Chapter - 4 Supply Analysis
Q. 1. Complete the following statements :
1) When supply curve is upward sloping, it’s slope is ..............
a) positive
b) negative
c) first positive then negative
d) zero
Ans: Positive
2) An upward movement along the same supply curve shows ................
a) contraction of supply
b) decrease in supply
c) expansion of supply
d) increase in supply
Ans: Expansion of Supply
3) A rightward shift in supply curve shows ................
a) contraction of supply
b) decrease in supply
c) expansion of supply
d) increase in supply
Ans: Increase in Supply
4) Other factors remaining constant, when less quantity is supplied only due to a fall in price, it shows ................
a) contraction of supply
b) decrease in supply
c) expansion of supply
d) increase in supply
Ans: contraction of Supply
5) Net addition made to the total revenue by selling an extra unit of a commodity is .............
a) total Revenue
b) marginal Revenue
c) average Revenue
d) marginal Cost
Ans: Marginal Revenue
Q. 2. Complete the Correlation :
1) Expansion of supply : Price rises :: Contraction of supply : Price Fall
2) Total revenue : P x Q:: Average revenue :TR/TQ
3) Total cost : TFC + TVC :: Average cost : TC / TQ
4) Demand curve : Downward :: Supply curve :Upward
5) Price Constant : Change in supply :: Other factors constant : Variation of supply
Q. 3. Give economic terms :
1) Cost incurred on fixed factor.
Ans: Fixed Cost
2) Cost incurred per unit of output.
Ans: Average cost
3) Net addition made to total cost of production.
Ans: Marginal Cost
4) Revenue per unit of output sold.
Ans: Average Revenue
Q. 4. Distinguish between :
1) Stock and Supply.
Ans:
|
Supply
|
Stock
|
|
Supply is the
actual part of the stock which the sellers are able and willing to offer for
sale at a given price.
|
Stock is the total quantity of goods
manufactured or stored.
|
|
Supply comes
from stock.
|
Stock is the
source of supply.
|
|
Supply is always
less than stock or supply cannot exceed stock.
|
Stock is always
greater / more than supply or stock can exceed supply.
|
|
Supply is the
function of stock.
|
Stock is the
function of production.
|
|
In case of
perishable goods, supply would be equal to stock.
|
In case of
durable goods, the stock is more than supply.
|
|
Supply is a flow
concept.
|
Stock is a fund.
|
|
Supply is more
elastic.
|
Stock is less
elastic.
|
2) Expansion of Supply and Increase in Supply.
Ans:
3) Contraction of Supply and Decrease in Supply.
Ans:
4) Average Revenue and Average Cost.
Ans;
|
Average revenue
|
Average cost
|
|
It refers to
revenue per unit of output sold.
|
It refers to
total cost of production per unit.
|
|
It is calculated
by dividing TR by total output.
|
It is calculated
by dividing TC by total output.
|
|
AR = TR/ TQ
|
AC = TC / TQ
|
Q. 5. Observe the following table and answer the questions :
A) Supply schedule of chocolates
|
10
|
200
|
|
15
|
------
|
|
20
|
300
|
|
25
|
350
|
|
30
|
-----
|
|
35
|
-----
|
|
40
|
-----
|
1) Complete the above supply schedule.
|
Price in Rs.
|
Quantity supplied in units
|
|
10
|
200
|
|
15
|
250
|
|
20
|
300
|
|
25
|
350
|
|
30
|
400
|
|
35
|
450
|
|
40
|
500
|
2) Draw a diagram for the above supply schedule.
3) State the relationship between price and quantity supplied.
Ans: From the above supply schedule and supply curve of chocolates. It can be seen that. At low price of chocolates i.e. at Rs. 10 the supply of chocolates is also less i.e. 200 units. Similarly at high price of chocolates i.e. at Rs. 40, the supply of chocolates is also high i.e. 500 units. Thus, it can be seen that the price of chocolates and quantity supplied of chocolates have direct relation between them.
B) Observe the market supply schedule of potatoes and answer the following questions.
|
Price
in Rs.
|
Firms
|
Market
Supply (kg)
|
|
“A”
|
“B”
|
“C”
|
|
1
|
|
20
|
45
|
100
|
|
2
|
37
|
30
|
45
|
|
|
3
|
40
|
|
55
|
155
|
|
4
|
44
|
50
|
|
154
|
1) Complete the quantity of potato supplied by the firms to the market in the above table.
Ans:
Market supply schedule of potatoes showing the quantities supplied by various firms:
|
Price
in Rs.
|
Firms
|
Market
Supply (kg)
|
|
“A”
|
“B”
|
“C”
|
|
1
|
35
|
20
|
45
|
100
|
|
2
|
37
|
30
|
45
|
112
|
|
3
|
40
|
40
|
55
|
155
|
|
4
|
44
|
50
|
60
|
154
|
2) Draw the market supply curve from the schedule and explain it.
Explanation of Diagram: In the diagram X-axis represents the market supply of potatoes and Y-axis represents the price of the potatoes. From the above diagram it can be seen that, as price of potatoes rises from Rs. 1 to Rs. 4 the supply of potatoes rises from 100 kg to 154 kg. Similarly, as Price of potatoes falls from Rs. 4 to Rs. 1. the market supply of potatoes falls from 154 kg to 100 kg. Therefore, Market supply Curve of potatoes slopes upwards from the left to right.
Q. 6. Answer the following questions :
1) Explain the concept of total cost and total revenue.
Ans:
Total Cost (TC) : Total cost is the total
expenditure incurred by a firm on the factors
of production required for the production of
goods and services. Total cost is the sum
of total fixed cost and total variable cost at
various levels of output.
TC = TFC + TVC
TC = Total cost
TFC = Total Fixed Cost
TVC = Total Variable Cost
Total Fixed Cost (TFC) : Total fixed costs
are those expenses of production which
are incurred on fixed factors such as land,
machinery etc.
Total Variable Cost (TVC) : Total variable
costs are those expenses of production
which are incurred on variable factors such
as labour, raw material, power, fuel etc.
Total Revenue (TR) : Total revenue is the
total sales proceeds of a firm by selling a
commodity at a given price. It is the total
income of a firm.
Total revenue is calculated
as follows :
Total revenue = Price × Quantity
For example, if a firm sells 15 units of a
commodity at ` 200 per unit
TR is calculated
as :
TR = P × Q
= ` 200 × 15
= ` 3000
2) Explain determinants of supply.
Ans:
Determinants of Supply :
1) Price of commodity : Price is an important
factor influencing the supply of a
commodity. More quantities are supplied
at a higher price and less quantities are
supplied at a lower price. Thus, there is
a direct relationship between price and
quantity supplied.
2) State of technology : Technological
improvements reduce the cost of production
which lead to an increase in production and
supply.
3) Cost of Production : If the factor price
increases, the cost of production also
increases, as a result, supply decreases.
4) Infrastructural facility : Infrastructure
in the form of transport, communication,
power, etc. influences the production process
as well as supply. Shortage of these facilities
decreases the supply and vice versa.
5) Government policy : Favourable
Government policies may encourage supply
and unfavourable government policies
may discourage the supply. Government
policies like taxation, subsidies, industrial
policies, etc. may encourage or discourage
production and supply, depending upon
government policy measures.
6) Natural conditions : The supply of
agricultural products depends on the natural
conditions. For example, a good monsoon
and favourable climatic condition will
produce a good harvest, so the supply of
agricultural products will increase and
unfavourable climatic conditions will lead
to a decrease in supply.
7) Future expectations about price : If the
prices are expected to rise in the near future,
the producer may withhold the stock. This
will reduce the supply and vice versa
8) Other factors : It includes,
• nature of the market,
• relative prices of other goods,
• export and imports,
• industrial relations,
• availability of factors of production etc.
If all factors are favourable, supply of a
commodity will be more and vice versa.
Q. 7. Answer in detail :
1) State and explain law of supply with exceptions
Ans:
Statement of the Law :
“Other things being constant, higher the
price of a commodity, more is the quantity
supplied and lower the price of a commodity less
is the quantity supplied”
In simple words, “other factors remaining
constant, a rise in price results in a rise in the
quantity supplied and vice-versa. Thus, there is
a direct relationship between price and quantity
supplied.
Symbolically,
Sx = f (Px)
S = Supply
x = Commodity
f = Function
P = Price of commodity.
Individual Supply Schedule : Individual
supply schedule refers to a tabular
representation showing various quantities
of a commodity that a producer is willing to sell at various prices, during a given period
of time.
|
Price in Rs.
|
Quantity supplied in units
|
|
10
|
100
|
|
20
|
200
|
|
30
|
300
|
|
40
|
400
|
|
50
|
500
|
In Figure, the functional
relationship between price and quantity supplied
of a commodity. Lower the price, lower the
quantity of a commodity supplied and vice
versa. At the lowest price of ` 10, supply is also
lowest at 100 kgs. At the highest price of ` 50,
quantity supplied is highest at 500 kgs.
Individual Supply Curve : It is a graphical
presentation of individual supply schedule.
In figure quantity supplied is shown on
the X axis and price on the Y axis. Supply curve
SS slopes upwards from left to right, indicating
a direct relationship between price and quantity
supplied.
Exceptions to the Law of Supply :
Following are the exceptions to the law of supply:
1) Supply of labour : Labour supply is the
total number of hours that workers to work
at a given wage rate. It is represented
graphically by a supply curve. In case of
labour, as the wage rate rises the supply
of labour (hours of work) would increase.
So supply curve slopes upward. Supply of
labour (hours of work) falls with a further
rise in wage rate and supply curve of
labour bends backward. This is because the
worker would prefer leisure to work after
receiving higher amount of wages. Thus,
after a certain point when wage rate rises
the supply of labour tends to fall.
It can be explained with the help of a
backward bending supply curve. the backward
bending supply curve of labour.
supply of labour (hours of
work) is shown on X axis and wage rate
per hour is shown on the Y axis. The curve
SAS represents backward bending supply
curve of labour. Initially, when the wage
rate is ` 100 per hour, the hours of work is
5. The total amount of wages received is `
500. When wage rate rises from ` 100 to
` 200, hours of work will also rise from 5
hours to 7 hours and total amount of wages
would also rise from ` 500 to ` 1400.
At this
point, labourer enjoys the highest amount
i.e. ` 1400, and works for 7 hours. If wage
rate rises further from ` 200 to ` 300, total
amount of wages may rise, but the labourer
will prefer leisure time and denies to work
for extra hours. Thus, he is ready to work
only for 6 hours. At the point A, the supply
curve bends backward, which becomes an
exception to the law of supply.
2) Agricultural goods : The law of supply
does not apply to agricultural goods as they
are produced in a specific season and their
production depends on weather conditions.
Due to unfavourable changes in weather,
if the agricultural production is low, their
supply cannot be increased even at a higher
price.
3) Urgent need for cash : If the seller is in
urgent need for hard cash, he may sell his
product at which may even be below the
market price.
4) Perishable goods : In case of perishable
goods, the supplier would offer to sell more
quantities at lower prices to avoid losses.
For example, vegetables, eggs etc.
5) Rare goods : The supply of rare goods
cannot be increased or decreased according
to its demand. Even if the price rises, supply
remains unchanged. For example, rare
paintings, old coins, antique goods etc
1. | Choose the Correct Option | Solution | 5 Marks |
2 | Complete the Correction | Solution | 5 Marks |
3 | Give Economic Term | Solution | 5 Marks |
4 | Find the Odd Word | Solution | 5 Marks |
5 | Complete the following Statements | Solution | 5 Marks |
6 | Assertion and Reasoning Questions | Solution | 5 Marks |
7 | Identify and Explain the Concepts | Solution | 6 Marks |
8 | Distinguish Between | Solution | 6 Marks |
9 | Answer in Brief | Solution | 12 Marks |
10 | State with Reasons, Do you Agree/ Disagree | Solution | 12 Marks |
11 | Table, Diagram, Passage Based Questions | Solution | 8 Marks |
12 | Answer in Detail | Solution | 16 Marks |
0 Comments