Question 1. Suppose there are two consumers in the market for a good and their demand functions are as follows: D1(p)=20−P for any price than less 20, and D1(p)=0 at any price greter than or equal to 20. D2(p)=30−2P for any price less than 15 and D2(p)=0 at any price greater than or equal to 15. Find out the market demand function.
Answer: It can be seen from the given demand functions that Consumer 1 do not want to demand the goods for any price greater than or equal Rs.20 and consumer 2 do not want to demand the goods for any price greater than Rs 15.
Hence, the market demand function will be,
Question 2. Suppose there are 20 consumers for a good and they have identical demand function?
Answer:
Question 3.
Answer:
Question 4. What do you mean by a normal good?(or)
when good is called ‘normal goods’?
Answer: for normal good, with a raise in income,the demand of the commodity also rises and vice versa. Shortely direct relationship exists the income of a coustomer and demand of normal good.For example, a new car, new clothings.
Question 5. What do you mean by an ‘inferior good’? Give some examples.
Or
Give the meaning of inferior good and explain the same with the help of an example.
Answer:
1. A good is called ‘inferior goods’ when its demand falls with a rise in the income of a consumer and vice- versa.
2. For example, Jowar or Bajra for a poor person.
3. A good is inferior in a relative terms. It means, a good is inferior or normal is determined by the income level of a consumer.
4. When a consumer moves to higher income, he/she may consider some goods below their income status, and treats them as inferior.
Question 6. What do you mean by substitutes? Give examples of two goods which are substitutes of each other.
Answer:
1. Substitute goods are those goods which can be used in place of another goods and give the same satisfaction to a consumer.
2. There would always exist a direct relationship between the price of substitute goods and demand for given commodity.
3. It means with an increase in price of substitute goods, the demand for given commodity also rises and vice-versa.
4. For example, Pepsi and Coke, tea and coffee are substitute to each other.
Question 7. What do you mean by complements?
Give examples of two goods which are complements of each other.
Answer:
1. Complementary goods are those which are useless in the absence of other goods and which are demanded jointly.
2. There would always exist an inverse relationship between price of complementary goods and demand for given commodity.
3. It means, with a rise in price of complementary goods, the demand for given commodity falls and vice-versa.
4. For example pen and refill, tea and sugar are complements to each other.
I. Very Short Answer Type Questions
Question 1. What is meant by demand?
Answer: Demand is a quantity of a commodity that a consumer wishes to purchase at a given level of price and during a specified period of time.
Question 2. Define market demand.
Answer: Market demand refers to the quantity of a commodity that all the consumers are willing and able to buy, at a particular price during a given period of time.
Question 3. Due to rise in price of commodity x the demand of commodity y falls. What type of commodity are they?
Answer: Complementary goods.
Question 4. Due to rise in price of the commodity x, the demand of commodity y also rises. What type of commodity they are?
Answer: Substitute goods.
Question 5. How will an increase in the price of petrol affect the demand curve of a car?
Answer: The demand curve of a car will shift to the left.
Question 6. A fall in the income of the consumer leads to a rise in the demand for a good. What is good X called?
Answer: Inferior good.
Question 7. What is meant by the law of demand?
Answer: It states that price of the commodity and quantity demanded are inversely related to each other when other factors remain constant (ceteris Paribus).
Question 8. When the demand for a good rises due to a fall in its own price, what is the change in demand called?
Answer: Expansion in demand.
Question 9. Define ‘change in demand’.
Answer: If demand changes due to the change in factors other than price, it is known as change in demand.
Question 10. What causes an upward movement along a demand curve of a commodity?
Answer: Rise in price of goods and fall in quantity demanded i.e., Contraction in demand.
Question 11. Give one reason for a shift in demand curve.
Answer: Change in price of substitute goods.
Question 12. What determines the quantity of a good that the buyers demand for?
Answer: The quantity of a good that the buyers demand for is determined by the price of the goods, income, the prices of related goods, tastes, expectations, and the number of buyers.
Question 13. Why market demand curve is flatter?
Answer: Market demand curve is flatter than the individual demand curves because as price falls, proportionate rise in market demand is more than proportionate rise in individual
Question 14. Ceteris Paribus, if the government provides subsidies on electricity bills, what would be the likely change in the market demand of desert coolers?
Answer: Market demand for desert coolers will Increase.
II. Short Answer Type Questions
Question 1. Does a rise in price of other goods have the same effect on demand for a commodity?
Answer: No, rise in prices of other goods does not have the same effect on demand for a commodity.
1. In case of rise in price of substitute goods, demand for the given commodity rises.
2. In case of rise in price of complementary goods, demand for the given commodity falls.
Question 2. Does a fall in income have the same effect on demand for the given commodity?
Answer: No, fall in income does not have the same effect on demand for the given commodity.
1. If the given commodity is a normal good, the fall in income will reduce the demand for the normal goods.
2. If the given commodity is an inferior good, the fall in income will raise the demand for the inferior goods.
3. If the given commodity is a necessity, the fall in income will not change the demand for the necessity of goods.
Question 3. What is the relation between good x and good y in each case, if with a fall in price of x demand for good y (1) rises and (2) falls? Give reason.
Answer:
1. Goods x and y are complementary goods as with fall in price of x, demand for good y rises.
2. Goods x and y are substitute goods as with the fall in price of x, demand for good y also falls.
Question 4. Giving reasons, state if the following statements are true or false:
1. An increase in the price of Coke would result in decrease in the demand for Pepsi.
2. An increase in the price of sugar would result in an increase in the demand for tea.
3. An increase in the income of a consumer would result in an increase in demand for all types of goods that are demanded by a consumer.
Answer:
1. False: Coke and Pepsi are substitute goods. An increase in the price of Coke would induce consumers to substitute Coke by Pepsi. Demand for Pepsi will increase.
2. False: Sugar and tea are complementary goods. An increase in prite of sugar would make tea costlier. Hence, the demand for tea would decrease.
3. False: With the increase in income, the consumer’s demand for normal goods will increase. Demand for inferior goods may, in fact, fall.
Question 5. Differentiate between Normal Goods and Inferior Goods.
Answer: