3.11 SUMMARY 1. Demand: Demand of a commodity means the quantity which a consumer is willing to buy at a given price. 2, Factors affecting Demand/Determinants of Demand: Various factors have the following relationship with demand of a commodity: , . 7 (a) Price of commodity Inverse (b) Price of substitute goods Direct (c) Price of complementary goods Inverse© 1 2 » x ” Ss . Reasons for downward sloping demai |. Change in quantity demanded | (d) Income of consumer: Normal goods (e) Income of consumer: Inferior goods Inverse (f) Tastes & preferences and other factors Tyee — Demand Function: It i een depicts the relationship between demand of a commodity and its ie, Dy =f (Py + Pee ¥, TO) Demand Schedule: Itis a tabular presentation which shows different quantities of a commodity demanded at different prices during a given period of time Demand Curve: It is a graphical representation which shows different quantities of a commodity demanded at different prices during a given period of time. s Law of Demand: It states that other things remaining constant (ceteris paribus), the demand of a commodity is inversely related to its price. It is a qualitative statement, e Law of Demand: The law of demand works on the assumptions that the tes and preferences and all other factors will Assumptions of th price of related goods, income of consumer, tas not change. Exceptions to the Law of Demand: (@) Giffen Goods (given by Sir Robert Giffen): These are those goods wl with decrease in price. (0) Veblen/Conspicuous/Snob Goods: These are those good: ‘hose demand decreases is whose demand increases with increase in price. (0) Necessity Goods: These refer to goods like salt where demand of the good is not affected by the change in its price. (@) Emergency Goods: These refer to goods like medicines where demand is not affected by change in prices. (e) Habitual Goods: These are goods like alcoho! and cigarettes where the demand of the vwvamodities is not affected by the changes in their prices (9) Future Expectations: Goods which 4 to become costlier are purchased in large quantities even if their prices are rising. rnd curve/Reasons for inverse relation are expecte' between price and demand: (a) Law of diminishing marginal utility The combined effect (b) Income effect and substitution effect is known as (c) Substitution effect price effect. i (a) Number of consumers ° ° of income effect or Movement along the demand curve: Change in quantity demanded of a commodity happens due to change in its price, other factors remaining constant. It is of two types: (a) Expansion of Demand: This occurs due to fall in the price of a good. (b) Contraction of Demand: This occurs du in the price of a good. e to riseul. 12. 13. Change in Demand or Shift in Demand Curve: Change in demand occurs due to change in factors other than price of the commodity. It is of two types: (a) Increase in demand: Demand increases due to rise in the price of substitute goods, fall in the price of complementary goods, rise in the income of consumers (normal good), fall in the income of consumers (inferior good) or favourable changes in tastes of a consumer. (b) Decrease in Demand: There is a decrease in demand due to fall in the price of substitute Decrease Inciease goods, rise in the price of complementary goods, Quantity demanded fall in the income of consumers (normal goods), rise in the income of c (i : , consume goods) or unfavourable changes in tastes of a consumer. a Market demand: Its the aggregate of quantities demanded by all individual consumers in market at different prices during a given period of time. Factors affecting market demand: (a) Price of the commodity (b) Price of related goods (©) Income of the consumers (d) Tastes and preferences (c) Future expectations (0 Number of consumers (ie., population) [ESeai A. Multiple Choice Questions 1. What kind of relationship exists between price and quantity demanded? (a) Inverse (b) Positive (0) Proportionate — (d) None of these 2, In demand schedule, quantity demanded varies with the price (a) inversely (®) directly (©) proportionately (d) independently is caused by (b) change in price of the commodity (@) change in taste of the buyer demand curve of scooters (b) moves upward (@ moves downward 3, Expansion and contraction in demand i (a) change in income of the buyer (c) change in price of related goods 4, With an increase in the price of petrol, (a) shifts rightward (0 shifts leftward 5, Law of demand does not apply in case of (anormal goods (b) inferior goods (©) giffen goods _(@) none of these 6. Expansion in demand is called (a shifting of the curve rightward (c) shifting of the curve leftward 7, A movement along the demand curve i (a) increase in demand (change in price 8, The given schedule is related to Price @) | Demand (Units) 20 20 (&) downward movement along the curve (@) none of these is due to (b) decrease in demand (a) change in income 20 2510. 1. 13. 4. 15. 16. 17, 18. 19, 20, With an increase in income of the (@ contraction in demand (Hine (0 expansion in demand Yin demand (a) decrease in demand consumer the demand of normal ood (©) remains same (al) none of these Gross demand states the relationship between (a) demand of given commodity and price of related pools (8) demand of given commodity and income of the consumer (0 demand of given commodity and tastes and preferences (a) none of these If the price of goods x ris called (a) substitute goods ()) complementary goods (0) normal goods (i) inferior goods (a) decreases (0) increases es and the demand for goods y decreases then the two goods are . Which of the factors causes a decrease in demand for a commodity? (a) Fall in price of substitute goods (b) Fall in price of complementary goods (0) Rise in price of the given commodity (cd Expectation of future increase in the price of the commodity Shift in demand curve means (@) fall in demand due to rise in price of the commodity (0) rise in demand due to fall in price of the commodity (0) change in demand due to factors other than the change in price (@ none of these Determinant of market demand is (a) income of the consumers (b) season and weather (0) prices of the related goods (@) all of the above ‘Change in quantity demanded’ is called (@) Expansion and contraction in demand (6) Increase and decrease in demand (©) Shifting of the DD’ curve (d) None of these Inferior goods are those whose income effect is: (2) negative (b) positive () zero (d) none of these In case of normal goods demand curve shows: (@) a negative slope (b) a positive slope (0) zero slope (@ none of these Law of demand states that (@) demand increases with the increase in demand (b) demand increases with the increase in price (©) quantity of demand increases with the fall in price (@) demand increases when income and price both rise According to law of demand quantity demanded (a) changes in the same direction of price change (b) changes proportionally to the change in price (6) does not have any impact of price change (@ changes inversely with the change in price a When we say that a demand curve slopes downward from left to the right, it implies (@) that more quantity is purchased with the increase in income 4 (©) that greater quantity is purchased with the increase in the price of substitute goods (6) that greater quantity is purchased with the fall in price of the commodity (d) that more quantity is purchased with the increase in population (ey24. 26. 27. 28. 2 8 30. 31. 32. 3 S |. The reason for the expansion or contraction of quantity demanded of a commodi y it . Following diagram indicates (a) change in the price of that good _(b) change in consumer's income Ys (©) change in consumer's taste (@ change in the reason With the fall in the price of Giffen goods (a) the demand for the commodity remains stable (©) the demand for the commodity decreases (c) the demand for the commodity increases, (@) the demand for the commodity changes If two goods are complementary then with the rise in the price of one good (a) the demand for another good will increase (b) the demand for another good will decrease (©) the demand for another good will not change (d) None of these If two goods are complementary then with the fall in the price of one good (a) the demand for another good will increase (®) the demand for another good will decrease (0) the demand for another good will remain the same (d) None of the above . Shifting from leftward demand curve to the rightward demand curve indicates (a) expansion of demand (B) contraction of demand (0) increase in demand (d) decrease in demand Shifting from rightward demand curve to the leftward demand curve indicates (@ increase in demand (b) decrease in demand (0) contraction of demand (@ expansion of demand A downward to upward movement along the same demand curve indicates (a) decrease in demand (b) increase in demand (0) contraction of demand (@) expansion of demand An upward to downward movement along the same demand curve indicates (a) decrease in demand (b) expansion of demand (0) increase in demand (d) contraction of demand 2, YA D (a) increase in demand (b) decrease in demand (0) expansion of demand (d) contraction of demand Price ° Demand How are goods X and Y related when, as a result of rise in the price of good-X, demar for good-Y increases? (a) Substitute goods (b) Complementary goods (c) Normal goods (@ Inferior goods In case of normal goods, demand curve shows: (a) a negative slope (®) a positive slope () zero slope (@ none of these Inferior goods are those whose income effect is: (a) negative (b) positive (0) zero (@) none of these Which of the following pairs represents substitute goods? (a) Car and petrol (b) Coffee and tea (c) Bread and butter (@) All of the abovecase of Giffen’: . 34. ra woe cS ifen’s Paradox the slope of camand curve is }) parallel to X-axis Eee Op ca (4) parallel to Y-axis 35. As a result of rise in consumer's income, demand curve for coarse grain (inferior good): (a) shifts to the left (B) shifts to the right (c) becomes a horizontal straight line (@) becomes a vertical straight line 36. If two goods are complementary then rise in the price of one results in (@ rise in demand for the other (b) fall in demand for the other (c) rise in demand for both (@) none of these 37. Cell phone and cell services are: (a) Complementary goods (b) Substitute goods (c) Unrelated goods (a) None of the above34. In case of Giffen’s Paradox the slope of demand curve is (a) negative (0) positive (0) parallel to X-axis (2) parallel to Y-axis 36, As a result of rise in consumer's income, demand curve for coarse grain (inferior good): (a) shifts to the left (b) shifts to the right (@) becomes a horizontal straight line (d) becomes a vertical straight line 36. If two goods are complementary then rise in the price of one results in (a) rise in demand for the other (b) fall in demand for the other (c) rise in demand for both (d) none of these 437. Cell phone and cell services are: {a) Complementary goods (b) Substitute goods (0) Unrelated goods (d) None of the above Answers L@ 2@ 3. (b) 4. (0) 5. (c) 6. (6) 7. (0) 8.) 2 ©) 40. @ 11.) 12. @ BO 6 B@ %@ me) 16 © 49. (d) 20. (c) 21. (a) 22. (b) 23. (b) 24. (a) 25) 26) 27) 28. (#) 29. (@) 30a) 31.) 7 32. (a) 33.(b) 34.6) 35. @ 36.) 37. (a)