to H for the cause that this vicinity denotes
combinations which have more of one of the articles than the
combination H
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Thus by
ranking the combinations in the vicinity GAHT as favoured to C, we
have eradicated some of the upper ignorance zone
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Here is the
third picture’s description
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It shows
the curve I to be convex to the origin at Point C for the cause that it
passes through the lower and upper ignorance zones
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The line AB cannot be an indifference curve for the
cause that the choice of C divulges all other points on AB to be inferior
to C and the customer cannot be at the same time indifferent between
point C and any other point AB
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Third, the indifference curve cannot be concave through C like the
curve I1, for the cause that the upper and lower portions of this curve
are in the inferior zone and all points have been divulged inferior to C
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Q: Describe the determinants of elasticity of demand?
Ans) Determinants Of Elasticity Of Demand

1
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e
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The demand for
necessary of life generally less elastic
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On the other
hand, demand for luxurious product is more elastic because with a small
change in their prices, there is a large change in their demand
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2
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For example, if the price of coffee rises, the
demand for coffee decreases and the demand for tea increases and viceversa
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Goods having several uses
If the commodity has several uses, it has an elastic demand
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It is used for lighting, heating,
cooking etc
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On the other hand, it will be withdrawn for
less important uses
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Joint demand
There are certain commodities which are jointly demanded such as car
and petrol, pen and ink, bread and jam etc
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If the demand for car is less elastic, the demand for petrol
will be also less elastic
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5
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For example, demand for constructing a house can be postponed
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On the other
hand, goods whose demand cannot be postponed, their demand will be
inelastic
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Income of the consumer
The elasticity of demand also depends on income of the consumer
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It is
because change in the price will not affect the quantity demanded by a
greater proportion
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Because a rise or fall in the price of commodities will reduce or
increase the demand
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7
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g
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the demand will nor be
much affected by a change in the price
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On the
other hand, goods on which the consumer spends a large proportion of
his income e
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their demand will be elastic
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Price level
The price level also influences the elasticity of demand for commodities
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