The problems related to allocation of resources in an economy arise because of the unlimited wants of people. The resources used to produce goods and services are limited or scarce. Resources are not only scarce but they have alternative use also. Thus, scarcity of resources leads to the problems related to allocation of resources in an economy.

If there are a free entry and exit of firms in the market, the equilibrium price is always equal to the minimum average cost of the firm. That is, equilibrium price;
P=min AC
If the market price is above the minimum average cost, It means that firms are making supernormal profits. The possibility of earning a supernormal profit will attract some new firms, which will lead to a reduction in super normal profit will be wiped out. At this point, with all firms in the market earning only normal profit, no more firms will have the incentives to enter.
If the market price is below the minimum average cost, It means that firms are making losses. since the firms are earning less than the normal profit at the prevailing price, some firms will exit, which will lead to an increase in profit. once a sufficient number of firms have left the market. The profit of each firm will increase to a level of normal profit, at this point, no firm will leave since they are earning normal profits, thus, with free entry and exit, each firm will always earn normal profit at the prevailing market price 

Supply and demand determine the equilibrium price competitive market with fixed number of the firm. The equilibrium price is obtained at the intersection of the market demand and market supply curves.
In given figure, equilibrium occurs at the intersection of the market demand curve (DD) and the market supply curves (SS). The equilibrium quantity is Q* and the equilibrium price is P*. At a price greater than \(P \times ({ P }_{ 2 }>P).\) there will be an excess supply and at a price below \(P \times({ P }_{ 1 }>P).\) there will be an excess demand.

(i) if the price prevailing in the market is above the equilibrium price, it implies that there is an excess supply of a good. excess supply refers to a situation when quality demanded is less than the quality supplied at given prices. It creates competition among the sellers and causes the prices to fall. marginal sellers will leave the market leading to falling in supply. This fall in supply will continue up to the point where it is equal to the market demand
(ii)  if the price prevailing in the market is below the equilibrium price, it implies that there is an excess demand for a good. excess demand refers to a situation when quality demanded is more than the quality supplied at given prices. It creates competition among the buyers and pushes the prices up. New firm will enter the market leading to an increasing in supply. This increase in supply will continue up to the point where it is equal to the market demand

Normative economic analysis discusses the economics of 'what ought to be'. In normative economic analysis, the desirability of different mechanisms is checked and recommendations are prescribed for making corrections, if necessary.

Positive economic analysis discusses the economics of 'what is'. In positive economic analysis, the functioning of different mechanisms is analysed and their respective outcomes are figured out for refernce in future.

The subject matter of economics has been studied under two broad branches:
(i) Microeconomics
(ii) Macroeconomics
In microeconomics we study the behaviour of individual decision-making units, such as households and firms. Equilibrium prices and quantities of goods and services are determined through the interaction of individuals in the markets.
In macroeconomics, we study the behaviour of factors affecting the economy as a whole. It focuses on the behaviour of national level aggregates such as national income, total output, employment level, price level, etc. Here, we are interested in finding out how thelevels of these aggregate measures are determined and how these measures change over time.

Price elasticity of. demand is calculated as:
\({ E }_{ D }=\frac { \triangle Q }{ \triangle P } \times \frac { P }{ Q } \)
Original Price; P = ?
Original Quantity Demanded; Q = 30
Change in Price; \(\triangle \) P = (-) 1
Change in Quantity Demanded; \(\triangle \)Q = 3
Price elasticity of demand is E_D = (-) 1.5
By Substituting appropriate values in (I); we get
(-)1.5 = \(-\frac { 3 }{ 1} \times \frac { P }{ 30 }\)
P = 15
Therefore,  the price before change was Rs.15 per unit.

Elasticity of demand (E_D) along with linear demand curve is calculated as:
  \({ E }_{ D }\ =-b\frac { P }{ Q } \ = -\frac { bp }{ a-bp } \)      
In the given demand curve, a = 10 and -b = 3.
At    \(p=\frac { 5 }{ 3 } ;\)
 \({ E }_{ D }\ =\ -\frac { 3\times \frac { 5 }{ 3 } }{ 10-\left( 3\times \frac { 5 }{ 3 } \right) } \)
  \(=\ -\frac { 5 }{ 10-5 } \ =\ -\frac { 5 }{ 5 } \ =\ -1\)
The price elasticity of demand is E_D = -1. The demand for the good is unit elastic.

 A budget line is given by an equation:
Here      M = P₁ X₁ + P₂ X₂ 
 P₁ = Rs.6
 X₁ = 6 
 P₂ = Rs. 8 
X = 8
 M = ?
Substituting appropriate values in (I), we get:
M = Rs.6(6) + Rs.8(8)
= Rs.36 + Rs.64
= Rs.100
Thus, the consumer's income is Rs.100.

Following are the points of distinction between centrally planned economy and market economy:

Following are the causes of a leftward shift in the demand curve:
(i) Decrease in the Prices of Substitute Goods: Substitute goods are those goods which can be used in place of one another, such as tea and coffee, or ballpoint pen and ink pen. If X and Y are substitutes then a decrease in the price ofY will decrease the demand for the X as latter is relatively expensive now. The consumer will substitute Y for X, and the demand curve for X shifts to the left.
(ii) Increase in the Prices of Complementary Goods: Complementary goods are those goods which are always consumed together to satisfy a particular need or wartt. If goods X and Yare complements, an increase in the price ofY contracts its demand, and thus, decreases, the demand for X. The demand curve for X shifts to the left.
(iii) Fall in Income: With a fall in income, the consumer is capable of buying less. Thus, a fall in income decreases the demand for normal goods at a given price, and the demand curve shifts to the left.
(iv) Negative Change in Hobbies: Tastes and preferences of consumer also affect the demand for a good. With the negative changes in hobbies, the consumer's demand for a good decreases, which shifts the demand curve towards the left.

(i) Normal goods are those goods the demand for which increases as income increases, and decreases as income decreases. In other words, we buy more of these goods as our income increases. The demand curve for normal goods is positively sloped .  On the other hand, inferior goods are those goods the demand for which decreases as income increases, and increases as income decreases. The demand curve for inferior goods is negatively sloped.
(ii) Total Utility is the total satisfaction derived from the consumption of all the units of a good. Marginal Utility, on the other hand, is the additional utility derived from the consumption of one more unit of the good. Marginal Utilities of all units of consumption are added to derive Total Utility.
(iii) Individual demand schedule shows different quantities of a good demanded by an individual consumer or household corresponding to different prices. Market demand schedule, on the other hand, shows total demand for a good by all the consumers in the market corresponding to different prices. Market demand schedule is obtained by summing the quantities demanded by all the individuals at different prices.

Production Possibility Curve (PPC) is the graph depicting all the possible combinations of two goods that can be produced in an economy by making an efficient and full utilisation of all the resources and given state of technology. Economic growth due to technological advancement or growth of resources increases the economy's capacity to produce. Many combinations, which were unattainable earlier can be attained now. As a result PPC, shifts to the right. The impact of economic growth can be shown with the help of the following diagram:

The Production Possibility Curve shifts outward to the right from PP to \({ P }_{ 1}{ P }_{ 1 }\)due to economic growth. The economy's production capacity increases from point A to point B or C.

Consumer's equilibrium refers to a situation in which the consumer maximises his or her satisfaction given the income and the market prices. Consumer's equilibrium is attained when the ratio of the Marginal Utility of good X to price of X is-equal to the ratio of the Marginal Utility of good Y to price of Y. That is, when
 \(\frac { { MU }_{ X } }{ { P }_{ X } } =\frac { { MU }_{ Y } }{ { P }_{ Y } } \)
In the given question:
 \(\frac { { MU }_{ Y } }{ { P }_{ Y } } =\frac { 4 }{ 5 } =0.8\)
And;       \(\frac { { MU }_{ X } }{ { P }_{ X } } =\frac { 5 }{ 4 } =1.25\)
That is,  \(\frac { { MU }_{ X } }{ { P }_{ X } } \ >\ \frac { { MU }_{ Y } }{ { P }_{ Y } } \). Thus,  the consumer is not in equilibrium.
A rational consumer would transfer expenditure from good X to good Y till  \(\frac { { MU }_{ X } }{ { P }_{ X } } =\frac { { MU }_{ Y } }{ { P }_{ Y } } \)