Extra Questions - Theory Of Demand Notes | Study Crash Course of Micro Economics -Class 12 - Commerce

Commerce: Extra Questions - Theory Of Demand Notes | Study Crash Course of Micro Economics -Class 12 - Commerce

The document Extra Questions - Theory Of Demand Notes | Study Crash Course of Micro Economics -Class 12 - Commerce is a part of the Commerce Course Crash Course of Micro Economics -Class 12.
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EXTRA QUESTIONS ’s

(Q1) “ Law of Demand is a Qualitative statement ”.  Comment.

Ans: Law of demand is only an indicative, and not a quantitative statement.  If indicates only the direction , in which the demand will change with a change in price.  It says nothing about the magnitude of such a change.

(Q2) The following table shows a change in the demand. Read the table carefully and answer the question that follows :

Case                Price (Rs.)            Quantity (kg)

I                      10                        20

10                        10

II                     10                        20

5                           20

What type of change is it - decrease in demand or contraction in demand ? Give a reason.

Ans: Case I : Decrease in Demand , Case II : Decrease in Demand

(Q3) When price of a good increases, its demand decreases.  Which law is this and what value does it indicate?

Ans: It is law of demand.  It indicates value of behaviour of a rational consumer.

(Q4) Answer the following by filling in the blanks :

(a) The sum total of both the substitution and the income effects is called the ______

(b) If a fall in the price of one good raises the demand for another good , the two goods are called __

(c) If demand for a commodity rises even without any change in its price, then it is known as -------

(d) In case of ____ goods, demand rises with increase in income.

(e) _ shows the tabular presentation of various quantities of a commodity a consumer is will to buy at different prices, during a given period of time.

Ans: (a) Price effect ;(b) Complementary goods  (c) Increase in demand ;

(d) Normal Goods  (e) Demand Schedule or individual demand schedule.

(Q5) Suppose the given demand equation for chocolates is :  Q = 40 - 4P  .

Because of massive success of Koi shubh kaam karne se pehle kuch meetha ho jai, demand  equation changes into  Q = 80 - 5P   How will you show this change ?

Ans: The effect will be seen in the form of a shift of the whole demand curve to the right.

(Q6) How will a rich household’s demand for low-quality rice respond to an increase in income of the household?

Ans: It will decrease.

(Q7) The price of eggs rises and yet it is observed that the demand for eggs is rising. Does it mean that the demand curve for eggs is upward sloping ?         (Ans. : No)

(Q8) Fall in price of a commodity always leads to expansion of its demand . Comment.

Ans:  Not always

(Q9) Does a fall in income have the same effect on demand for the given commodity ?

Ans: No

(Q10) What of the following statements about the demand for a good is complete?  Give reason.

(i) Rani demands one dozen oranges every day

(ii) Rani is prepared to buy 2 dozens oranges @ 30 per dozen every day.

Ans: The statement no.  (ii) is complete, as it satisfies all the three characteristics of demand namely quantity, price and time.

(Q11) Electricity supply company raises the tariff.  How does it affect the economy?

Ans: It is a clear message to economise on the use of scarce resource.  Raising the tariff results in restricting the use of electricity to those uses which are more urgent; unnecessary wastage gets avoided.

(Q12) “ The demand curve of a commodity will not obey the law of demand, i.e. it will not slope downwards if there is a rise in the price of substitute goods.” Comment.

Ans:  The given statement is correct.  With rise in price of substitutes, the demand curve of the commodity may not obey the law of demand because demand curve is drawn on an assumption that there is no change in other determinants of demand.

(Q13) For a daily wage unskilled labourer, coarce rice is a normal commodity of consumption.  Why should he buy less and less of it as his income increases?

Ans: As his money income increases steadily, the coarce rice would become an inferior commodity for him.  He would buy less of it and buy some quality of basmati rice.  When he becomes very rich, he would no longer consumer of coarce rice and choose to consume basmati rice.

(Q14) If demand curve is found to be positively sloped, what it could be due to?  Give your answer in terms of nature of the commodity, income effect and substitution effect.

Ans: Positively sloped demand curve violates the law of demand.  It is found in case of giffen goods.  These are those inferior goods in case of which income effect is negative and greater then substitution effect , so that net effect (or price effect) points to a positive relation between price and quantity demand of the commodity.

(Q15)  Do you agree with the view that law of demand need not necessarily fail in case of inferior goods ?

Ans: Yes.  Law of demand fail only when negative income effect is found to be greater than the substitution effect

(Q16) Certain goods are demanded even when their price is zero. Does it mean that we are demanding even those goods which are not scarce ?

Ans: No , medicines available in government hospitals at zero price are demanded. And these are scarce because these do have an opportunity cost, even when these are available at zero price.

(Q17) How do you account for a rise in demand for rice even when own price of rice was rising in the flood-ravaged Jammu & Kashmir state of India ?

Ans: A rise in demand for rice (even when its price was rising) is due to expectations of the people in flood-ravaged Jammu & Kashmir. They are crazy to buy more of rice even at a higher price fearing that rice may not be available in the near future as most stocks of it in the state had been washed away.

(Q18) “Petrol is becoming cheaper, yet the demand for cars is not rising.”  Does it mean that the law of demand is not operative ?

Ans: Price of Petrol and its impact on the demand for cars has nothing to do with the law of demand. Law of demand studies how quantity demanded of a commodity responds in own price of the commodity. Change in price of petrol would lead to a shift in demand curve for the cars.

(Q19) In India retail price of petrol has been falling continuously during the year but demand for its complementary good cars has not shown any significant rise.  Explain why.

Ans: No doubt according to law of demand, a fall in price of a good (say petrol) should normally cause a rise in demand for its complementary good (say car) but the result is not according to it due to the following reasons.

(i) A car like a diamond is an expensive good which is difficult for even middle class Indians to purchase.
(ii) Price of car has not fallen like that of petrol.

(iii) There is no significant rise in income of the buyers

(Q20) The following news was printed in the Economic Times : “ Petrol and diesel prices were cut by Rs.2 per litre each as international oil prices slumped to a five-year low .” Use a diagram and economic theory to analyse the impact on the demand for cars in India.

Ans: When the prices of petrol and diesel are cut, the demand for cars is expected to rise. Because car and petrol are complementary goods. It implies that demand curve for cars will shift to the right. More cars are demanded at their existing price.

(Q21) ‘Economic Times of India stated on 12th October 2015 that prices of tomatoes have risen abnormally.’ If you are making a market offer curve for Tomatoes and Potatoes, how it will be affect this curve. Show it Diagrammatically.

Ans: When prices of tomatoes have risen, assuming prices of Potatoes remaining constant, a consumer will be able to buy less amount of tomatoes than before with given income.

(Q22) Price of pulses have doubled yet demand for it does not fall. Why ? Do you think law of demand does not apply upon it ?

Ans: Yes. because it is necessary good and law of demand does not apply upon necessary goods. Besides, this law does not apply upon other necessities of life like wheat-flour, rice, milk, sugar, electricity etc. In case of these goods demand does not vary with the change in their prices.

(Q23) By introducing GST, government of India, plans to reduce taxes on goods and services in the year 2017, what effect do you expect on demand for smart phones ? Explain giving reasons. Use diagram.

Ans: Rightward shift.

(Q24) There is a new product launched by an ice-cream manufacturing unit. consumers like this brand very much. How will it affect the demand curve of this new product?

Ans: With a favourable choice for the new variety of ice-cream there will be increase in demand for it. Demand curve for ice-cream will shift rightward at the same price.

(Q25) Price of Amul butter is constant but its demand is still increasing. Why ? Explain.

Ans: Since price of butter is constant and its demand is still increasing, which may be due to increase in income of the society. An increase in purchasing power in the hands of consumer inspires them to purchase more quantity of butter.

(Q26) A segment of middle income group shifts to higher income group, how demand for   inferior goods will be affected ? Explain using diagram.

Ans: When there is a rise in income of middle income group, they will make a less demand for inferior goods than before. It will shift demand curve for inferior goods leftwards and there will be lesser demand at a lower equilibrium price.

(Q27) Centrel Government has raised 18% salary of its employees in 7th Pay Commission. What economic value this event will have ?

Ans: When salary of central Govt. employees will rise, it will provide them more                purchasing power in their hands. They will make more demand for consumer and capital goods. It will raise income of corporate sector and will contribute towards economic growth of the country.

(Q28) Demands for cigarettes, alcohol and tobacco are continuously increasing even with rise in prices.  What does this indicate?  What steps should Govt. take to control it?

Ans: It indicates that demand for these articles is high because these are habitual articles. Government should
(a) increase taxes and

(b) promote health awareness campaigns

(Q29) The demand for petrol is increasing continuously. However, being a non-renewable resource, its supply is limited. Discuss any 2 steps that can be taken to overcome this problem

Ans: The following steps can ease the situation (Any Two) :

(a) Use of CNG (Compressed Natural Gas) run vehicles need to be promoted.

(b) Encourage car pooling.

(Q30) What efforts should be made in an economy to prevent continuous use of exhaustible natural resources (like petroleum, coal and natural gas) in the production ? Identify the value highlighted.

Ans: (a) To increase use of renewable resources like solar energy, wind energy, etc.

(b) To reduce the wastage of resources.

(c) To spread awareness about the effective and optimum use of exhaustible natural resources.The value highlighted is “ Environmental Conservation ”.

(Q31) Pulp and paper production is the third largest producer of air, water and land pollution. Suggest three ways to overcome this problem ?

Ans: We can overcome this problem through following ways :

(a) Promote Digital Age : Promote use of e-bills, e-cards, e-book, e-newspaper instead of paper invoices, cards, etc.

(b) Use both sides of each paper. On a notebook, write on both sides of the sheet.

(c) Promote use of recycled paper products whenever possible.

(Q32) “Use of chemical fertilisers, to compensate food shortage, gives good dividends at one time in the form of increased production, but becomes a disaster later in the form of adverse effects on health.” How can we overcome this problem ?

Ans: This problem can be handled by promoting organic farming. Organic farming is the process of producing safe and healthy food. Moreover, organic agriculture restores ,    maintains and enhances the ecological balance. There is an increasing demand for       organically grown food, to enhance food safety throughout the world.

(Q33)  Latest techniques and innovative products affect the taste and preference of a consumer.  A house-wife prefer microwave ownes instead of burners or chulah.  What is the impact of taste and preferences on demand for a commodity ?

Ans:  Impact on taste and preferences on demand for a commodity

(1) Individual likes and dislikes  :: Buyers tends to buy more or less of a commodity as per their likes and dislikes.

(2) Trends and fashion: Due to modern technologies buyer tends to buy more of a commodity which are tendy and in fashion.

(Q34) Demand equation is given as :

Qd = a - bP

(a) What is there in this equation that makes the demand curve a straight line ?

(b) What happens to demand curve in case ‘a’ increases ?

(c) What makes the demand curve slope downward ?

Ans:
(a) It is the constant value of  “b” which makes the demand curve a straight line.

(b) In case a increases the demand curve will take a parallel shift to the right.

(c) It is the inverse relationship between P and Qd, as indicated by the ‘ - ’ sign

(Q35) What will be the impact of the following changes on the demand curve of :

(i) Cars when there is an increase in price of petrol.

(ii) Desktop Computers with increase in price of Laptops.

(iii) Bread with increase in its price.

(iv) Trousers due to change in preference in favour of Jeans.

(v) Bajra for a poor person when income of such person rises.

(vi) Coffee when price of tea falls.

(vii) Petrol if its price is expected to rise in near future.

(Q36) Give an example of unrelated goods.

(Q37) How does the rise in price of Ink pen affect :

(a) Demand for Ink
(b) Demand for ball pen

(Q38) Categorise the following changes as expansion, contraction, increase or decrease in demand (assuming the given commodity is a normal good) :

(a) When prices of a substitute rises.

(b) When price of the given commodity increases.

(c) When income of the consumers increases.

(d) When price of the given commodity is expected to fall in future.

(e) When the given commodity becomes a fashion good.

(f) When there is sudden decrease in population due to an earthquake.

(g) When the price of the given commodity falls.

(Q39) Fill the gap ::
inferior goods    normal good

jowar / Bajra        ----------

low quality rice     ----------

tonned milk          ----------

(Q40) Price of good A   Q.D. of good B    Q.D. of good C    Q.D. of good D

Rs.10                30                                10                           15

Rs.15                10                                 20                           15

Good A and B are _________________ goods

Good A and C are _________________ goods

Good A and D are _________________ goods

(Q41) Factors affecting demand, state whether the market demand curve for blue pens will shift inward or outward in the following cases :-

(a) Income increases and a blue pen is considered inferior good in ____________

(b) Price of pencil increases ____________

(c) Income reduces and pen is considered normal good ____________

(d) Price of ink increases ___________

(e) Number of people using blue pens increases ___________

(Q42) Why and how does demand for sandwiches change in school canteen when a new section of class 12th is  added ?

(Q43) “ When law of demand fails, inverse relationship between price and quantity does not hold.  Demand curve may still slope downward.  Defend or refute, giving reason.

(Q44) If the market price of a commodity rises, as a result of which the demand of the commodity rises as against the Law of Demand, then what will be the possible cases where such positions exist ?

(Q45) When price of commodity ‘sigma’ falls from Rs.50 per unit to Rs. 35 per unit, its demand rises from 10,000 units to 25,000 units? Discuss any three factors which are responsible for such a behaviour.

(Q46) Government has introduced the metro services in various cities at an affordable price. How will affect the overall demand of personal vehicles by consumers and what economic values it shows on behalf of government?

(Q47) Give reasons for the following :

(a) Law of demand does not hold true when the prices are expected to go up further.

(b) All Giffen goods are inferior goods, but all inferior goods are not Giffen goods.

(Q48) Let there be three consumers in the market. Their demand functions are

d1(P) = 20 - 0.2P     ,           d2(P) = 10 - 0.6P    ,    d3(P) = 15 - 0.2P

Derive the market demand function and plot the market demand curve.

The document Extra Questions - Theory Of Demand Notes | Study Crash Course of Micro Economics -Class 12 - Commerce is a part of the Commerce Course Crash Course of Micro Economics -Class 12.
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