Economics Chapter on Demand and Supply
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Questions and Answers

What causes a contraction of demand?

  • A fall in demand for complementary goods
  • A decrease in income
  • A rise in the price of a substitute good
  • A rise in the price of the commodity (correct)

    • A decrease in demand occurs exclusively due to a change in the price of a commodity.

    False

    What is the effect on the demand curve when there is a decrease in demand?

    The demand curve shifts to the left.

    Expansion of demand occurs due to a fall in the __________ of a commodity.

    <p>price</p> Signup and view all the answers

    Match the economic terms with their definitions:

    <p>Contraction of Demand = A fall in quantity demanded due to a price increase Decrease in Demand = A fall in quantity demanded due to changes in factors other than price Expansion of Demand = An increase in quantity demanded due to a price decrease Increase in Demand = An increase in quantity demanded due to changes in factors other than price</p> Signup and view all the answers

    Which of the following factors can cause an increase in demand?

    <p>A rise in household income</p> Signup and view all the answers

    A fall in income typically leads to an increase in demand for normal goods.

    <p>False</p> Signup and view all the answers

    Name two factors that can lead to a decrease in demand.

    <p>A fall in income, a rise in the price of a complementary good.</p> Signup and view all the answers

    How many units of clothing can be bought if Rs. 160 is spent on clothing?

    <p>4 units</p> Signup and view all the answers

    The consumer can buy more units of clothing by spending all Rs. 200 on food.

    <p>False</p> Signup and view all the answers

    What must be the slope of the budget line to be in consumer equilibrium?

    <p>MRSXY = PX/PY</p> Signup and view all the answers

    In consumer equilibrium, the highest indifference curve that is tangent to the budget line indicates the highest level of __________.

    <p>utility</p> Signup and view all the answers

    What happens to combinations of goods that lie to the right of the budget line?

    <p>They are unattainable.</p> Signup and view all the answers

    Match the following combinations of goods with their descriptions:

    <p>Combination A = Below the budget line Combination D = Above the budget line Combination T = On the budget line Combination OM and ON = Optimal purchase point</p> Signup and view all the answers

    What is the visible effect on utility when a consumer chooses combinations inside the budget line?

    <p>Less utility</p> Signup and view all the answers

    The indifference curve must be __________ to the origin for the consumer to be in equilibrium.

    <p>convex</p> Signup and view all the answers

    Which of the following best describes an individual supply schedule?

    <p>It states the quantities a producer is willing to sell at various prices.</p> Signup and view all the answers

    A market supply schedule is the sum of all individual supply schedules within a market.

    <p>True</p> Signup and view all the answers

    What does a supply curve represent?

    <p>The relationship between the price of a commodity and its quantity supplied.</p> Signup and view all the answers

    When the price of a commodity increases, the quantity supplied generally __________.

    <p>increases</p> Signup and view all the answers

    In the individual supply schedule provided, how many units would be supplied at a price of Rs.7?

    <p>18,000 units</p> Signup and view all the answers

    Match the pricing with the quantity supplied for Firm A in the market supply schedule:

    <p>Rs.4 = 10,000 units Rs.5 = 12,000 units Rs.6 = 15,000 units Rs.7 = 18,000 units</p> Signup and view all the answers

    The market supply schedule shows an inverse relationship between price and quantity supplied.

    <p>False</p> Signup and view all the answers

    What is the total quantity supplied at a price of Rs.6 according to the market supply schedule?

    <p>30,000 units</p> Signup and view all the answers

    What happens to the quantity supplied as prices increase?

    <p>It increases</p> Signup and view all the answers

    Higher profit margins do not encourage producers to offer more of a commodity for sale.

    <p>False</p> Signup and view all the answers

    Name one type of good that cannot be adjusted to market conditions due to its supply characteristics.

    <p>Agricultural goods</p> Signup and view all the answers

    Higher prices work as an incentive for both existing firms to increase output and ____ to enter the industry.

    <p>new firms</p> Signup and view all the answers

    Match the following scenarios with their descriptions:

    <p>Agricultural Goods = Supply is fixed from one crop season to another Perishable Goods = Cannot be stored for long periods Goods of Social Distinction = High prices due to limited availability Commodities with Elastic Supply = Easily adjusted based on price changes</p> Signup and view all the answers

    Which of the following is an exception to the law of supply?

    <p>Supply of fish remaining constant despite price changes</p> Signup and view all the answers

    The supply curve for goods that cannot be adjusted to market conditions is typically upward sloping.

    <p>False</p> Signup and view all the answers

    What must happen for firms to increase the quantity of a commodity they produce?

    <p>Prices must increase</p> Signup and view all the answers

    What is the numerical value of elasticity of supply in a perfectly elastic supply scenario?

    <p>∞</p> Signup and view all the answers

    The elasticity of supply for a commodity can be negative.

    <p>False</p> Signup and view all the answers

    What is indicated by a horizontal supply curve?

    <p>Perfectly elastic supply</p> Signup and view all the answers

    The formula for measuring price elasticity of supply is ES = (Percentage Change in Quantity Supplied) / (Percentage Change in ______).

    <p>price</p> Signup and view all the answers

    Match the types of supply curves with their characteristics:

    <p>Horizontal Curve = Perfectly elastic supply Vertical Curve = Perfectly inelastic supply Curve from Y-axis = Elastic supply Curve from X-axis = Inelastic supply</p> Signup and view all the answers

    What happens to the quantity supplied of commodity-X when there is no change in its price?

    <p>It can increase or decrease</p> Signup and view all the answers

    The percentage method and point method are two different approaches to measure elasticity of supply.

    <p>True</p> Signup and view all the answers

    What does the symbol ∆P represent in the elasticity of supply formula?

    <p>Change in price</p> Signup and view all the answers

    Study Notes

    Theory of Demand

    • Demand for a commodity refers to the number of units of a particular good or service that consumers are willing and able to purchase during a specified period at different prices.
    • Individual Demand: The quantity of a commodity that an individual consumer is willing to purchase at a given price during a specified time period.
    • Market Demand: The total quantity of a commodity that all households are willing to buy at a given price during a specified time period.
    • Ex-Ante Demand: The amount of goods consumers want to buy during a particular time period.
    • Ex-Post Demand: The amount of goods consumers actually purchase during a particular time period.
    • Joint Demand: The demand for two or more goods used together. (e.g., car and petrol, bread and butter).
    • Derived Demand: The demand for a commodity that arises because of the demand for another commodity. (e.g., demand for steel, bricks, cement).
    • Composite Demand: Demand for goods with multiple uses. (e.g., demand for steel used in various ways).

    Determinants of Demand

    • Price of the Commodity: Inverse relationship; lower price, higher quantity demanded; higher price, lower quantity demanded. This describes price demand.
    • Income of the Consumer: Direct relationship; increased income, increased demand for normal goods.
      • Normal Goods: Demand increases with income (e.g., clothes, refrigerators).
      • Inferior Goods: Demand decreases with income (e.g., some cheaper foods).
      • Inexpensive Necessities: Demand may increase with income up to a point, then remain constant (e.g., salt, matches).
    • Price of Related Goods:
      • Substitute Goods: Direct relationship; a rise in the price of one good leads to an increase in demand for the other (e.g., tea and coffee).
      • Complementary Goods: Inverse relationship; a rise in the price of one good leads to a decrease in demand for the other (e.g., petrol and cars).
    • Consumer Tastes and Preferences: Demand can change due to fashion, social customs, habits, etc. Consumers may switch to more expensive goods if their tastes change.
    • Consumer Expectations: Expectations about future price changes or income changes can affect current demand.
    • Consumer Credit: Access to credit can influence demand; consumers might buy things they couldn't otherwise afford.
    • Distribution of Income: Higher income inequality often leads to demand for luxury goods.

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    Description

    Test your understanding of key concepts in demand and supply from this economics chapter. This quiz covers factors affecting demand, consumer equilibrium, and budget lines. Ideal for students looking to reinforce their knowledge in economics.

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