CHSE Odisha Class 12 Economics Solutions Chapter 4 Demand and Price Elasticity of Demand

Odisha State Board CHSE Odisha Class 12 Economics Solutions Chapter 4 Demand and Price Elasticity of Demand Questions and Answers.

CHSE Odisha 12th Class Economics Chapter 4 Question Answer Demand and Price Elasticity of Demand

Group – A

Short type Questions with Answers
I. Answer within Two/Three sentence.

Question 1.
What is demand ?
Answer:
Demand refers to willingness to buy a good backed by ability to pay the price at a particular time period. It indicates various quantities of a good purchased at different price level during a particular time period.

Question 2.
What is difference between demand & desire ?
Answer:
Demand is the willingness to buy & ability to pay the price. But desire is only the willingness to buy.

Question 3.
What is demand function ?
Answer:
Demand is a multi-valued function which it establishes functional relationship between price of a goods, other non-pricing factor & quantity demanded.

Question 4.
What is direct demand ?
Answer:
The demand for those goods & services which yields direct satisfaction is called direct demand. The demand for rice breads fruits etc. are the cost of direct demand.

Question 5.
What type of demand is the demand for raw material ?
Answer:
Demand for raw material is a derived demand. It yields indirect satisfaction.

Question 6.
What is “Law of demand” ?
Answer:
Law of demand states that “Other things remaining constant, amount demanded increases with the fall in price & vice-versa”. It shows the inverse relationship between price quantity demand.

Question 7.
What is composite demand ?
Answer:
Demand not for one purpose but for so may purposes is called composite demand. It combines a number of goods.

Question 8.
What is demand schedule ?
Answer:
Demand schedule is a tabular expression showing various quantities of a goods purchased or demanded at different price-level. It is a numerical analysis at law of demand.

Question 9.
What is a demand curve ?
Answer:
Demand curve is a graphical illustation of demand schedule which slopes downward from left to right showing inverse relationship between price & quantity demanded of a good.

Question 10.
What is slope of demand curve ?
Answer:
Demand curve is -negative slope. It slopes downward from left to right.

Question 11.
What is a Giffen goods ?
Answer:
Giffen goods are those inferior goods. The law of demand does not operate in this case.

Question 12.
What do you mean by change in demand ?
Answer:
Change in demand refers to increase or decrease in demand because of change in factors like price of related goods, income of the consumer, population taste & preference etc of the consumer. It is a case shifting of demand curve.

Question 13.
What do mean by conspicuous consumption ?
Answer:
Conspicious consmption refers to the consumption of prestigious goods. Law of demand does not operate in this case.

Question 14.
What is the normal shape of demand curve ?
Answer:
Normally, a demand curve sloped downward from left to right. It has a negative slope.

Question 15.
What happens to demand for tea it price of cofee rises ?
Answer:
The demand for tea increases if price of cofee rises. Because, these are substitute goods.

Question 16.
What happens to demand for a good if future price-hike is anticipated ?
Answer:
The demand for the goods increases if the future price hike is anticipated. It is an exception to law of demand.

Question 17.
What is elasticity of demand ?
Answer:
Elasticity of demand refers to degree of responsiveness of demand as a result of given change in price. It indicates degree of changing in demand as a result of change in price.

Question 18.
What does elasticity of demand measure ?
Answer:
Elasticity to demand measures the effect of change in price of a goods on the quantity demanded of it. It indicates the degree of sensitiveness of change demand due to change in price.

Question 19.
Who propounded the concept of elasticity of demand ?
Answer:
Alfred Marshall proposed to the concept elasticity of demand.

II. Answer within Five/Six sentence :

(A) WRITE SHORT NOTES ON :

Question 1.
Demand.
Answer:
Demand refers to willingness of the consumer to buy a goods backed by his ability to pay the price for it. In other words, demand refers to the quantity of the goods what a consumer is willing to purchase at a given price dining particular time period. Demand is always quoted with the price of goods & is expressed for a particular time-period. Hence demand for a goods comprises of 3 elements like effective desire to purchase a given quantity of goods, price of the goods & time – period.

Question 2.
Demand Function.
Answer:
Demand is a multi-variate concept showing the functional relationship between the demand for a goods & other factors like price of the goods, income of the consumer, price of the related goods etc. Other things remaining constant, there exists inverse relationship between the quantity demanded & price. Symbolically stated Dx = f (Px) in unchanged situation. There is inverse relationship between price of a goods & quantity demanded. In this function price of the goods is an independent factor on whom the demand depends on.

Question 3.
Demand – Schedule.
Answer:
Demand-schedule is a tabular expression showing various quantities of a goods demanded at different price-level. It contains different quantities of a goods demanded at different price-level. It is an information regarding the prices & quantity demanded. Thus it is viewd as a numerical explanation of Taw of demand’. This demand schedule is of two types like individual demand schedule & market demand schedule.

Question 4.
Demand Curve.
Answer:
Demand curve is the graphical or geometrical representation of demand-schedule. Both the demand curve & demand schedule provide the same information on price & quantity demanded of a goods. It graphically illustrates the law of demand. Normally, the demand curve slopes downward from left to right showing a negative inclination. It is because of the inverse relationship between price & quantity demanded. The slope of the demand curve is always negative.

Question 5.
Change in Demand :
Answer:
Demand is a multi-variate function. Demand for any goods depends on the price of goods, price of related goods, income of the consumer, taste & preference etc. If there occurs increase or decrease in demand due to change in factors other than price, it is called change in demand. In case of change in demand, the demand curye shifts either upward or downward. Increase in demand & decrease in demand are two conceptual situations that heppen in change in demand. In increase in demand, more is demanded at same price & same is demanded at higher price. So demand curve shifts upward. In case of decrease in demand, the demand curve shift downward & same is demanded at lower price & less is demaned at same price.

Question 6.
Elasticity of Demand.
Answer:
Elasticity of demand refers to the degree of responsiveness or sensitiveness of quantity demanded to changes in price. It tells how much or to what extent the quantity demanded changes due to a given change in price. It is a quantitative expression of change in quantity demanded. Elasticity of demand can be assessed as a ratio of proportionate change in quantity demanded to proportionate change in price. Elasticity of demand is always -ve & it ranges from 0 to oo & hence with this range it describes five cases of elasticity of demand.

Question 7.
Perfectly Elastic Demand .
Answer:
The demand is said to be perfectly elastic, if a small change in price leads to an infinite change in quantity demanded. In this case, the demand is highly sensitive & responsive which causes an infinite change in quantity demanded due to a small & insignificant change in price. In such case, the value of elasticity of demand is ∞ & the demand curve becomes a horizontal straight line. This concept is quite conceptual & imaginary & is not observed in real world.

Question 8.
Perfectly Inelastic Demand.
Answer:
If any change in price does not create any change in quantity demanded of a goods, the demand for that goods is said to be perfectly inelastic. Here change in price does not have any impact on quantity demanded. The quantity demanded remains Unchanged irrspective of the change in price. In this case, the demand curve takes the shape of a Vertical straight line & the value of elasticity of demand is zero (o). This case of elasticity of demand is not found in real world.

Question 9.
Unitary Elastic Demand.
Answer:
In case of unit elastic demand, a given change in price leads to proportionate change in quantity demanded. For example, if change in prices 10%, the quantity demanded also changes to the extent of 10%. The vaule of elasticity of demand is found to be one (1) & the demand curve in this case takes the shape of a rectangular hyperbola.”

Question 10.
Giffen Goods
Answer:
Giffen goods are special type of inferior goods for which law of demand does not operate. These goods are named after Sir Robert Giffen who is the chief innovator of this good. The income effect of price change for such goods is found to be negative. So when the price of a good falls causing a rise in income, the consumer concerned treates these goods inferior & reduces its consumption. These are the special type of goods whose quantity demanded decreases with the fall in its price & vice-versa.

(B) DISTINGUISH BETWEEN

Question 1.
Demand & Desire
Answer:
Both the concept of demand & desire sound to be synonymous. Both indicates the willingness to have a good. Demand refers to willingness to buy a good backed by ability to pay the price of it.* But the term “desire” is restricted to only willingness to have a good. Demand is quoted with price but desire is not associated with price. Demand is expressed per unit of time, but there is no mentioned of time period in case of desires. Thus in economics, the term ‘demand’ & ‘desires’ are two different terms.

Question 2.
Direct Demand & Derived Demand.
Answer:
The goods which are demand for the direct satisfaction of human wants, the demand is called direct demand. On the contrary, the goods which provides indirect satisfaction & these goods are so demanded, it is called derived demand. The demand for all types of consumers goods such as book, pen, shirt etc are the example of direct demand as all these provide direct satisfaction. On the other hand, the demand for raw materials, machineries etc. are the example of derived demand. Thus, the direct demand is directly associated with direct satisfaction of wants and derived demand is related to indirect satisfaction of wants. i

Question 3.
Individual Demand schedule & Market Demand Schedule.
Answer:
Individual demand schedule is a tabulor expression reflecting different quantities of goods purchased by an individual at different price-level. But the market demand schedule is numerical statement in tabular form showing different quantities of goods demand in the market at different price-level. Both the schedules are framed on the same price but one is exclusively for an individual & other is for the whole market. Individual demand schedule is a numerical expression of individual demand whereas market demand schedule is the numerical expression of market demand. Market demand schedule is a composition of individual demand schedules.

Question 4.
Change in demand & Change in quantity demanded.
Answer:
Change in demand is a multivalued function depending on factors other than price of goods whereas change in quantity demanded is a single valued function depending only on price. Increase & decrease in demand are the. two consequences of change in demand but extension and contraction of demand are the consequence of change in quantity demanded. In case of change in demand, price remains same & non-price factors change; but in change in quantity demanded price changes but non-price factors remain unchanged. In case of change in demand, there is shift of demand curve either upward or downward but there is no change nor shift of demand curve in change in quantity demanded.

Question 5.
Increase in demand & Extension of demand
Answer:
Increase in demand takes place when non-pricing factors change but price remains same whereas extension of demand happens when other non-price factor remain constant but price changes. Increase in demand is a consequence of change in demand but extension of demand is a consequence of change in quantity demanded. In case of increase in demand, more is demanded at same price & same is demanded at higher price; but in extension of demand more is demanded at lower price & vice-versa. In increase in demand, the demand curve shifts upward to the right; but in extension of demand there is no shift of demand curve.

Question 6.
Perfectly elastic demand & Perfectly inelastic demand.
Answer:
Perfectly Elastic Demand : The demand is said to be perfectly elastic if a small change in price leads to an infinite change in quantity demanded. Here, the value of elasticity of demand is infinite (∞) & the demand curve in this case becomes a horizontal straight line.
Perfectly inelastic demand: In perfectly inelastic demand, the quantity demanded remains same irrespective of any change in price. Any fall or rise in price has no impact on quantity demanded & hence the value of elasticity is zero. The demand curve is a vertical straight line.

Group – B

Long Type Questions With Answers

Question 1.
What do you mean by demand ? What are its determinants ?
Answer:
In economics, demand refers to willingness to buy a given quantity of goods backed by ability & willingness to pay the price for it. Thus, the complete meaning of demand comprises of several components like willingness to buy a commodity, ability to pay the price, willingness to spend, price of the commodity & time-period. Thus, demand refers to the quantity of goods what a consumer is willing to purchase at a given price during a particular time period. As such, the demand is always quoted with price & expressed for a particular time period.

According to Benham, “The demand for. anything at a given price is the amount of it which will be bought per unit of time. Hansen defined demand, “By demand, we mean the quantity of a commodity that will be purchased at a particular price and not merely the desire of a thing.”

There are different types of demand like price demand, income demand, cross demand, direct or derived demand, joint or composite demand, competitive or alternative demand.
Factors influencing demand : The demand is a multi-variate function. It is influenced by a number of factors. These factors may be classified into economic, social & political factors or which may directly or indirectly influence demand. The important determinants of demand are described below:

(i) Price of the Commodity : The demand is always quoted with price. It is the basic component or factor of demand which exert its influence. Without price-quotation, the concept of demand remains incomplete. Price & demand for a goods are inversely related. When price of a goods falls or rises, the quantity demanded of it increases or decreases respectively. Thus, there observed direct influence of price on the demand for a goods.

(ii) Price of Related goods : The price of related goods is also an important determinant of
demand. The related goods may be substitute or complementary goods. Any rise in price of a substitute goods has direct influence on the demand for goods. If the price of a substitute goods rises, the quantity demanded of the goods increases & vice-versa. Similarly, the demand for complementary goods changes directly when there is change in price of the goods in question. For example, if the price of tea rises, the quantity demanded of its substitute i.e. coffee increases. On the other hand, if the price of ink rises the quantity demanded of pen decreases. So it is inferred that price of related goods influences the demand.

(iii) Income of the Consumer : Income of the consumer is worth mentioning determinant of the demand. It directly influences the demand for goods. Demand for goods & income of the consumer are directly related. It implies that if the income of the consumer increases, the consumer will be capable of consuming more & thus demand for goods is influenced. Thus, it can be affirmed that other things remaining constant, the demand for a goods increases with the increase in the income of the consumer & vice-versa.

(iv) Taste & preference : Tastes & preferences of the consumer exert influence on the demand. These factors which influenced by habit, customs, fashion etc. influence the demand in either way. With the change in these factors, the demand will certainly change.

(v) Population: Population stands as prominent factor influencing demand. The size & composition of the population influence the demand for goods especially the basic necessary of life i.e., food, clothing, shelter etc. Similarly, the composition of the population builds the demand structure. If majority of people are rich, more luxuries & comfortable items shall be demanded or in case of majority of poor, basis necessaries for life will be demanded. In this way it determines the basis of demand.

(vi) Distribution of income & wealth: Distribution refers to the sharing of national income among the people of a country. This distribution maybe of individual which is personal & functional, regional or sectoral. But, the equality in the distribution of income is highly stressed. If the income distribution maintains equality & uniformity, .it will generate more demand & in case of inequality the demand may be contracted and restricted to a particular class, sector or region.

(vii) Government Policy : Government policy is found to be a crucial factor in moulding the quantum of demand. It considerably influences the demand structure of the community. If scarcity of essential goods is felt, the government may adopt certain restrictive measures like rationing to ensure fair distribution. This measure is essential to avoid acUte scarcity. Similarly taxation policy of the government deters the size & structure of the demand if higher tax rate is imposed.

All these factors significantly influence the demand. The contraction or expansion, increase or decrease in demand can happen due to the variations in these factors. Thus, demand is quitely proved to be multi- dimensional concept because of the presence of these multiple variables.

Question 2.
What do you mean by demand ? Distinguish between individual and marked demand schedules.
Answer:
The demand for any commodity, at a given price, is the quantity which will be bought per unit of time at that price. From this definition of demand two things are quite clear. Firstly, demand always refers to demand at a price. If demand is not related to price, it conveys no sense. To say that the demand for mangoes is 100 kg. fails to convey any sense. It should be always related to price. Secondly, demand always means demand per unit of time. The time may be a day, a week or a month, etc. Therefore, “the demand for any commodity or service is the amount that will be bought at any given price per unit of time.” (Benham).

There is a difference between ‘desire’, ‘need’ and ‘demand’. A desire will become demand only if a consumer has the means to buy a thing and also he is prepared to spend the money. Thus, by demand we mean the various quantities of a given commodity or service which consumers would buy in the market in a given period of time at various prices. According to Pension,
“Demand implies three things –
(a) desire to possess a thing,
(b) means of purchasing it, and
(c) willingness to use those means for purchasing it.”

Again in the words of Shearman-, “To speak of the demand for a commodity in the serise of the mere amount that will be purchased without reference to any price, will be meaningless.” Although there are various kinds of demand, such as cross, income, price demand, unless specified otherwise demand for a good or service refers to price demand, i.e., quantity demanded in relation to price.

Demand schedule depicts the various-Quantities of a commodity which will be demanded at different prices. Quantity demanded will be different at different prices because with an increase in price, demand falls and with a fall in price, demand extends. Demand schedule is of two types, viz. : (i) Individual demand schedule and (ii) Market demand schedule.
(i) Individual demand schedule – Individual demand schedule shows the various quantities demanded by one person at different prices. Individual demand schedule can be shown as follows :

Price (in Rupees)	Demand of Mangoes (in Kgs.)
5	1
4	2
3	3
2	4
1	5

As is clear from the above schedule, the demand for mangoes of a consumer is 1 kg. when the price is rupees 5 per kg. When price falls to Rs.4, demand for mangoes extends to 2 kg. Again demand for mangoes extends to 5 kg. when price is 1 rupee per kg.
Individual demand curve – The individual demand schedule can be explained with the help of the following diagram:

In the diagram OX-axis measures the quantity demanded while OY-axis represents the price of mangoes per kg. When price is Rs. 5 per kg. demand is 1 kg. Likewise when the price is 4 rupees per kg., demand is 2 kg., etc. By combining the A₁, A₂, A₃, A₄, A₅, we get the demand curve DD. This is called the individual demand curve.

(ii) Market demand schedule – If we add up the demand at various prices of all the consumers in the market, we will get the market demand schedule. Let us suppose, there are three consumers A, B and C in the market. If now we add the quantity demanded by A, B and C at different prices, we will get the market demand schedule. It can be shown as follows :

Price (rupees) Per Kg.	Demand of ‘A’ K.g.	Demand of ‘B’ K.g.	‘Demand of ‘C’ Kg.	Total demand in the market(Kgs)
5	1	3	2	6
4	2	4	3	9
3	3	5	4	12
2	4	6	5	15
1	5	7	6	18

When price is rupees 5 per kg. total demand of all consumers is 6 kg., when price is rupees 4, total demand of all the consumers is 9 kgs. etc. Hence a demand schedule may mean a tabular representation of price-quantity relationship.

Market demand curve – Market demand curve can be shown as follows :
On OX-axis, we take the total quantity demanded of mangoes in the market. On OY-axis, we measure the prices. When price is Rs. 5 per kg:, total quantity demanded is 6 kgs. Again when price is Rs. 4 per kg., total quantity demanded goes up to 9 kgs. By joining the points A, B, C, D, E, we get DD – the demand curve – for the market as a whole. Market demand curve can also be known by adding up the individual demand curves. We assume that there are two consumers A and B. If we know the demand curve of A and B, we can find out the market demand curve as follows :

In the following figures (i), (ii) and (iii) we show the demand of consumer A, consumer B and total demand curve respectively. On OX-axis we measure demand and on OY-axis we measure the price. d_a shows the demand of consumer ‘A’ and d_b shows the demand curve of consumer ‘B’. At price OP, the quantity demanded by consumer ‘ A’ is OA while the quantity demanded by consumer ‘B’ at this price is OB. The total demand of consumer ‘A’ and ‘B’ shall

be OA+ OB. In diagram (ii) total demand is OT at price OP. Here OT = OA + OB. When price falls to OP₁ the quantity demanded increases to OA₁ and OB₁ in the case of consumers A and B respectively. Now the market demand at price OP₁ shall be equal to OA₁ + OB₁. In figure (iii) the total demand is OT₁ at price OP₁. Here, OT₁ = OA₁ + OB₁. By joining the points M and N, we get d_m which is the market demand curve.

Question 3.
What is “Law of Demand” ? Explain it with its limitations.
Answer:
“Law of demand” is a unique law in consumption that moulds consumers behaviour while purchasing goods. This law explains the relationship between the price of a goods & its quantity demanded. Thus, the law of demand is a guiding principle in consumption which establishes inverse relationship between price of a goods & its quantity demanded. According to the law of demand, “Other things remaining constant, the amount demanded increases with the fall in its price & decreases with the rise in its price.” In other words, inverse relationship between price & quantity demanded is explained in law of demand.
The explanation of law of demand is associated with the demand function. The demand function expresses the functional relationship between demand & determinants of demand. Mathematically expressed, ‘
Dx = F (Px, Py, Py, Y, T …………….)
Dx → Demand for gods X
Px → Price of goods X
Py,Pz → Price of related goods
Y → Income of the consumers
T → Taste & preference.
Thus, the demand function describes multiple determinants of demand in which price of a goods is important one. If other factors in demand function remain constant, the relationship between price of a goods & quantity demanded becomes the topic of discussion in law of demand. Symbolically expressed,
Dx = f(Px) “other things remaining constant”
Exp
lanation : The law of demand simply illustrates the inverse relationship between price of a goods and quantity demanded in an unchanged situation. If the price of a goods rises, the quantity demanded of it will increase & vice-versa. This notion involved in law of demand which can be explained with the help of numerical analysis & graphical analysis.

Numerical Analysis : The numerical analysis of law of demand can be made with the help of demand schedule. The demand schedule describes various quantities of a goods purchased or demanded at different price level.

DEMAND SCHEDULE

Price of goods ‘A’ (in Rs.)	Quantity of goods ‘A’ (in units)
1	50
2	40
3	30
4	20
5	10

The numerical example as shown in demand schedule reflects that at the lower price i.e. Rs. 1/- the quantity demanded of good ‘A’ is found to be more i.e. 50 units. When price of goods ‘A’ gradually rises the quantity demanded of it declines. For example, when the price rises to Rs. 2,3,4,5, the quantity demanded becomes 40,30,20 & 10 units. It just establishes the inverse relationship between price of a good ‘A’ & its quantity demanded which is the principle in “Law of Demand.”

Graphical Analysis
The same notion can be explained graphically. The graphical illustration of law of demand can be made with the help of demand curve. Demand curve is nothing but the geometrical representation of demand schedule. So the graphical version of demand schedule determines the demand curve.

In the above figure , OX – axis measures the quantity demanded of good§ x & OY-axis measures the price of good A.

The same expression as in demand schedule is found in this diagram. When the price is Rs. 1/- the quantity demanded is 50units. When the price of goods A rises to Rs.2,3,4,5, the quantity denUtnded of it declines to 40,30,20, & 10 units respectively. By joining all these points, the demand curve ‘DD’ is derived.

The traditional shape of demand curve is downward sloping as shown in graph. It is because of the inverse relationship between price of good & its quanity demanded. As such, the demand curve (DD) is found to be negatively sloped.

ASSUMPTIONS:
The law of demand can not be independently explained.” For the operation of law of demand certain assumptions are to be made. Assumptions are the conditions on which the law is based on & explained. The assumptions of law of demand are mentioned below :

• Income of the consumer should be constant
• Price or related goods (substitute & complementary) should be unchanged.
• Taste, preference of the consumer should not change.
• Goods should be the “Normal Goods ”.
• Population should not change.

Limitations : In spite of significant practical value, the law of demand suffers from certain serious & dubious limitations which are as follows :

(i) Income of the consumer : As assumed, the income of the consumer should remain unchanged. But the income is. a flow concept which varies from time to time. As such, the law of demand becomes an invalid statement because of changeability of an income of the consumer.

(ii) Taste & Preference : Taste & preference which are influenced by custom, habit, fashion etc undergo frequent change. So the law of demand loses its stand under the condition of change of taste & preference.

(iii) Price of Related Goods : The price of related goods which assumed to be constant in the explanation of law of demand sounds to be impractical. Because, the price of such goods change frequently due to competitive structure of the market.

(iv) Giffen Goods : Giffen goods are special type of inferior goods for which law of demand does not operate. These goods named after Sir Robert Giffen, an economist of Ireland, are inferior goods for which the income effect is negative. The price of these goods, if falls, shall be treated as inferior goods, for which its quantity demanded falls. As such the law of demand does not operate.

(v) Conspicuous Consumption : The consumption of prestigeous goods or articles of distinction is called conspicuous consumption. For these goods, the law of demand does not hold good. It is because, these goods are consumed for displaying their social status & aristocracy. For these people, these goods are the symbol of status. So, when the price of these goods rises, the people of this special category feels proud to consume more.

(vi) Future – Expectation of Price Change : If any rise in price of the goods is apprehended, the consumer like to purchase more of it at prevailing price. On the other hand, if fall in price is expected in future, people will prefer to consume less at current price. So the law of demand does not stand if there is future expectation of price – change occurs.

(vii) Necessaries for life : The law of demand can not be properly applied to goods which are essential for the survival of human existence. In case of life saving drugs, the people are constrained to consume the required quantity of goods irrespective of the level of prices.

In spite of these limitation, “the law of demand’ is universally accepted as an important law in consumption. It looks into the basic principles involved in the consumers motive in the field of purchasing goods. Thus, the law possesses certain practical significance.

Question 4.
Why does demand curve slope downward ?
Answer:
The downward sloping nature of demand curve is because of its inverse relationship between the price of a goods & its amount purchased. The shape & slope of the demand curve in general is derived from the basic principles involved in ‘Law of demand’. In law of demand, it is learnt that the demand for goods increases with the fall in its price & vice-versa & hence the inverse relationship is established. As such, the demand curve slopes downward from left to right with a negative inclination. Prof. Marshall associated the downward sloping of the demand curve to the law of diminishing marginal utility. But J.R. Hicks & R.GD. Allen ascribed income effect & substitution effect to this tendency. The important & worth mentioning reasons for such downward sloping is discussed below :

(i) Effect of law of Diminishing Marginal Utility : The law of demand is derived from the law of diminishing marginal utility. According to this law, the marginal utility derived from the additional units of a particular goods goes on diminishing. It simply shows that the consumer derives less & less marginal utility from the additional units of the goods. So, the rational consumer compares the marginal utility derived from the goods with its price. He continues consumption till the marginal utility is equal to its price & at this level he feels satisfied. If the price of the goods falls, this reduced price should be equated with marginal utility. So, there is need of reducing marginal utility which happens only by purchasing more. So, it reveals that with lower price, more is purchased. It is because of the effect of law of diminishing marginal utility.

(ii) Price Effect: If a fall in price of a good is experienced while price of other goods or other factors remaining unchanged, its effect on quantity demanded is called “price effect.” This fall in price attracts new consumers to buy more at reduced price. Those who were not purchasing this good because of higher price shall be financially able to purchase it at lower price. Secondly, those who are purchasing less quantity of it because of higher price shall be interested to purchase more of it because of lower price. Overall effect of such fall in price is the increase in quanity demanded. In other words, the quantity demanded of the goods increases with fall in price & hence the demand curve showing the price & quantity demanded relationship slopes downward from left to right.

(iii) Income Effect: The effect of change in income on the quanity demanded is termed as “Income effect”. When there is fall in price of goods, the consumer gains real income because of increase in its purchasing power arising out of fall in price. Thus, at the same income, the consumer is able to purchase more because of such gain in real income. When the price of a goods falls, the consumer gains real income. Now the consumer either purchases the same quantity by spending less or purchases more by spending the same. So, there arises increase in demand because of income effect. As a result, the quantity demanded increases because of initial fall in price of it. So the demand curve slopes downward.

(iv) Substitution Effect: When the price of a goods falls the price of other related goods remains constant, the consumer prefers to substitute low-priced goods for high price goods. This is called substitution effect. So, it clearly indicates that the demand for commodity increases because of favourable substitution effect. The demand curve for this slopes downward from left to right.

(v) Multiple uses of a Goods : A particular goods can be put into several uses i.e. for the satisfaction of urgent needs & less urgent needs. So, when the price of a goods falls, the people will proceed to use it for less urgent wants & ultimately its quantity demanded increases. For example, if the price of coal falls, the people will use it as ordinary fuel which may not happen when its price is high- So, it reflects that the quanity demanded increases with fall in price & vice-versa. As such, the demand curve shows a negative inclination.

Question 5.
Distinguish between extension and increase in demand and contraction and decrease in demand.
Answer:
Generally we don’t differentiate between increase in demand and extension of demand and decrease in demand and contraction of demand. But as a matter of fact they are different concepts. When demand for a commodity changes because of a change in price, it is a case of extension or contraction of demand. But if demand changes because of factors other than price, it is a case of increase or decrease in demand.

Extension of demand – When demand goes up because of a fall in price, it is called extension of demand. For example, if the price of milk falls from 1 rupee 50 paise per litre the demand shall go up from 3 litres to 5 litres. This is a case of extension of demand. This can be shown with the help of the alongside diagram :

When the price is OP, the demand is OQ. Demand rises to OQ₁ when price falls to OP₁, OQ₁ is the extension of demand. In extension of demand, the consumer remains on the same demand curve but moves downwards from left to right.
Increase in demand – Increase in demand may come about in two ways :

• More demand at the same price.
• Same demand at a higher price.

Increase in demand can be shown with the help of the following diagram:

Demand is OR, when price is OP. At this very price OP, demand goes up to OR. Again when price rises to OP, demand remains the same i.e., OR. DD₁ depicts an increase in demand.

Contraction of demand – When demand of a commodity falls because of a rise in its price, it is a case of contraction of demand. For example, the demand for milk is 3 litres when its price is rupee one per litre. Now when price rises to Rs. 2 per litre, demand comes down to 2 litres. Contraction of demand can be shown diagrammatically as follows :

When price is OP, demand is OQ. When price rises to OP₁, demand falls to OQ₁. OQ₁ is the contraction of demand. In this case, the consumer goes upwards from right to left on the same demand curve.

Decrease in demand – Decrease in demand implies two things :
(i) Less demand at the same price.
(ii) Same demand at the lower price.
Decrease in demand can be shown with the help of the following diagram :

Demand in the start is OR when price is OP. At the same price OP, demand falls to OR₁. Again at a lower price OP₁, demand remains the same OR. R₁R is the decrease in demand. D₁D₁ curve depicts decrease in demand. In case of decrease in demand, the demand curve shifts downwards. ,

Question 6.
What do you mean by Elasticity of demand ? Discuss various cases of elasticity of demand.
Answer:
Elasticity of demand is the measure of the degree of change in the amount demanded of the commodity in response to given change in the price of the commodity. When the price of a good changes, quantity demanded of a commodity also changes, but the response is not same for all the commodities. The concept of elasticity of demand captures the magnitude of change or degree of responsiveness of demand to change in price. In other words, elasticity of demand refers to the degree of extension or contraction of demand as a result of given change in price.

Elasticity of demand is a quantitative concept that measures the degree of responsiveness of quanity demanded of a goods to a change in its price. According to Alfred Marshall, “The elasticity (or responsiveness) of demand in a market is great or small according as the amount demanded increases much or little for a given fall in price and diminishes much or little for a given rise in price.” According to Lipsey, “Elasticity of demand may be defined as the ratio of the percentage change in demand to the percentage change in price.” Mathematically stated,

Ed is always negative because it confirms, the inverse relationship between price & quantity demanded. So Ed always has a (-) minus sign.

FIVE CASES OF ELASTICITY OF DEMAND:
There observed five cases of elasticity of demand. The detailed study of these cases are describes below:
Quantity
(i) Perfectly Elastic Demand : The demand is said to be perfectly elastic if a small change in price leads to an infinite change in quantity demanded. Here the value of elasticity of demand is infinite (∞) & the demand curve in this case becomes horizontal straight line.

In this figure, at price OP, the demand is infinite A slight change in price will lead to infinite change in quantity demanded.

(ii) Perfectly inelastic demand: In perfectly inelastic demand the quantity demanded remains same irrespective of any change in price. Any fall or rise in price has no impact on quantity demanded & hence the value of elasticity is zero. The demand curve is a vertical straight line.

In the figure, the demand (OQ) remains the same irrespective of any change in price (OP or OP₁) So the Ed = 0.

(iii) Unitary Elatic Demand : Elasticity of demand is unity if a given change in price exactly creates a proportionate change in quanity demanded. The numerical value of such demand is 1 (one) i.e. Ed = 1

In the figure, DD curve represents unitary elastic demand curve when price falls from OP to OP₁, the quantity demanded increase OQ to OQ₁, which is quite proportionate in nature.

(iv) Relatively more Elastic Demand : The demand is relatively more elastic if any given change in price leads to more than proportionate change in quantity demanded. In this case Ed >1.

The figure shows that when price falls from OP to OP₁, the quantity demanded increases from OQ to OQ₁, which is quite more than proportionate change. ,

(v) Relatively less Elastic Demand : In relatively less elastic demand, any change in price leads to less than proportionate change in quantity demanded. Hence Ed <1.

In figure, DD demand curve shows this relatively less elastic demand. When price falls from OP to OP₁, the quantity demanded increases from OP to OPt the quantity demanded increases from OQ to OQ₁ which is less proportionate change.

Question 7.
What do you mean by Elasticity of demand ? Discuss various factors influencing of elasticity of demand.
Answer:
Elasticity of demand is the measure of the degree of change in the amount demanded of the commodity in response to given change in the price of the commodity. When the price of a goods changes, quantity demanded of a commodity also changes, hut the response is not same for all the commodities. The concept of elasticity of demand captures the magnitude of change or degree of responsiveness of demand to change in price. In other words, elasticity of demand refers to the degree of extension or contraction of demand as a result of given change in price.

Elasticity of demand is a quantitative concept that measures the degree of responsiveness of quanity demanded of a goods to a change in its price. According to Alfred Marshal, “The elasticity (or responsiveness) of demand in a market is great or small according as the amount demanded increase much or little for a given fall in price & diminishes much or little for a given rise in price.” According to Lipsey, “Elasticity of demand may be defined as the ratio of the percentage change in demand to the percentage change in price. Mathematically stated.

Ed is always negative because it confirms the inverse relationship between price & quantity demanded. So Ed always has a (-) minus sign.

FACTORS INFLUENCING ELASTICITY OF DEMAND

Elasticity of demand is not uniform or same for all the commodities or for all the consumers. It may vary from consumer to consumer or commodity to commodity. For some it may be more elastic or for other it may be more inelastic. Besides, some commodities have more elastic demand & some are less elastic in demand. It simply shows that the contraction or expansion of demand does not remain some for any change in price. There are certain factors which influence the elasticity of demand.The important factors determining elasticity of demand are described below :

(a) Nature of Commodity : Goods are classified into three categories like necessary, comforts & luxuries. These classification, through relative in nature, it determines the elasticity of demand. For necessaries which are urgently statisfied or human life are considered to have relatively less elastic demand because the demand for these goods are not significantly affected by the change in price. On the other hand, the comforts & luxuries comprise of less urgent want for which demand is relatively more elastic. Because, the demand for these goods is greatly influenced by the change in price.

(b) Availability of Substitutes : The demand for those goods is found to be more elastic if it has more substitutes. If the price of any goods having a large number of substitutes rises, the quantity demanded of it will fall to a greater extent because the consumers will divert their consumption to its substitutes. On the contrary, if the price of such goods falls its quantity demanded will increase significantly. But if the goods does not have any substitute any change in price will have no influence on its demand as the people are compelled to purchase that only good due to the absence of its substitutes. Hence, the demand for such goods is inelastic or less elastic.

(c) Alternative Uses : The demand for the goods having multiple uses is more elastic & the goods having no alternative uses or single use is found to be less elastic or inelastic. In case of goods having alternative uses, if its price falls the consumer will use it for the satisfaction of less urgent wants. So its quantity demanded increases. On the other hand, if its price rises, the people use it in satisfying more urgent wants. So its quantity demanded will decrease. In the similar manner, the goods which can not be put into several uses, the demand seems to be less elastic as it has only single use & change in price has less impact on it.

(d) Proportion of Income Spent: It the amount spent on goods constitute a very small fraction of the income or total expenditure, then the elasticity of demand is likely to be less. For example, the demand for match box is not greately influenced by the change in its price as the amount of expenditure spent towards this is very less. So the demand for such goods is less elastic or inelastic. On the other hand, if the proportion of income spent on a good is more, the demand becomes more elastic.

(e) Price-level: The price-level of a commodity influences the demand for it. The commodities with high price is more elastic & the commodity having low price is less elastic.

(f) Income-level: The level of income of the consumer will also determine the elasticity demand for goods. The demand is inelastic for higher lower income groups & elastic for middle income groups. The rich persons do not care for the price while purchasing the goods.

(g) Time period : Time period is also an influential factor having effect on elasticity of demand. In short-period, the elasticity of demand remains low as quantity demanded slowly changes with the changes in the price-level. On the contrary, the demand becomes relatively more elastic during long period & it is relatively more inelastic during market period which is very very shot period.

(h) Fashion & habit: The goods & commodities which are in the flow fashion responds slowly to the change in price. If the price of such good changes, the quantity demanded of these goods changes slowly & hence the demand for these is felt to be inelastic. Similarly, the goods which are habitually consumed is also non-responsive to the change in price. If the price of goods which are in habit of the consumer changes, the quantity demanded of these goods changes slowly or sometimes does not change at all. So the demand becomes less elastic or inelastic.

(i) Possibility of Postponement of the Consumption: If the consumption of any goods can be postponed at present moment, the demand for such goods becomes more elastic. If the price of goods rises, the consumer will think it pertinent to postpone the consumption of these goods for future & hence the demand of these goods falls at the present increased price & thus becomes elastic. On the other hand, if the consumption of any goods like lfe-saving drugs can not be postponed it can be consumed irrespective of any price & hence the demand for such goods becomes inelastic.
All these factors mentioned above are found to be prominent features that influence the elasticity of demand to a greater extent. The elasticity of demand whether high or low, depends upon these factors.

Group – C

Objective type Questions with Answers
I. Multiple Choice Questions with Answers :

Question 1.
Which is a component of demand ?
(i) Effective desire
(ii) Price
(iii) Time period
(iv) All of the above
Answer:
(iv) All of the above

Question 2.
Demand is generally and greatly influenced by
(i) Price
(ii) Price of substitute goods
(iii) Supply of goods
(iv) Time period
Answer:
(i) Price

Question 3.
Which of the following is a variable of demand ?
(i) Price
(ii) Income of the consumer
(iii) Price of substitute goods
(iv) All of these
Answer:
(iv) All of these

Question 4.
Which of the followings does not influence demand ?
(i) Income of the consumer
(ii) Price of goods
(iii) Cost of goods
(iv) Price of related goods
Answer:
(iii) Cost of goods

Question 5.
Demand curve has a negative slope due to
(i) Price effect
(ii) Income effect
(iii) Substitution effect
(iv) All of these
Answer:
(iv) All of these

Question 6.
Which is not cause of shift of demand curve?
(i) Change in price
(ii) Change in income
(iii) Change in related price
(iv) Change in Taste
Answer:
(i) Change in price

Question 7.
If a demand curve shifts upward, it is
(i) Expanison of demand
(ii) Increase in demand
(iii) Contraction of demand
(iv) Decrease in demand
Answer:
(ii) Increase in demand

Question 8.
Demand for fertiliser for a farmer is
(i) More elastic
(ii) Less elastic
(iii) Zero elastic
(iv) None Of these
Answer:
(ii) Less elastic

Question 9.
The elasticity of demanf of wine for a drun kard is
(i) Elastic
(ii) Inelastic
(iii) Relatively more elastic
(iv) Relatively less elastic
Answer:
(ii) Inelastic

Question 10.
If the price of cofee falls, the demand for tea shall
(i) Decrease
(ii) Increase
(iii) Remains same
(iv) Can not say
AnsWER:
(i) Decrease

Question 11.
If the price of petrol rises, the demand for motor bike.
(i) Increases
(ii) Decrease
(iii) Remains unaffected
(iv) Can not say
Answer:
(ii) Decrease

Question 12.
Which of the following concepts induces the consumer to consume a good ?
(i) Usefulness of goods
(ii) Utility of a goods
(iii) Pleasure from the goods
(iv) None of the above
Answer:
(ii) Utility of a goods

Question 13.
Which of the followings is the basic objective of the consumer ?
(i) Maximisation of utility
(ii) Best use of goods
(iii) To get satisfaction
(iv) All of the above
Answer:
(i) Maximisation of utility

Question 14.
Which of the followings is a true statement ?
(i) Consumer tries to maximise marginal utility
(ii) Consumer gets maximum satisfaction when marginal utility is maximum
(iii) Marginal Utility can be zero
(iv) Marginal utility can never be negative
Answer:
(iii) Marginal Utility can be zero

Question 15.
Which is not a true statement ?
(i) Marginal utility decreases at an increasing rate
(ii) Marginal utility decreases at decreasing rate
(iii) Margila utility can be zero
(iv) Marginal utility can be negative
Answer:
(i) Marginal utility decreases at an increasing rate

Question 16.
Which statement is correct ?
(i) Marginal utility is the sum of total utilities.
(ii) Marginal utility is derived from the last unit.
(iii) Rate of change of Marginal Utility is the total utility.
(iv) Marginal Utility is the utility derived from additional unit.
Answer:
(iv)Marginal Utility is the utility derived from additional unit.

Question 17.
Marginal utility refers to
(i) Utility from the last unit
(ii) Utility from the additional unit
(iii) Utility from the first unit
(iv) None of the above
Answer:
(iii) Utility from the first unit

Question 18.
If marginal utility is zero, total utility is
(i) Maximum
(ii) Zero
(iii) Minimum
(iv) None of the above
Answer:
(i) Maximum

Question 19.
If TU derived from 5th unit is 50 and from 4th unit it is 35, then MU from 5th unit is
(i) 95
(ii) 15
(iii) 70
(iv) 100
Answer:
(ii) 15

Question 20.
When MU is negative, total utility becomes
(i) negative
(ii) Positive
(iii) decreases
(iv) increases
Answer:
(iii) decreases

Question 21.
Which of following is correct ?
(i) MU_n = TU_n – TU_n-1
(ii) MU_n = TU_n+1 – TU_n-1
(iii) MU_n – TU_n-1 – TU_n
(iv) MU_n – TU_n-1 – TU_n+1
Answer:
(i) MU_n = TU_n – TU_n-1

Question 22.
Which is not true is case of Total Utility ?
(i) Total Utility can never be zero.
(ii) Total utility increases with an increasing rate.
(iii) Total utility increases with a decreasing rate;
(iv) All of the above
Answer:
(i) Total Utility can never be zero.

Question 23.
Which statement is true ?
(i) Marginal utility determines price
(ii) Marginal utility may always be positive ?
(iii) Marginal utility can never be zero
(iv) Marginal utility is always equal to total utility
Answer:
(i) Marginal utility determines price

Question 24.
Demand for a goods refers to willingness to buy a good backed by
(i) ability to pay the price
(ii) ability to earn more income
(iii) adequate desire
(iv) All of the above
Answer:
(i) ability to pay the price

Question 25.
Demand for a good should always be quoted with
(i) income
(ii) Price
(iii) price of related goods
(iv) All of the above
Answer:
(ii) Price

Question 26.
Demand is different from desire in the sense that
(i) Desire is not backed by ability to pay the price
(ii) Desire does not show willingness to buy
(iii) Desire does not indicate consumers preference
(iv) All of the above
Answer:
(iv) All of the above

Question 27.
Which is a factor that influences demand ?
(i) price of a goods
(ii) income of the consumer
(iii) price of related goods
(iv) All of the above
Answer:
(iv) All of the above

Question 28.
The phrase ‘ceteris paribus’ implies.
(i) Other things should be simultaneously changed
(ii) The required factors should change
(iii) All other factors excluding desired factors should remain constant
(iv) All of the above
Answer:
(iii) All other factors excluding desired factors should remain constant

Question 29.
Other things remaining constant if income of the consumer increases, the quantity demand
(i) increases
(ii) decreases
(iii) not attacted
(iv) only price affects
Answer:
(i) increases

Question 30.
In case of an inferior goods, if the price-level falls its quantity demanded
(i) increases
(ii) decreases
(iii) remains unchanged
(iv) None of the above
Answer:
(ii) decreases

Question 31.
Price remaining constant, if we anticipate future rise in prices, the quantity demanded of that good
(i) remains constant
(ii) increases
(iii) decreases
(iv) can not say
Answer:
(ii) increases

Question 32.
If the priceof petrol rises, the demand for car
(i) increases
(ii) decreases
(iii) remains constant
(iv) Both (i) and (ii)
Answer:
(ii) decreases

Question 33.
If price of coffee increases, the quantity demanded of tea
(i) increases
(ii) decreases
(iii) remains constant
(iv) Both (i) and (ii)
Answer:
(i) increases

Question 34.
According to law of demand, usual relationship between price & quantity demanded of a good shows
(i) inverse relationship
(ii) proportional relationship
(iii) direct relationship
(iv) Both(i) & (ii)
Answer:
(i) inverse relationship

Question 35.
Demand curve & demand schedule give the same information on law of demand; but they differ in one respect that is
(i) Demand schdule is in tabular form
(ii) Demand schdule is a numerical analysis
(iii) Demand schedule is of two types
(iv) All of the above
Answer:
(ii) Demand schdule is a numerical analysis

Question 36.
The usual shape of demand curve is
(i) upward sloping
(ii) vertical straight line
(iii) downward sloping
(iv) Horizontal straight line
Answer:
(iii) downward sloping

Question 37.
Demand curve has a negative slope because of
(i) Direct of relationship between price & quantity demanded
(ii) Inverse relationship between price & quantity demanded
(iii) proportional relationship between price & quantity demanded
(iv) All of the above
Answer:
(ii) Inverse relationship between price & quantity demanded

Question 38.
The demand curve describes the inverse relationship between
(i) price & quantity demanded
(ii) income & quantity demanded
(iii) price of related goods & quantity demanded
(iv) All of the above
Answer:
(i) price & quantity demanded

Question 39.
The effect of change in income on quantity demanded of a good is called
(i) price effect
(ii) income effect
(iii) substitution effect
(iv) All of the above
Answer:
(ii) income effect

Question 40.
Change in demand takes place due to
(i) change in price
(ii) change in income
(iii) change in other things
(iv) All of the above
Answer:
(iii) change in other things

Question 41.
In change in demand, the demand curve
(i) remains unchanged
(ii) Shifts upward
(iii) shifts down ward
(iv) either shifts upward or downward
Answer:
(iv) either shifts upward or downward

Question 42.
In case of increase in demand, more is demanded at
(i) higher price
(ii) same price
(iii) At lower price
(iv) All of the above
Answer:
(ii) same price

Question 43.
The law of demand does not operate in ease of
(i) Giffen goods
(ii) inferior goods
(iii) prestigious goods
(iv) All of the above
Answer:
(iv) All of the above

Question 44.
The degree of sensitiveness of demand due to change in price of a good is called
(i) change in demand
(ii) change in quantity demanded
(iii) elasticity of demand
(iv) All of the above
Answer:
(iii) elasticity of demand

Question 45.
Elasticity of demand of a good measures
(i) change in demand
(ii) proportionate change in demand as a result of proportionate change in price
(iii) percentage change in demand as a result of precentage change in price
(iv) Both (ii) and (iii)
Answer:
(iv) Both (ii) and (iii)

Question 46.
The elasticity of demand is always
(i) positive
(ii) negative
(iii) zero
(iv) All of the above
Answer:
(ii) negative

Question 47.
The Ed is always negative because of –
(i) inverse relationship between price & quantity demanded
(ii) proportional relationship between price & quantity demanded
(iii) direct relationship between price & quantity demanded
(iv) All of the above
Answer:
(i) inverse relationship between price & quantity demanded

Question 48.
In case of perfectly elastic demand, the demand curve becomes
(i) vertical straight line
(ii) horizontal straight line
(iii) downward sloping
(iv) Upward sloping
Answer:
(ii) horizontal straight line

Question 49.
The value of perfectly elastic demand is
(i) 0
(ii) +1
(iii) ∞
(iv) -1
Answer:
(iii) ∞

Question 50.
In case of perfectly inelastic demand, the demand curve takes the shape of a
(i) Horizontal straight line
(ii) Downward sloping
(iii) Vertical straight line
(iv) Upward sloping
Answer:
(iii) Vertical straight line

Question 51.
The value of perfectly inelastic demand is
(i) 0
(ii) -1
(iii) +1
(iv) ∞
Answer:
(i) 0

Question 52.
If any given change in price leads to proportionate change in quantity demanded, the demand is said to be
(i) relatively more elastic
(ii) relatively len elastic
(iii) unit elastic
(iv) perfectly elastic
Answer:
(iii) unit elastic

Question 53.
If the price of a goods falls by 25% & quantity demanded of a goods increases by 50%, its demand is said to be
(i) more elastic
(ii) less elastic
(iii) unit elastic
(iv) perfectly elastic
Answer:
(i) more elastic

Question 54.
If the price of a goods falls by 20% but its quantity demanded increases by 10% its demand is said to be
(i) elastic
(ii) inelastic
(iii) unit elastic
(iv) Both (i) and (ii)
Answer:
(ii) inelastic

Question 55.
If the price of a goods falls by 25% & the proportion of income spent on that goods is 35%, the demand for the goods is
(i) elastic
(ii) inelastic
(iii) zero elastic
(iv) cannot say
Answer:
(i) elastic

Question 56.
If the price of a good falls by 10% & the expenditure spent on the goods is 5% the demand is
(i) elastic
(ii) inelastic
(iii) more elastic
(iv) All of the above
Answer:
(ii) inelastic

Question 57.
If a good has a number of substitutes, its demand becomes
(i) elastic
(ii) inelastic
(iii) perfectly elastic
(iv) perfectly inelastic
Answer:
(i) elastic

Question 58.
The demand for petrol is elastic because
(i) it has multiple use
(ii) it has no substitute
(iii) it is used for vehicle
(iv) All of the above
Answer:
(i) it has multiple use

Question 59.
The elasticity of demand for electricity is
(i) more inelastic
(ii) more elastic
(iii) perfectly elastic
(iv) none of the above
Answer:
(ii) more elastic

Question 60.
Which is not a determinant of elasticity of demand ?
(i) Supply of a good
(ii) Cost of production
(iii) Alternative uses of goods
(iv) All of the above
Answer:
(i) Supply of a good

II. Fill in the blanks :

Question 1.
Law of demand reflects the ____ relationship between price of a goods and its quantity demanded.
Answer:
inverse

Question 2.
Demand for any goods refers to the willingness and ability of the consumer for having that goods at a given ____ during a particular time period.
Answer:
price

Question 3.
Demand for any goods is always expressed with the ____of that goods.
Answer:
price

Question .
Demand is a ____ function.
Answer:
multi-valued

Question 5.
Demand for tea ____ with a fall in price of coffee.
Answer:
decreases

Question 6.
Demand for motor-bike ____ with a fall in price of petrol.
Answer:
increases

Question 7.
Price remains unchanged, the demand for goods ____ if the income of the consumer increases.
Answer:
increases

Question 8.
The demand for the commodity goes ____, if the consumers have no taste of the commodity.
Answer:
down

Question 9.
The demand for the old fashioned items ____ with a fall in price of them.
Answer:
diminishes

Question 10.
The demand of cold drinks ____ during winter in spite of a fall in price of it.
Answer:
decreases

Question 11.
According to Law of Demand ____ is purchased at lower price and vice-versa.
Answer:
more

Question 12.
Demand schedule and demand curve provide ____ information.
Answer:
same

Question 13.
Demand curve has a ____ slope.
Answer:
negative

Question 14.
Demand for Giffen’s goods ____ with a fall in its price.
Answer:
decreases

Question 15.
Demand curve for Giffen’s goods is ____ sloping.
Answer:
upward

Question 16.
A change in quantity demanded as a result of change in price of goods is known as ____ of demand.
Answer:
Extension or contraction

Question 17.
The demand curve for a normal goods is a ____ hyperbola.
Answer:
rectangular

Question 18.
Elasticity of demands shows the magnitude of change in demand as a result of change in ____
Answer:
price

Question 19.
In case of perfectly elastic demand the demand curve becomes a ____ straight line.
Answer:
horizontal

Question 20.
In case of perfectly inelastic demand, a fall in price of the goods leads to ____ change in quantity demanded.
Answer:
no

Question 21.
The numerical value of ____ elastic demand is equal to 1.
Answer:
unit

Question 22.
The demand for diamond to a rich person is ____
Answer:
inelastic

Question 23.
The demand for tea is found to be more ____
Answer:
elastic

Question 24.
Demand is ____ for goods having multiple uses.
Answer:
elastic

Question 25.
The demand for medicines is ____ elastic (inelastic)
Answer:
less

Question 26.
The demand is inelastic for ____ income groups.
Answer:
higher

Question 27.
The demand for low priced items is ____
Answer:
inelastic.

Question 28.
The demand for newspaper is ____
Answer:
inelastic.

Question 29.
If a change in demand is followed by proportional change in price, elasticity of demand is ____
Answer:
unitary.

III. Correct the Sentences:

Question 1.
Demand is a single valued function.
Answer:
Incorrect.
Correct : Demand is a multi-valued function.

Question 2.
Demand refers to only the quantity of a good purchased.
Answer:
Incorrect.
Correct: Demand refers to the quantity of goods purchased at a given price during a particular time period.

Question 3.
Demand for any goods is high because price is high.
Answer:
Incorrect.
Correct: Demand for any goods is high because price is low.

Question 4.
Demand for any goods determines its price.
Answer:
Incorrect.
Correct: Price of any goods determines its demand.

Question 5.
Demand for a goods & its price are directly related.
Answer:
Incorrect.
Correct: Demand for a goods & its price are inversely related.

Question 6.
Law of demand describes the inverse relationship between price & quantity demanded.
Answer:
Correct.

Question 7.
In law of demand, changes in quantity demanded is the cause & change in price is the effect.
Answer:
Incorrect.
Correct: In law of demand, change in price is the cause & change in quantity demanded is the effect.

Question 8.
Demand schedule contains the list of goods only.
Answer:
Incorrect.
Correct: Demand schedule contains the list of price & quantities of goods.

Question 9.
Market demand schedule is the sum of indiviaul demand schedules.
Answer:
Correct.

Question 10.
The demand curve is positively sloped.
Answer:
Incorrect
Correct: The demand curve is negatively sloped.

Question 11.
The demand schedule & demand curve provide same information.
Answer:
Correct.

Question 12.
Demand curve is a graphical representation of demand schedule.
Answer:
Correct

Question 13.
When demand for a goods decreases its price falls.
Answer:
Incorrect.
Correct: When price of a goods decreases its demand increases.

Question 14.
In law of demand, the price depends on quantity demanded.
Answer:
Incorrect.
Correct: In law of demand quantity demanded depends on the price.

Question 15.
If price of the substitute goods falls, the quantity demanded of the goods increases.
Answer:
Incorrect.
Correct: If the price of the substitute good falls the quantity demanded of the goods decreases.

Question 16.
It price of petrol rises, the use of car decreases.
Answer:
Correct.

Question 17.
In change in quantity demanded, the demand curve shifts either upward or downward.
Answer:
Incorrect.
Correct: In change in demand, the demand curve shifts either upward or downward.

Question 18.
It price of tea falls, the demand for coffee falls.
Answer:
Correct

Question 19.
In extension of demand, more is demanded at same price.
Answer:
Incorrect
Correct: In increase in demand, more is demanded at same price.

Question 20.
If the income of the consumer increases, the demand for the goods increases.
Answer:
Correct

Question 21.
Demand for Giffen goods increases if its price falls.
Answer:
Incorrect.
Correct: Demand for Giffen goods decrease if its price falls.

Question 22.
Elasticity of demand is a quatitative concept
Answer:
Incorrect
Correct: Elasticity of demand is a quantitative concept.

Question 23.
Elasticity of demand is always negative.
Answer:
Correct.

Question 24.
Elasticity of demand varies from +1 to -1.
Answer:
Incorrect.
Correct: Elasticity of demand varies from 0 to ∞.

Question 25.
In perfectly elastic demand, the demand curve is a vertical straight line.
Answer:
Incorrect
Correct: In perfectly elastic demand, the demand curve is horizontal straight line.

Question 26.
The co-efficient of elasticity is zero when demand is less elastic.
Answer:
Incorrect.
Correct: The co-efficient of elasticity is zero when demand is perfectly inelastic.

Question 27.
If given change in price leads to proportionate change in quantity demanded, the demand is more elastic.
Answer:
Incorrect
Correct: If given change in price leads to proportionate change in quantity demanded, the demand is unit elastic.

Question 28.
Demand for necessaries is inelastic.
Answer:
Correct

Question 29.
The demand for match box is elastic.
Answer:
Incorrect
Correct: The demand for match box is inelastic.

Question 30.
Demand for luxuries is elastic.
Answer:
Correct.

Question 31.
Deman for tea is inelastic.
Answer:
Incorrect
Correct: Demand for tea is elastic.

Question 32.
Demand for goods having more substitutes is elastic.
Answer:
Correct

Question 33.
Coal has high elastic demand.
Answer:
Correct.

Question 34.
Goods having multiple uses has inelastic demand
Answer:
Incorrect
Correct: Goods having multiple uses has elastic demand.

Question 35.
The demand for high priced goods is elastic.
Answer:
Correct

Question 36.
The demand for wine in case of a drunkard is inelastic.
Answer:
Correct

Question 37.
The demand for medicine is elastic.
Answer:
Incorrect
Correct: The demand for medicine is inelastic.

Question 38.
Demand for salt is elastic.
Answer:
Incorrect
Correct: Demand for salt is inelastic.

Question 39.
The demand for goods whose consumption can be postponed is more elastic.
Answer:
Correct

Question 40.
‘Elasticity demand is always negative.
Answer:
Correct

Question 41.
If total expenditure spent on a goods remains same after fall in its price, the demand is unit elastic
Answer:
Correct.

IV. Answer the following questions in one word / One sentence:

Question 1.
What is demand?
Answer:
Demand refers to willingness to buy a goods backed by ability to pay the price at a particular time period.

Question 2.
What is difference between demand & desire ?
Answer:
Demand is the willingness to buy & ability to pay the price but desire is the willingness to buy.

Question 3.
What is demand function ?
Answer:
Demand is a multi-valued function which establishes functional & inverse relationship between price of a goods, other non-pricing factor & quantity demanded.

Question 4.
Which is an independent variable in demand function ?
Answer:
Price of the goods is the independent variable in demand function.

Question 5.
What is direct demand ?
Answer:
The demand for those goods & services which yields diret satisfaction is called direct demand.

Question 6.
What type of demand is the demand for raw material ?
Answer:
Demand for raw material is a derived demand.

Question 7.
What is “Law of demand” ?
Answer:
Law of demand states that “other thing remaining constant amount demanded increases with the fall in price & vice-versa.”

Question 8.
What do you mean by “Ceteris-Paribus” ?
Answer:
Ceteris-Paribus means an unchanged situation or “other thing remaining unchanged”.

Question 9.
What is composite demand ?
Answer:
Demand not for one purpose but for so many purposes is called composite demand ?

Question 10.
What is competitive demand ?
Answer:
Demand for substitutes is competitive demand.

Question 11.
What are the variables in law of demand ?
Answer:
There are two variable like price of goods & quantity demanded in law of demand.

Question 12.
What is demand schedule ?
Answer:
Demand schedule is a tabular expression showing various quantities of a goods purchased or demanded at different price-level.

Question 13.
What is a demand curve ?
Answer:
Demand curve is a graphical illustration of demand schedule which slopes downward from left to right showing an inverse relationship between price & quantity demanded of a goods.

Question 14.
What is the slope of demand curve ?
Answer:
Demand curve is slopes downward from left to right.

Question 15.
What is a substitute goods ?
Answer:
A good can be a substitute of other if both the goods can satsify common wants.

Question 16.
Write two determinants of demand ?
Answer:
Price of related goods & income of the consumer.

Question 17.
What happens to demand for good if the income of the consumer increases ?
Answer:
The demand for goods increases if the income of the consumer increases.

Question 18.
What happens to demand for a good if the price of its substitutes falls ?
Answer:
The demand for good decreases if the price of its substitute falls.

Question 19.
Under what circumstances, the demand curve shifts ?
Answer:
The Demand curve shifts either upward or downward if there is change in the factors other than the price.

Question 20.
What is a Giffen goods ?
Answer:
Giffen goods are those inferior goods for which law of demand does not operate.

Question 21.
What happens to demand for good if its price is expected to rise in future ?
Answer:
The demand for goods increases if its price is expected to rise in future.

Question 22.
What do you mean by change in demand ?
Answer:
Change in demand refers to increase or decrease in demand because of change in factors like price of related goods, income of the consumer, population, taste & preference etc.

Question 23.
What do you mean by conspicuous consumption’ ?
Answer:
Conspicuous consumption refers to the consumption of prestigious goods.

Question 24.
What is the normal shape of demand curve ?
Answer:
Normally a demand curve slopes downward from left to right.

Question 25.
Write two exceptions of law of demand ?
Answer:
Law of demand does not operate in case of Giffen goods & prestigious goods.

Question 26.
Which economic device measures the quantitative change in demand due to change in price ?
Answer:
Elasticity of demand.

Question 27.
What is elasticity of demand ?
Answer:
Elasticity of demand refers to degree of responsiveness of quantity demanded as a result of given change in price.

Question 28.
What does elasticity of demand measure ?
Answer:
Elasticity of demand quantifies the effect of change in price of a goods on the quantity demanded.

Question 29.
How can be the elasticity of demand measured ?
Answer:
Elasticity of demand can be measured by the ratio of proportionate change in quantity demanded to proportionate change in price.

Question 30.
Why is elasticity demand always negative ?
Answer:
Elasticity of demand is always negative because of inverse relationship between price & quantity demanded of a good.

Question 31.
What is limit of the value of elasticity of demand ?
Answer:
The value of elasticity of demand varies from 0 to ∞.

Question 32.
What is the shape of demand curve in case of perfectly elastic demand.
Answer:
In perfectly elastic demand, the demand curve becomes a horizontal straight line.

Question 33.
In which case, the elasticity of demand is zero ?
Answer:
In case of perfectly inelastic demand, the elasticity of demand is zero

Question 34.
What is the elasticity demand for a goods whose demand does not change due to change in price ?
Answer:
The demand for the goods is perefectly inelastic if its demand does not change due to change in price.

Question 35.
If a small changes in price leads to a fall in quantity demanded, state if demand is elastic or inelastic ?
Answer:
If a small changes in price leads to fall in quantity demanded, the demand is elastic.

Question 36.
If any given change in price leads to proportionate change in quantity demanded, state what type of elasticity of demand it is ?
Answer:
If any given change in price leads to proportionate change in quantity demanded it is a case of unit elastic demand.

Question 37.
What is elasticity of demand if the demand does not change due to change in price.
Answer:
The demand for the goods is perefectly inelastic if its demand does not change due to change in price.

Question 38.
What is elasticity of demand for a Newspaper ?
Answer:
The elasticity of demand for the newspapers is inelastic.

Question 39.
What is elasticity of demand for necessary & luxuries ?
Answer:
The demand for necessary is inelastic where for the lusuries it is elastic.

Question 40.
Give an example of a good whose demand is inelastic
Answer:
Salt.

Question 41.
What is the elasticity of demand for a good having substitutes ?
Answer:
The demand for the goods having substitutes is more elastic.

Question 42.
What is the elasticity demand for a goods having alternative uses.
Answer:
The demand for the goods having alternative uses is elastic.

Question 43.
If total expenditure spent on a goods remains same after fall in its price, state what type of elasticity of demand it is ?
Answer:
If total expenditure spent on a goods remains same after fall in its price, the demand for that goods is unit elastic.

Question 44.
If total expenditure spent on a goods increases after fall in its price, state what type of elasticity of demand it is ?
Answer:
The demand is relatively more elastic.