Reason Based question’s
(Q1) Law of supply states that there is a direct relationship between the price of a commodity and its quantity supplied, i.e., both the variables move in the same direction. It implies that if the quantity supplied of chocolates increases in the market, its price will go up.
(Q2) Supply and quantity supplied are identical terms
(Q3) Price elasticity of supply measures the direction of change in supply I response to a given change in own price of the commodity.
(Q4) Elasticity of supply = Slope of supply curve.
(Q5) In case of zero elastic supply, supply curve is a horizontal straight line.
(Q6) Law of Supply does not indicate the magnitude of change in quantity supplied of a commodity due to change in its price.
(Q7) Individual supply curves are steeper as compared to market supply curve.
(Q8) Individual supply curves are steeper as compared to market supply curve
Ans:T , It happens because with the change in price the proportionate change in market supply is more than the proportionate change in individual suppliers.
(Q9) ‘Supply curve of a firm can be denoted as its supply function.’ Comment.
Ans: Yes, because supply curve of a firm shows various amount of quantity supplied at different prices. As price rises of a commodity, its supply also rises. Supply function, S = f (P), also shows that supply of a product is a positive function of price , other factors like income, price of related goods assumed to be constant.
(Q10) Elasticity of supply explain qualitative relationship between supply and price of a commodity.
(Q11) Supply of agricultural goods is inelastic
Ans: Yes, it is true because it depends upon natural, climatic and biological factors. Such goods take a lot of time in its production, therefore no price-frame can guide their production
(Q12 ) Supply may remain constant even when quantity supplied changes.
(Q13) Supply never changes unless price changes.
(Q14) A producer supplies more of a commodity only at a higher price.
(Q15) A straight line supply curve is drawn indicating a non-linear supply function
(Q1) Whether the following will lead to expansion, contraction, increase or decrease in supply.
(a) Installation of a new machine, resulting in fall in cost of production.
(b) An increase in the price of the given commodity.
(c) An increase in wages of the employees leading to rise in cost of production.
(d) A firm deciding to maximize sales instead of profits.
(e) Imposition of an excise duty on the production of a commodity.
(f) A fall in price of a commodity whose supply curve is being considered.
(g) An increase in the prices of other commodities.
Ans: Expansion in supply (ii) Contraction in supply: (vi);
Increase in supply: (i), (iv) ; Decrease in supply (iii), (v), (vii)
(Q2) Answer all the questions in terms of shifts in or movements along the demand & supply curves.
(a) The Supreme Court of India banned smoking I public places. How is this likely to affect the average price of cigarettes and the quantity sold ?
(b) New discoveries of oil reduce the price of petrol and diesel. Consider their effects on the market for new cars.
(c) New environmental regulations require the drug industry to use a more environment friendly technology whose running cost are higher but which discharges less chemicals then before. How would it affect the price of drug?
Ans: (a) A ban on cigarette smoking in public places should cause a backward shit in demand curve. Consequently, average price of cigarettes should fall. Fall in average price of cigarette should cause a fall in quantity sold.
(b) New discoveries of oil reducing the price of petrol/diesel should imply an increase in demand for cars (in terms of shift in demand curve to the right), as cars and petrol/diesel are complementary goods.
(c) Due to the use of costlier (environment friendly) technology, supply curve of drug will shift to the left, causing a rise in the price of drug.
(Q3) Indicate for each whether it reflects an increase or decrease in demand; quantity demanded; supply; quantity supplied.
(a) Air Deccan reduces its average plane fare by 30% in order to attract more passengers.
(b) The Government grants export subsidy to producers of oranges in Nagpur to increase the sale of oranges abroad.
(c) Wheat farmers decide to withhold wheat as the market price is low.
(d) OPEC decides to increase the international oil price.
Ans: (a) Increase in quantity demanded (and also increase in demand if it attracts passengers from rival airlines).
(b) Increase in supply
(c) Decrease in supply
(d) Decrease in quantity demanded.
(Q4) A farmer gets more profit in producing opium than in production of wheat. If the economy is facing the situation of famine, which crop should be produced by the farmer ? Which value needs to be followed by the farmer ?
Ans: Wheat , because in the situation of famine, food grain like wheat is required more than opium. VAlue :: “ Social Welfare ”
(Q5) The Delhi government enforced a complete ban on the manufacture, sale and storage of “Gutka” in the national capital. How will it affect the market demand and supply of gutka ? Identify the value involved in the ban.
Ans: The ban on gutka will lead to decrease in its supply as firms producing gutka will shift their factors of production in the production of other related goods.
The ban will also lead to decrease in demand for gutka. In this way, both the demand and supply of gutka will reduce. The value involved is “Social Health Consciousness”.
(Q6) There is no decrease in food availability compared to previous year. There is also no abnormal increase in population. Can there be a famine in a situation like this?
Ans: According to Amartiya Sen (a nobal prize winner), famine may be distribution problem. A large section of a region’s population, for some reasons becomes relatively much poorer than before and hence has not enough income to buy the minimum amount of food for survival.
(Q7) Explain how technological progress has led to decline in the price of a PC system (the compute, the monitor and the printer) rapidly over time.
Ans: Over the last few decades, the production of CPU (Central Processing Unit) has seen technological progress. As a result, the price of a CPU of a given speed is going down rapidly over time. The components of a PC are becoming increasingly cheaper
(Q8) Onion crisis took place in India in 1996 & 2010. What can be done to tackle with such a crisis
Ans: The reason behind onion price increase was heavy rains and flooding in the onion growing areas in India. It caused a drastic reduction in onion supply in the market. Such a crisis can be handled by taking the following steps :
(1) Onion supply in the market can be increased through its imports from other countries.
(2) Strict action should be taken against the hoarders and black markets.
(3) Consumption of onion may be reduced to some extent temporarily.
(Q9) Government of India is going to introduce 5% GST on clothing, what economic effect, it will have ? Explain with the reference of demand and supply.
Ans: With the introduction of 5% GST on clothing, it will raise their prices by which market demand for such goods will fall. It will affect producers’ profit which can discourage their production. It can have negative impact on industrial growth of the country.
(Q10) Can two supply curve intersect? If yes, which one would be elastic and why ?
Ans: Yes , flatter the supply curve relatively more elastic it is.
(Q11) The following headline appeared in the Economic Times on 26th December, 2014 :
“ Import duty on crude & refined edible oil up by 5%.” Use a diagram & economic theory to analyse the impact of the statement on the supply of crude and refined edible oil in the domestic market.
Ans: backward shift.
(Q12) Owing to political considerations, Russia has banned the import of seafood from the European Countries. How would analyse the impact of this decision
(i) on the export of seafood from the Indian market, and
(ii) on the domestic supplies of seafood in India ?
Ans: (i) can earn foreign exchange (ii) Shift to the left.
(Q13) Trendz produces both Jeans and Shirts. How will an increase in the price of jeans affect the supply curve of shirts ?
Ans: An increase in the price of jeans will make the production of jeans more attractive. As a result, Trendz will shift its resources from shirts to jeans. It will shift the supply curve of shirts towards left.
(Q14) There are three different supply curves passing through the origin. Curve A makes an angle of 600. Curve B makes an angle of 450 and curve C makes an angle of 300. What will be the price elasticity of curves A, B and C ?
Ans: All the three curves: A, B and C will have unitary elastic supply
(Q15) What are ‘bullish’ and ‘bearish’ business expectations?
Ans: Bullish expectations refer to a situation when the producers expect high returns (profits) in the near future. Accordingly, level of investment (and therefore, the level of production activity) tends to rise in the economy. Bearish expectations, on the other hand, refer to a situation when the producers expect low returns in the near future. Accordingly, level of investment (and therefore, the level of production activity tends to fall in the economy.
(Q16) Imports of goods with less elastic supply can fetch a higher revenue. Explain.
Ans: True, like petrol and diesel can fetch a higher revenue because such goods will be sold at a higher price because of limited supply.
(Q17) It is expected that replacement of all existing taxes on good X by the proposed single Goods and Services Tax (GST) will bring down overall tax on good X substantially. Explain its likely efffects on quantity suppied of X good ?
(Q18) Acc to “ Make in India ” program many “Mobile Companies” to start producing their mobile phones in India . Analyse the effect of this on the market of mobile instruments in India. Use diagram in support of your answer.
(Q19) If the supply elasticity coefficient is 3, what does it indicate ?
(Q20) ‘When two supply curves intersect each other, which is more elastic. Explain.