Chapter 3(A)
Demand Analysis
Q. 1. Complete the following statements :
1) The relationship between demand for a good and price of its substitute is……..
a) direct
b) inverse
c) no effect
d) can be direct and inverse
Ans: a) direct
2) The relationship between income and demand for inferior goods is…….
a) direct
b) inverse
c) no effect
d) can be direct and inverse
Ans: b) inverse
3) Symbolically, the functional relationship between Demand and Price can be expressed as
................
a) Dx = f(Px)
b) Dx = f(Pz)
c) Dx = f(y)
d) Dx = f(T)
Ans: a) Dx = f(Px)
4) When less units are demanded at high price it shows ...............
a) increase in demand
b) expansion of demand
c) decrease in demand
d) contraction in demand
Ans: d) contraction in demand
Q. 2. Give economic terms :
1) A situation where more quantity is demanded at lower price ………
Ans: Expansion of Demand
2) Graphical representation of demand schedule………
Ans: Demand Curve
3) A commodity which can be put to several uses ………
Ans: Composite Demand
4) More quantity is demanded due to changes in the factors determining demand other than price ………
Ans: Increase in Demand
5) A desire which is backed by willingness to purchase and ability to pay ………
Ans: Demand
Q. 3. Distinguish between :
1) Desire and Demand
|
Desire |
Demand
|
|
Desire is a mere
wish for something. |
Demand is a
desire backed by ability and willingness to purchase. |
|
Desire has no
limits. |
Demand is
limited by ability and willingness to pay. |
|
Desire is not
related to price. |
Demand is
related to time and price. |
|
Desire of a
beggar to own a car. |
Demand for a BMW
car by Ratan Tata. |
2) Expansion of demand and Contraction of demand
|
Expansion of demand |
Contraction of demand |
|
Other
factors remaining constant, a rise in demand due to a fall in price is called
expansion in demand |
Other
factors remaining constant, a fall in demand due to a rise in price is called
contraction in demand |
|
In expansion
in demand, equilibrium point of price and demand moves downward from left to the
right on the same demand curve. |
In
contraction in demand, equilibrium point |
3) Increase in demand and Decrease in demand
|
Increase in demand |
Decrease in demand |
|
It
means when the demand of commodity rises due to favorable changes in other
factor, price remain constant. |
It means fall in
demand of commodity due when the supply of commodity decreases due to
unfavorable change in other factor, price remain constant. |
|
E.g. If size of
population increases, the demand of commodity is also increases. |
E.g. when the
income of consumer decreases, the demand of commodity is also decreases. |
|
The demand curve
shifts upward (towards right) forming a new demand curve. |
The demand curve
shifts downward (towards left) forming a new demand curve. |
Q. 4. State with reasons whether you agree or disagree with the following statements :
1) Demand curve slopes downward from left to right.
Ans: Yes, I Agree with this statements
2) Price is the only determinant of demand.
Ans: No, I Disagree with this statements
1) Price :
Price determines the demand for a commodity to a large extent. Consumers prefer to purchase a product in large quantities when price of a product is less and they purchase a product in small quantities when price of a product is high.
2) Income :
Income of a consumer decides purchasing power which in turn influences the demand for the product. Rise in income will lead to a rise in demand for the commodity and a fall in income will lead to a fall in demand for the commodity.
3) Prices of Substitute Goods :
If a substitute good is available at a lower price then people will demand cheaper substitute good than costly good. For example, if the price of sugar rises then demand for jaggery will rise.
4) Price of Complementary Goods :
Change in the price of one commodity would also affect the demand for other commodity. For example, car and fuel. If the price of fuel rises, then demand for cars will fall.
5) Nature of product :
If a commodity is a necessity and its use is unavoidable, then its demand will continue to be the same irrespective of the corresponding price. For example, medicine to control blood pressure.
3) When price of Giffen goods fall, the demand for it increases.
Ans: No, I Disagree with this statements.
Inferior goods or low quality goods are those goods whose demand does not rise even if their price falls. At times, demand decreases when the price of such commodities fall.
Sir Robert Giffen observed this behaviour in England in relation to bread. He noted that, when the price of bread declined, people did not buy more because of an increase in their real income or purchasing power. They preferred to buy superior good like meat. This is known as Giffen's paradox.
Thus, when price of Giffen Goods falls, the demand for it does not increase but decreases.
Q. 5. Observe the following table and answer the following questions :
|
Quantity
Demanded |
||||
|
Price per kg in
Rs. |
Consumer A |
Consumer B |
Consumer C |
Market Demand (in
kgs) (A+B+C) |
|
25 |
16 |
15 |
12 |
__ |
|
30 |
12 |
11 |
10 |
___ |
|
35 |
10 |
09 |
08 |
___ |
|
40 |
08 |
06 |
04 |
____ |
a) Complete the market demand schedule.
|
Quantity
Demanded |
||||
|
Price per kg in
Rs. |
Consumer A |
Consumer B |
Consumer C |
Market Demand (in
kgs) (A+B+C) |
|
25 |
16 |
15 |
12 |
43 |
|
30 |
12 |
11 |
10 |
33 |
|
35 |
10 |
09 |
08 |
27 |
|
40 |
08 |
06 |
04 |
18 |
b) Draw market demand carve based on above market demand schedule.
2) Observe the given diagram and answer the following questions :
1) Rightward shift in demand curve ............
Ans: Increase in Demand
2) Leftward shift in demand curve ............
Ans: Decrease in Demand
3) Price remains ..........
Ans: OP
4) Increase and decrease in demand comes under..........
Ans: Change in Demand
3) Explain the Diagram
|
A |
B |
|
1) Diagram represent
______ in demand 2) In diagram A
movement of demand Curve is in _____ direction
|
1) Diagram B
represent ______ in Demand 2) In Diagram B
movement of Demand of demand Curve in ______ direction. |
Ans:
|
A |
B |
|
1) Diagram represent expansion in demand 2) In diagram A
movement of demand Curve is in Downward direction
|
1) Diagram B
represent Contraction in Demand 2) In Diagram B
movement of Demand of demand Curve in Upward direction. |
Q. 6. Answer in detail :
1) State and explain the law of demand with exceptions.
Ans: Exceptions to the Law of Demand :
There are certain exceptions to the law of demand. It means that under exceptional circumstances, consumer buys more when the price of commodity rises and buys less when price of commodity falls. In such cases, demand curve slopes upwards from left to right. i.e. the demand curve has a positive slope as shown in fig.
Following are the exceptions to the law of demand:
1) Giffen's paradox :
Inferior goods or low quality goods are those goods whose demand does not rise even if their price falls. At times, demand decreases when the price of such commodities fall.
Sir Robert Giffen observed this behaviour in England in relation to bread. He noted that, when the price of bread declined, people did not buy more because of an increase in their real income or purchasing power. They preferred to buy superior good like meat. This is known as Giffen's paradox.
2) Prestige goods :
Expensive goods like diamond, gold etc. are status symbol. So rich people buy more of it, even when their prices are high.
3) Speculation :
The law of demand does not hold true when people expect prices to rise still further. In this case, although the prices have risen today, consumers will demand more in anticipation of further rise in price. For example, prices of oil, sugar etc. tend to rise before Diwali. So people go on purchasing more at a high price as they anticipate that prices may rise during Diwali.
4) Price illusion :
Consumers have an illusion that high priced goods are of a better quality. Therefore, the demand for such goods tend to increase with a rise in their prices. For example, branded products which are expensive are demanded even at a high price.
5) Ignorance :
Sometimes, due to ignorance people buy more of a commodity at high price. This may happen when consumer is ignorant about the price of that commodity at other places.
6) Habitual goods :
Due to habit of consumption, certain goods like tea is purchased in required quantities even at a higher price.
Answer: Determinants of Demand :
The demand for goods is determined by the following factors :
1) Price :
Price determines the demand for a commodity to a large extent. Consumers prefer to purchase a product in large quantities when price of a product is less and they purchase a product in small quantities when price of a product is high.
2) Income :
Income of a consumer decides purchasing power which in turn influences the demand for the product. Rise in income will lead to a rise in demand for the commodity and a fall in income will lead to a fall in demand for the commodity.
3) Prices of Substitute Goods :
If a substitute good is available at a lower price then people will demand cheaper substitute good than costly good. For example, if the price of sugar rises then demand for jaggery will rise.
4) Price of Complementary Goods :
Change in the price of one commodity would also affect the demand for other commodity. For example, car and fuel. If the price of fuel rises, then demand for cars will fall.
5) Nature of product :
If a commodity is a necessity and its use is unavoidable, then its demand will continue to be the same irrespective of the corresponding price. For example, medicine to control blood pressure.
6) Size of population :
Larger the size of population, greater will be the demand for a commodity and smaller the size of population smaller will be the demand for a commodity.
7) Expectations about future prices :
If the consumer expects the price to fall in future, he will buy less in the present at the prevailing price. Similarly, if he expects the price to rise in future, he will buy more in the present at the prevailing price.
8) Advertisement :
Advertisement, sales promotion scheme and effective salesmanship tend to change the preferences of the consumers and lead to demand for many products. For example, cosmetics, tooth brush etc.
9) Tastes, Habits and Fashions :
Taste and habits of a consumer influence the demand for a commodity. If a consumer likes to eat chocolates or consume tea, he will demand more of them. Similarly, when a new fashion hits the market, the consumer demands that particular type of commodity. If a commodity goes out of fashion then suddenly the demand for that product tends to fall.
10) Level of Taxation :
High rates of taxes on goods or services would increase the price of the goods or services. This, in turn would result in a decrease in demand for goods or services and vice-versa.
11) Other factors :
1) Climatic conditions
2) Changes in technology
3) Government policy
4) Customs and traditions etc.
1. | Choose the Correct Option | 5 Marks | |
2 | Complete the Correction | 5 Marks | |
3 | Give Economic Term | 5 Marks | |
4 | Find the Odd Word | 5 Marks | |
5 | Complete the following Statements | 5 Marks | |
6 | Assertion and Reasoning Questions | 5 Marks | |
7 | Identify and Explain the Concepts | 6 Marks | |
8 | Distinguish Between | 6 Marks | |
9 | Answer in Brief | 12 Marks | |
10 | State with Reasons, Do you Agree/ Disagree | 12 Marks | |
11 | Table, Diagram, Passage Based Questions | 8 Marks | |
12 | Answer in Detail | 16 Marks |
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