Name: Ansa razaq roll no: 11278

DEPARTMENT OF MANAGEMENT SCIENCES

QUESTION PAPER
Class/Semester: BS Applied Psychology 4th Term: Mid Exams (Spring 2020)
Credit Hours: 3(3-0) Time: 60 Minutes
Course Title: Economics Total Marks: 30
_______________________________________________________________________________________________
NOTE: Attempt all questions

Q.1: Explain the law of Demand. Why does a demand curve slop downward? What are the
determinants of demand? What happen to demand curve when any of these determinants
change?

Q.2: Explain the law of supply. Why does a supply curve slop upward? What are the
determinants of supply? What happen to supply curve when any of these determinants change?

Q.3: Define factor of production with any example.

 LAW OF DEMAND
Law of demand states that when other things equal price falls, the quantity
demanded increases and vice versa having inverse relationship.
Law of diminishing marginal utility:
It states that all else equals as the consumption increases the marginal
utility derived from each additional unit declines.
Example:
Consuming more candy balls of same taste may reduces the satisfactory
level so it diminishes the demand.
Substitution and income effect:
The income effect expresses the impact of increased purchasing power
on consumption, while the substitution effect describes how consumption is
impacted by changing relative income and prices.
Example:
In substitution effect if price of some cosmetic creams increases it may be
replaced by another one same is the case with change in income.
Determinants of demand:
• Change in consumer taste and preferences
• Change in buyers
• Change in income
normal goods
inferior goods
• Change in price of related goods
Complementary goods
Substitute goods
• Change in consumer expectations
Future price
Future income
Change in determinants:
Determinants are those things that can shift the entire demand curve causing
demand to change.
If consumer taste and preference increase demand curve shifts right vice
versa, if no of buyers increases it also shifts to right, if income for normal
goods increases it shifts left and for inferior goods demand curve shifts
right. If substitute price falls, demand decreases and curve shifts to left If
substitute price rises, demand increases and curve to right If complements
price falls demand increases and curve to right If complements price rises
demand decreases and curve shifts to left and vice versa.
Demand curve:
Demand curve moves downward due to the inverse relationship of price and
quantity demanded.
_______________________________
2: LAW OF SUPPLY:
Law of supply is a microeconomic law which states that other things
equal as the price rises the supply increases and vice versa in the direct
relation.
Explanation:
Producers are willing to produce and sell more of their product at a high
price than at a low price. There is a direct relationship between price and
quantity supplied. if product costs, a higher price that means greater profits
and thus an incentive to increase the supply.

Determinants of supply:
 Change in resource price
 Change in technology
 Change in number of sellers
 Change in taxes and subsidies
 Change in price of other goods
 Change in producer expectations
Change in determinants:
If resource price increases the supply curve shifts left vice versa If increase
in technology supply curve shifts right vice versa If no of sellers increases
supply curve moves to the right and vice versa If there is change in taxes
supply curve moves vertically upward and if there is change in subsides
supply curve bends downward. If price increases supply curve shifts to the
left and vice versa.
Supply curve:
Supply curve moves upward as the price increases supply increases and vice
versa.
____________________________________
3: FACTORS OF PRODUCTION:
4 factors of production are;
LAND:
Land is full of natural resources that comes from ground
It also includes some non-renewable resources.
LABOR:
This is the workforce that means the power of workers to work
on specific land depend on their education, skills and motivation.
CAPITAL:
Capital is short for capital goods.it includes machinery, tools
under the commercial settings.
Entrepreneurship:
An individual who create a new business bearing a lot of risks to
run an innovative business hoping for a lot of profit.
Example:
Like in garments industry
o Land (commercial area or plant for planting industry)

o Labor (man power)

o Capital (refinery machines, tools etc.)

o Enterprise (factory owner tries to introduce reasonable steps to

enhance business.)
_____________________________________