1

QUICK
1. Demand: Quantity of a commodity that a consumers is able and willing to purchase in a given period at a
given price.
2. Features of Demand:
(i) Demand is an effective desire. The desire for a commodity will be effective only when it is backed by
purchasing power and willingness to spend.
(ii) Demand is always related to quantity, price and time.
(iii) Demand for a commodity depends on its utility.
3. Demand Schedule. It is a tabular representation which shows the relationship between price of the
commodity and quantity purchased.
4. Demand Curve: It is a graphical representation of demand schedule.
5. Individual Demand and Market Demand: Individual demand is the demand of just one consumer, while
market demand is the total demand for a product from all its consumers.
6. Determinants of Demand:
(i) Factors Influencing Individual Demand:
(a) Price of the commodity
(b) Price of related goods
(c) Income of the consumer
(d) Tastes and preferences
(e) Future expectation
(ii) Factors Influencing Market Demand:
(a) Population
(b) Season and weather
(c) Government policy
(d) State of business
(e) Distribution of income
7. Law of Demand: Statement: The law of demand states that other things remaining the same, people will
demand lesser quantity of goods at higher price and more quantity of goods at lower prices.
Assumptions: Ceteris paribus, e.g., (other things remaining constant):
(i) Income of the consumer should remain constant.
(ii) Price of related goods should remain constant.
(iii) No change in taste and preferences of the consumers.
(iv) No change in credit policy etc.
Causes of Operation: Followings are the reasons for the operation of law of demand (downward sloping demand
curve).
(i)Law of diminishing marginal utility
(ii) Income effect
(iii) Substitution effect
(iv) New customers
(v) Deferent uses of the commodity
Demand Function: Functional relationship between demand and its determinants is known as demand
function. Dx = f(Px, Pr, Y ..... n)
Exceptions; Some of the important exceptions to the law of demand are as follows: (Demand curve slopes
upward)
(i) Inferior goods
(ii) Articles of display
(iii) Future expectations regarding change in price
(iv) Ignorance on the part of consumers about quality
(v) Emergencies
(vi) Giffen goods
(vii) Quality price relationship
(vi) Habits
8. Normal Good: A normal good is one whose demand increases with increase in income.
9. Inferior Good: An inferior good is one, the demand for which tends to fall with an increase in the income of
the consumer.
10. Giffen Goods: Giffen goods are those inferior goods on which the consumer spends a large part of his
income. Their demand falls with fall in their prices.
11. Substitute Goods: Substitute goods are those goods which can be used in place of each other for the
satisfaction of same type of wants. For example, tea and coffee.
12. Complementary Goods: Complementary goods refer to those goods which are jointly used to satisfy a
particular want. For example, pen and ink.
13. Movements of the Demand:
(I) Change in Quantity Demanded: Quantity demanded of a commodity depends on its own price and other
factors like prices of related goods, income and tastes of the consumers, etc. remains same. A change in the
price causes a movement (upward or downward) along the same demand curve. Such a movement is called
change in the quantity demanded. It is of following two types:
(i) Expansion of Demand: More demand at a lower price
(ii) Contraction of Demand: Less demand at a higher price.
(II) Change in Demand: Demand changes due to change in factor other than price of the commodity, are of
two types:
(A) Increase in Demand: More demand due to change in other factors, price remaining constant. Causes of
increases in demand are:
(i) Increase in income.
(ii) Favourable changes in taste and preferences.
(iii) Rise in price of substitute goods.
(iv) Fall in price of complementary goods.
(B) Decrease in Demand: Less demand due to change in other factors price remaining constant. Causes of
decrease in demand are:
(i) Decrease in income.
(ii) Unfavourable changes in tastes and preferences.
(iii) Decrease in price of substitute goods.
(iv) Rise in price of complementary goods.
14. Income Effect: It refers to change in quantity demanded of a commodity when real income of the
consumer changes as a result of change in commodity's own price.
15. Substitution Effect: It refers to change in quantity demanded of a commodity when relative price of a
commodity changes due to change in its price.
16. Price Effect: It refers to change in quantity demanded of a commodity due to change in its price. Price
effect=Income effect + Substitution effect.
17. Cross Price Effect. It refer to the effect of change in price of one good on demand of another good, other
things remaining same.
 1 MARK QUESTIONS
A. FILL IN THE BLANKS
1. The sum total of both the substitution and income effect is called the _______.
2. If a fall in the price of one good raise the demand for another good, the two goods are called _______.
3. If demand for a commodity rises even without any change in its price, then it is known as_______.
4. In case of_______ goods, demand rises with increase in income.
5. _______ shows the tabular presentation of various quantities of a commodity a consumer is willing to buy
at different prices, during a given period.
6. M law of demand states the _______ relationship between price and quantity demanded.
7. Market demand curve is obtained by_______ summation of the individual demand curves.
8. Ceteris paribus means _______.
9. Change in quantity demanded due to change in real income is known as _______.
10. Substituting one commodity for the other when it becomes relatively cheaper is _______.
11. Keeping all other things constant when quantity demanded changes with the change in income is known
as _______.
12. Demand curve will be upward sloping if there is a _______ as it is measured over a period of time relation
between demand and its determinants.
13. Demand is a _______.
14. Demand is an_______ desire.
15. The functional relationship between demand and its determinants is known as _______.

ANSWERS

1. Price effect 2. Complementary 3. Increase in 4. Normal goods 5. Demand

goods demand schedule
6. Functional 7. Horizontal 8. Keeping all other 9. Income effect 10. Substitution
summation factors constant effect.
11. Income 12. Direct 13. Flow 14. Effective 15. Demand
demand function

B. TRUE OR FALSE
1. Demand means quantity of a commodity which a consumer is ready to buy.
Ans. [False] Because demand refers to quantity of a commodity which a consumer is ready to buy at different
prices in a given period of time.

2. With fall in income, demand for normal good will rise but for an inferior good will fall.
Ans. [False] Because with fall in income, demand for a normal good generally falls and that for an inferior
good rises.

3. Law of demand states that price and demand are directly related to each other.
Ans. [False] As according to law of demand price and demand are inversely related to each other.

4. Law of demand explains quantitative relationship between price and demand.

Ans. [False] As law of demand explains qualitative i.e., inverse relationship between price and demand.

5. Shift in demand curve occurs due to change in factors other than price of the commodity.
Ans. [True] Because shift occurs when demand changes due to change in price of related goods or change in
income of the consumer.

6. Expansion in demand leads to an upward movement along the same demand curve.
Ans. [False] Expansion leads to a downward movement along the same demand curve.

7. Cross demand is positive in case of substitute goods.

Ans. [True] Because demand for given commodity varies directly with price of substitute goods.

8. Market demand is obtained by vertical summation of individual demand curves.

Ans. [False] Market demand curve is obtained by horizontal summation of individual demand curves.

9. Market demand curve is flatter than individual demand curves.

Ans. [True] It happens because with change in price, proportionate change in market demand is more as
compared to proportionate change in individual demands.

10. In case of giffen goods, demand curve slope upwards.

Ans. [True] In case of giffen goods, demand varies directly with price i.e., demand rises with increase in price
and vice-versa.

11. Ceteris paribus clause in the law of demand means that the price of the given commodity does not change.
Ans. [False] It means that there is no change in factors other than price of the commodity.

12. If more is demanded at the same price, it is known as extension of demand.

Ans. [False] It is known as increase in demand.

13. Cross demand tells the relationship between the price and demand for a commodity.
Ans. [False] Cross demand shows the relationship between demand for a commodity and prices of related
commodities.

14. The demand for a commodity always increases with increase in price of other goods.
Ans. [False] The demand for a commodity will increase with increase in price of other goods only when such
other goods are substitute goods.

15. The demand for goods will always increase with increase in income of the consumer.
Ans. [False] The demand for only normal goods will increase with increase in income of the consumer.

C. MULTIPLE CHOICE QUESTIONS

1. Quantity demanded of a good on a given price and on a given market at a particular time is known as:
(a) law of demand (b) quantity of a good (c) demand for a good (d) market price
2. Those goods which jointly satisfy a want are known as:
(a) joint goods (b) substitute goods
(c) complementary goods (d) none of these

3. Those goods which are used in place of one another are known as:
(a) complementary goods (b) substitute goods
(c) joint goods (d) any of these

4. Those goods whose demand falls with a fall in price of another, are known as:
(a) substitute goods (b) giffen goods
(c) superior goods (d) public goods

5. Other things being equal, inverse relation between price and demand is known as:
(a) law of diminishing marginal utility (b) law of supply
(c) law of demand (d) none of these

6. Demand curve for normal goods is always sloping.

(a) downward (b) upward
(c) parallel to X-axis (d) parallel to Y-axis

7. Demand curve for Giffen goods would be_______.

(a) downward sloping (b) parallel to X-axis
(c) upward sloping (d) parallel to Y-axis

8. Which of the following goods is an example of substitute goods?

(a) Tea and coffee (b) Pen and ink
(c) Bread and butter (d) None of these

9. Which of the following is a complementary good?

(a) Photo camera and photo reel (b) Car and petrol
(c) Left shoe and right shoe (d) All of these

10. With a fall in price of X, demand for Y also falls what type of good Y is?
(a) Complementary goods (b) Substitute goods
(c) Inferior goods (d) Superior goods

11. Apples and ice-cream are the example of which type of good?
(a) Abnormal goods (b) Normal goods
(c) Substitute goods (d) Complementary goods

12. When income falls demand for inferior good:

(a) rises (b) falls
(c) remains constant (d) any of these

13. Other things being equal, with a change in price when demand changes, it is known as:
(a) extension/contraction in demand (b) increase/decrease in demand
(c) any of these (d) none of these
14. When price of X falls and demand for it also falls, what type of good it is?
(a) Complementary goods (b) Substitute goods
(c) Inferior goods (d) Superior goods

15. Which of the following is a demand function?

(a) D = f(p) (b) S = f(p)
(c) C = f(Q) (d) None of these

16. Law of demand applied upon which of following:

(a) prestigious goods (b) inferior goods
(c) normal goods (d) all of these

17. Other things being equal, with a fall in price, a rise in demand is known as:
(a) contraction in demand (b) extension in demand
(c) increase in demand (d) decrease in demand

18. With as rise in income, demand when demand for a good increase , it is known as:
(a) increase in demand (b) extension in demand
(c) appreciation in demand (d) none of these

19. What is shows in following table?

Price Demand (Units)
10 20
10 30

(a) Increase in demand (b) Decrease in demand

(c) Extension in demand (d) Contraction in demand.

20. What is shown in following table?

Price Demand (Units)

10 20
8 25

(a) Increase in demand (b) Decrease in demand

(c) Extension in demand (d) Contraction in demand

21. For a cup of tea, demand for tea-leaves, sugar and milk is known as:
(a) joint demand (b) composite demand
(c) complementary demand (d) any of these

22. With a rise in price of coffee, demand for tea:

(a) rises (b) falls
(c) no effect (d) none of these
23. Which of the following statement is false?
(a) Marginal utility curve and demand curve have identical shape.
(b) Giffen goods have positive effect.
(c) With a fall in price, when demand rises, it is known as extension in demand.
(d) With a rise in price, when demand falls, it is known as decrease in demand.

24. With a fall in price, when demand rises, demand curve would have
(a) negative slope (b) positive slope
(c) zero slope (d) none of these

25. Which of the following are related goods?

(a) Complementary goods (b) Substitute goods
(c) Both of these (d) None of these

26. Demand and price for a normal good have, which type of correlation?
(a) Positive (b) Negative
(c) Zero (d) None of these

27. Which of the following is not a reason for an increase in demand?

(a) Increase of income (b) Increase in price of substitution
(c) Increase in price of complementary goods (d) None of these

28. With a fall in price of X, demand for Y increases, what type of these goods are?
(a) Complementary (b) Substitutes
(c) Normal (d) Inferior

29. The demand curve of a good shift form DD' to dd'. This shift can be
caused by (Choose the correct alternative) :
(a) fall in the price of the good
(b) rise in the price of the good
(c) rise in the price of substitute goods
(d) rise in the price of complementary goods.

30. An increase in the price of coffee will have the following effect on the demand curve of tea:
31. The following movement in the demand curve is because of:
(a) increase in price of given commodity
(d) decrease in price of complementary good
(b) decrease in price of given commodity
(d) increase in price of substitute goods

32. What does the following diagram represent?

(a) Change in demand
(b) Change in Quantity Demanded
(c) Neither (a) nor (b)
(b) Both (a) and (b)

33. What shows following table?

Price Demand (Units)
10 20
10 30
(a) Increase in demand
(b) Decrease in demand consumers: A, B and C in a market.
(e) Extension in demand
(d) Contraction in demand

34.Suppose there are 3 consumers : A,B and C in a market. At a certain price, their total demand is 105 units.
Quantity demanded by B is half that of A. if demand made by A is 50 Units. What is demand of C?
(a) 50 (b) 40 (c) 55 (d) 30

35. Which of the following represents market demand curve?

(a) D1D1 (b) D3D3 (c) D2D2 (d) None of these

 ANSWERS
1.c 2.a 3.b 4.a 5.c 6.a 7.c 8.a 9.d 10.b
11.b 12.a 13.a 14.c 15.a 16.c 17.b 18.a 19.a 20.b
21.b 22.a 23d 24.a 25.c 26.b 27.c 28.a 29.c 30.d
31.a 32.b 33.a 34.d 35.b

D. ASSERTION-REASON TYPE
Read the following statements-Assertion (A) and Reason (R), and select the correct
alternative in each case:
(a) (A) is true, but (R) is false.
(b) (A) is false, but (R) is true.
(c) Both (A) and (R) are true and (R) is the correct explanation of (A).
(d) Both (A) and (R) are true but (R) is not the correct explanation of (A).

1. Assertion ( A) : Change in quantity demanded of one commodity due to a change in the price of other
commodity is cross demand.
Reason (R) : Changes in consumer income leads to a change in demand.
2. Assertion ( A) : Price demand curve is negatively sloped.
Reason (R) : Law of demand states inverse relation between price and demand, keeping other
factors constant
3. Assertion ( A) : Complementary goods have joint demand.
Reason (R) : Complementary goods are demanded simultaneously to satisfy a particular want.
4. Assertion ( A) : Demand curve shows the inverse relation between own price of a good and its quantity
demanded.
Reason (R) : Law of diminishing marginal utility advocates that consumer gets lesser satisfaction for
each additional units consumed.
5. Assertion ( A) : The market demand curve is flatter than the individual demand curve.
Reason (R) : The market demand curve is obtained by the horizontal summation of individual
demand curves.

Answers
1. (d) 2. (c) 3. (c) 4. (c) 5. (d)

2 MARK QUESTIONS

1. What is demand?
Ans. Demand is the quantity of a commodity which an individual is willing and able to buy at a given price
within a given period of time.

2. How does demand differ from desire?

Ans. Desire is merely a wish to obtain a commodity and is not backed by the ability to pay, whereas demand
refers to the desire which is backed by purchasing power as well as willingness to pay.
3. What is meant by composite demand?
Ans. Composite demand means when the commodity demanded can be put into many uses, e.g., milk may be
used for drinking, making tea or coffee, making curd and sweets, etc., any extension or contraction of the
commodity's uses will correspondingly change the demand.

4. Explain the concept of joint demand.

Ans. Joint demand means when goods are required jointly, e.g., pen and paper, tea, milk and sugar, car and
petrol, etc., there is a case of joint demand, the increase in the demand for the ultimate object, e.g., demand
for cars, will automatically when increase the demand for petrol.

5. What are substitute goods?

Ans. Goods which can be used in place of each other and which satisfy similar type of demand are called
substitute goods,e.g., tea or coffee.

6. State the law of demand.

Ans. The law of demand expresses the relation between the price of a commodity and the quantity demanded
of it, it can be stated thus, "a rise in the price of a commodity or service leads to a reduction in demand and a
fall in the price results in a rise in the demand, other things affecting demand being constant."

7. What are Giffen goods?

Ans. Giffen goods are those inferior goods on which the consumer spends a large part of his income and the
demand for which falls with a rise in the income. For example, rice, maize, patatoes etc. are inferior goods on
which a poor person spends most of his income.

8. Define Income Effect.

Ans. With the change in the price of the commodity real income or the purchasing power of the consumer a
so change due to that there will be change in the quantity demanded of that commodity. Higher will be the
price, lower will be the rei income and the quantity demanded will decrease and vice-versa.

9. Explain the meaning of normal goods and inferior goods.

Ans. Normal Goods: Normal goods are those goods for which the demand rises with every increase in the
income of the consumer. In other words, in case of normal goods, there is a direct relationship between the
income of a consumer and his demand for normal goods, e.g., rice and wheat are the normal goods.
Inferior Goods: These are the low quality goods and their demand decrease when there is an increase in the
income of the consumer. In other words, there is an inverse relationship between the income of a consumer
and his demand for normal goods. e.g., maize and bajra are the normal goods.

10. What is demand function?

Ans. Demand function shows the functional relationship between quantity demanded for a particular
commodity and the factors influencing it. Dx = f(Px, Pr, Y.... n)

11. What are complementary goods?

Ans. Complementary goods are those goods which are used together to satisfy a given demand. They are
demanded jointly e.g., car and petrol, pen and ink. In case of complementary goods, an increase in the price
of one good causes a decrease in the demand for another good and vice-versa.
12. What is demand curve?
Ans. It is a graphic presentation of the inverse relationship between price and quantity demanded of a
commodity (graph of a demand curve).

13. What is demand schedule?

Ans. A table which shows different quantities of a commodity demanded at different prices during a given
period of time.

14. Define change in quantity demanded?

Ans. When quantity demanded of a commodity changes due to change in its own price keeping all other
determinants constant, is called change in quantity demanded."

15. Define change in demand

Ans. When change in demand is caused by factors other than the price of the commodity is called change in
demand.

16. What causes a movement along the demand curve?

Ans. When price of the commodity alone changes keeping all other determinants of demand constant, there
will be movement along the demand curve.

17. What causes an upward movement on the same demand curve?

Ans. When price of the commodity rises, there will be an upward movement on the same demand curve. It is
known as contraction.

18. What causes a downward movement on the same demand curve?

Ans. When price of the commodity falls, there will be downward movement on the same demand curve. It is
known as expansion.

19. Define ex-ante and ex-post demand.

Ans. Ex-ante demand refers to the amount of goods that consumers are willing to buy during a particular time
period. It is the planned or desired amount of demand Ex-post refers to the amount of goods that the
consumers actually purchase during a specific period of time. It is the amount of the goods actually bought.

3-4 MARKS QUESTIONS

1. Give the factors responsible for the rightward shift of the demand curve.
Ans. Demand curve shifts towards right because of:
(i) increase in price of substitute goods.
(ii) decrease in price of complementary goods.
(iii) increase in income.
(iv) increase in population.
(v) tastes in favour of the commodity.
(vi) expectation of future increase in price.
2. Does a fall in income have the same effect on demand for the given commodity?
Ans. No, fall in income does not have the same effect on demand for the given commodity:
(i) if the given commodity is a normal commodity then fall in income will reduce the demand for the normal
goods.
(ii) f the given commodity is an inferior good then fall in income will raise the demand for inferior goods.
(iii) it the given commodity is a necessity then fall in Income will not change the demand for necessity goods.

3.Does a rise in price of other goods have same effect of demand for a commodity?
Ans. No, rise in prices of other goods does not have same effect on demand for the given commodity:
(i) in case of rise in price of substitute goods, demand for the given commodity rises.
(ii) in case of rise in the price of complementary goods, demand for the given commodity falls.
(iii) In case of rise in the price of unrelated goods, there is no change in the demand for the given commodity.

4. Give the factors responsible for the leftward shift of the demand curve.
Ans. (i) Fall in the income of the consumer.
(ii) Fall in the price of substitute goods.
(iii) Rise in the price of complimentary goods.
(iv) Unfavourable change in taste and preferences of the consumer.

5. Give the assumptions of law of demand.

Ans. While stating the law of demand, we use the phrase 'keeping other factors constant or ceteris paribus.
This phrase is used to cover the following assumptions on which the law is based:
(i) Price of substitute goods do not change.
(ii) Prices of complementary goods remain constant.
(iii) Income of the consumer remains the same.
(iv) Testes and preferences of the consumer remain the same.

6. What is an inferior good? In what manner is the demand curve of such a good affected when income of the
consumer increases? Use diagram.
Ans. An inferior good is one, the demand for which tends to fall with
an increase in the income of the consumer.
When income of the consumer increases, demand for inferior goods
decreases.
Due to which demand curve shifts to the left showing decrease in
demand It can be shown with the help of the adjoining graph

7.Explain the effect of increase of income of the buyers of a commodity on its demand use diagram.
Ans. (a) In Case of a Normal Commodity: If the commodity is normal, an increase in the income of its buyers
will increase the demand for that good at the same price and shift the demand curve to the right. This is
shown in the adjoining fig. (a) In the figure DD is the original demand curve. When income of buyers
increases, demand curve shifts to the right from DD to D1D1 In such a situation, income effect is positive, i.e.,
more is purchased at the same price. The consumers shift from point A on DD curve to point B on partial
D1D1curve.
 (b) In Case of an Inferior Commodity: There is a negative relation between income and demand of a inferior
good. This is because the buyers of inferior goods shift over to superior. Substitutes when their income
increases, In fig (b) as income increases the demand curve shifts to the left from DD to D1D1 Consumers shift
from point A to point C at a given price.

8. Explain the effect of rise in price of related goods on demand for a good "X" by using the diagram.
Ans. (i) Rise in Price of Substitute Goods: In case of substitutes an increase in the price of one will increase
the demand for the other. For example, a rise in price of coffee will raise the demand for tea at the same
price. As a result demand curve of tea will shift to the right. This is shown in the figure given below. When
price of substitute good-coffee rises, demand for tea rises from OQ to OQ1 at the same price and the demand
curve DD of tea shifts to D1D1.
(ii) Rise in Price of Complementary Goods: The demand for a good and price of its complementary good are
negatively related. For example, between two complementary goods like car and petrol, a rise in price of
petrol will reduce to the demand for the car at the same price. As a result demand curve of cars will shift to
the left. This is shown in figure given below.
In the figure, with the rise of petrol price demand for cars falls from OQ to OQ1 at the same price and the
demand curve DD of cars shifts leftward to D1D1.
 6-8 MARKS QUESTIONS

1. Explain any four factors affecting demand.

Or Explain any four determinants of demand.
Ans. FACTORS AFFECTING DEMAND (Individual Demand):
(i) Price of the Commodity: There is an inverse relationship between price and quantity demanded. It means
when price increases quantity demanded decreases and with the decrease in the price quantity demanded
increases.
(ii) Price of Related Goods: There are two types of related goods:
(a) Substitute Goods: These are those goods which are used in place of each other to satisfy same type of wants.
Demand curve in case of substitute goods is upward sloping which shows of the price of a commodity increase
the demand for its substitute will also increase and vice-versa. Examples of substitute goods are tea and coffee.
(b) Complementary Goods: These are whose goods which cannot be used separately they compliment each
other. Demand curve in this case will be downward sloping which shows that with the increase in the price of
a commodity demand for its complementary goods will be decreasing and vice-versa. Examples of
complementary goods are pen and ink.
(iii) Income of the Consumer: It can be explained with the help of three types of goods:
(a) Normal Goods: These are those goods demand for which increase with increases in income and decreases
with decreases in income. It means normal goods have positive income effect and demand curve will be upward
sloping.
(b) Inferior Goods: These are those goods which are poor in quality and they are demanded more at lower
income and less at higher income, i.e., when income increases demand decreases, vice-verso. In this case
income effect is negative and demand curve is downward sloping.
(c) Inexpensive Necessities: These are those commodities which are essential for our survival but we spend
very less income of ours. In this case initially demand increases to some extent and then it becomes constant
thus the shape
(iv) Taste and Preferences of Consumer: Tastes and preferences of the consumer influence the demand for a
commodity. They include changes in fashion, customs, habits etc. with the favourable change in taste and
preferences of demand curve will be a vertical line. demand for the product increases. On the other hand, when
there is unfavourable change in taste and preferences of the consumer the demand decreases.
(v) Future Expectations: If price rise is expected in future then the demand for the product at present will be
more. On the other hand, if fall in price is expected in future then the demand for the product at present will
decrease. For example, if the price of petrol is expected to rise in future, its present demand will increase.

2. Why does demand curve slope downward?

Or Give the reasons for inverse relation between price and quantity demanded.
Ans.(i) Law of Diminishing Marginal Utility: Utility of a commodity is a want satisfying power of a commodity.
The law of diminishing marginal utility states that when there is a continuous consumption of a commodity the
additional utility derived from the additional unit of commodity will go on decreasing thus consumers will
prefer to buy larger quantity of that commodity at lower prices only.
(ii) Income Effect: With the change in the price of the commodity real income or the purchasing power of the
consumer also changes due to that there will be change in the quantity demanded of that commodity. Higher
will be the price, lower will be the real income and the quantity demanded will decrease and vice-versa.
(iii) Substitution Effect: It is the effect that the change in relative prices of substitute goods has on quantity
demanded. When there is increase in the price of a commodity keeping the price of its substitute's constant the
demand for the commodity the price of its substitute's constant the demand for the commodity decreases and
if there is fall in the price keeping the substitutes price constant the demand of the commodity increases. The
sum total of income and substitution effect is known as price effect.
(iv) New Consumers: Fall in the price leads to an increase in the quantity demanded of commodity due to
increase in number of consumers of that particular commodity in the market. On the other hand, if there is
increase in the price of a commodity some consumers will stop buying that commodity and then quantity
demanded decreases thus the demand curve is downward sloping.
(v) Different uses of the Commodity: The law of demand operates due to the principle of different uses. Some
commodities like milk, electricity, etc. have several uses, some of which are more important than the others.
When price of such a good (say, milk) increases, its uses get restricted to the most important purpose (say,
drinking) and demand for less important uses (like cheese, khoya, butter, etc.) gets reduced. However, when
the price of such a commodity decreases, the commodity is put to all its uses, whether important or not.

3. Give any four exceptions to the law of demand.

Or Give any four reasons for upward sloping demand curve.
Or Give reasons for the direct relation between price and demand for the commodity.
Ans. (i) Inferior Goods: These are those poor quality goods demand for which increases with increase in price
and decreases with decrease in price. Thus, demand curve will be upward sloping which is an exception to
law of demand.
(ii) Giffen Goods: These are those inferior quality goods on which consumer spends large part of his income.
Demand for Giffen goods falls with the fall in price and increases with increase in price thus the demand
curve will be upward sloping.
(iii) Articles of Snob Appeal: In case of some commodities people like to buy them to show their status and
prestige such types of commodities are demanded only at very high prices. Thus, higher is the price higher
will be the demand and lower is the price, lower will be the demand. Thus, demand curve will be upward
sloping.
(iv) Quality-price Relationship (VEBLEN EFFECT): It is also responsible for an upward sloping demand curve.
It means few consumers purchase a commodity only at high price because they feel quality of the product will
then only be good when its price is high.
(v) Future Expectations Regarding Change in Price: If price of rise is expected in future then quantity
demanded will be more even at higher prices. On the other hand, if lower prices are expected in future then
the quantity demanded will be less even at lower prices.

4. Explain the law of demand with the help of schedule and curve.
Ans. Law of Demand: It states that other things remaining the same people will demand lesser quantity of
goods at higher prices and higher quantity of goods at lower prices. Main assumption is ceteris paribus i.e.,
other things remaining constant.
Assumptions of Law of Demand: While stating the law of demand, we use the phrase 'keeping other factors
constant or ceteris paribus. This phrase is used to cover the following assumptions on which the law is based:
(i) Price of substitute goods do not change.
(ii) Prices of complementary goods remain constant.
(iii) Income of the consumer remains the same.
(iv) There is no expectation of change in price in the future.
(v) Tastes and preferences of the consumer remain the same.
Law of demand can be explained with the help of demand schedule and demand curve. Demand schedule is a
table which shows various quantities of commodities which can be purchased at various prices durin a given
period of time: It is of the following type:
Demand Schedule: It is a table which shows various quantity of a commodity demanded by an individual
consumers a various prices during a particular period of time.
Table
Price Quantity Demanded
2 10
4 8
6 6
8 4
1 2

Demand curve is the graphic presentation of demand schedule. It is also of two types:
(a) Individual demand curve. (b) Market demand curve.

QUESTIONS BASED ON DIFFERENTIATION

1. Differentiate between individual demand and market demand.

Ans. Difference between individual demand and market demand:
Table 1.2
S.No. Basis Individual Demand Market Demand
1. Meaning If refers to quantity demanded by a If refers to the total demand of a
consumer at a given price per unit of commodity by all the consumers in
time. the market at a given price
per time period.
2. Applicability of An individual consumer may not Market demand is always governed
law of demand necessarily behave according to the law by law of demand. That is market
of demand. At a time, he may demand demand of a commodity rises with
more even at higher price. fall in its price and falls with rise in
price.
3. Determinants It is not affected by all the factors Besides other factors, market demand
affecting market demand. Determinants is also affected by all the factors
of individual demand are different from affecting individual demand.
the determinants of market demand.

2. Differentiate between expansion of demand and increase in demand.

Ans.
S.No. Basis Expansion of Demand Increase in Demand

1 Meaning Other things being equal, when An increase in demand means that
with a fall in price, demand for a consumers now demand more at each
commodity rises, it is called and every price than they did before.
extension of demand.
 2 Demand Curve Under it, there is downward Under it, consumer's demand curve
movement along the same demand shifts upward to the right.
curve, but the consumer remains
on the same demand curve.

3 Examples As price falls from OP to OP1,

quantity demanded extends from
OM to OM1.
Price Demand Price Demand
(₹ per unit) (Units) (₹ per unit) (Units)
10 100 10 100
08 150 10 150
4 Cause It is caused by fall in price. It is caused by the following factors:
(1) Increase in people's income.
(ii) Rise in the price of substitute
commodity.
(iii) Fall in the price of
complementary.
(iv) When price of the commodity is
expected to Increase in near future.
(v) Increase in number of consumers.

3. Differentiate between contraction of demand and decrease in demand.

Ans.

S.No. Basis Contraction of Demand Decrease in Demand

1. Meaning Other things being the same, when
demand for a commodity falls, as a
result of rise in its price, it is called
contraction of demand.
Decrease in demand implies that at
any given price a smaller amount is
purchased due to change in factors
other than rise in price of the
commodity or a given quantity of
commodity is purchased at a lower
price.
 2. Demand Curve Under it, there is upward movement Under it, there is leftward shift in the
along the same demand curve as demand curve as shown under.
shown under.

3. Examples Price Demand Price Demand

(₹ per unit) (Units) (₹ per unit) (Units)
10 100 10 100
12 80 10 80
4. Cause It is caused by fall in price. It is caused by the following factors:
(i) Fall in people's income.
(ii)Fall in the price of substitute
goods.
(iii)Rime in the price of the
complementary goods.
(iv)Decrease in the number of
consumers.

4. Differentiate between movement along the demand curve and shift in demand curve.
Ans.

S.No. Basis Movement along the Demand Curve
(or Change in Quantity Demanded)
1. Meaning Where expansion and contraction of
demand are shown on a demand
curve, it is called movement along
the demand curve or change in
quantity demanded.
2. Movements/Shifts Here we move from one point to
another on the same demand curve.
There are two types of movements
along a demand curve:
(a) Downward movement
(b) Upward movement
Shift in Demand Curve
(or Change in Demand)
When change in demand
(increase and decrease in
demand) are reflected
graphically, it is called shift in
demand curve or change in
demand.
Here we move from one demand
curve to another. There are two
types of shifts in demand curve:
(a) Upward shift
(b) Downward shift
 3. Cause It occurs due to change in price. Here It occurs due to change in other
consumer behaves according to the factors. Here consumer is under
law of demand. the influence of other factor like
income, price of related goods,
change in tastes and fashion
advertising, etc.

5. Differentiate between normal goods and inferior goods.

Ans.

S.No. Basis Normal Goods Inferior Goods

1. Meaning Normal goods refer to those It refers to those goods whose

goods whose demand
increases with rise in income
and decreases with fall
in income.
2. Income Effect In case of normal goods
income effect is positive as
it has direct relation with
income of the consumer.
3. Price Effect In case of normal goods price
effect is negative as it
has inverse relation with price
of the commodity.
4. Cause Wheat, rice
demand falls with rise
in income and rises with fall in
income.
In case of inferior goods
income effect is negative as
it has inverse relation with
income of the consumer.
In case of inferior goods price
effect is positive as it has direct
relation with price of the
commodity.
Jwar, bajra

6. Differentiate between substitute goods and complementary goods.

Ans.

S.No. Basis Substitute Goods Complementary Goods

1. Meaning They refer to those goods
which can be used in place
of each other for the
satisfaction of same type of
wants.
2. Relation There is direct relation
between price of one good and
demand for another good.
These goods refer to those
which are used together
to satisfy a specific want.
There is an inverse relation
between the price of one
good and demand for another
good.
 3. Graph

4. Examples Tea and coffee Pen and ink, car and petrol

7. Differentiate between demand schedule and demand curve.

Ans.

S.No. Basis Demand Schedule Demand Curve

1. Meaning It is a table which shows different
quantities of a commodity
demanded at various prices during a
period of time.
It is a graphical representation of a
demand schedule which shows
inverse relation between price and
quantity demanded keeping all other
determinants constant.

2. Examples Price Quantity Under it, there is leftward shift in the

(₹ per unit) Demanded demand curve as shown under.
10 2
8 4
6 6
4 8

8. What is the difference between inferior goods and giffen goods?

Ans.

S.No. Basis Inferior Goods Giffen Goods

1. Meaning An inferior goods is that demand for These are those inferior goods on
which falls with an increase in income of which consumer spends a large part
the consumer. of his income and demand. For which
falls with the fall in their prices.
 2. Nature All inferior goods are not giffen goods. All giffen goods are inferior goods.
3. Examples Maize, bajra etc. Poor quality rice, wheat etc.

CASE BASED QUESTIONS

CASE 1
Based on the following graph, answer the following questions:
1. Name the movement of the demand curve shown in the adjoining graph.
2. What will you call the movement shown with the arrow A in the adjoining
graph? Give the reason for that.

CASE 2
The price of crude oil continued to rise. As a result, the petrol and diesel prices also took an upward move.
The oil companies studied the trend of the price rise in the last two years and reckoned that, though
reluctantly, customers submitted to the price rise. However, after an unaffordable petrol price rise, a small
class of people shifted from using their personal vehicles to public transport. Moreover, for travelling to short
distances, they dropped using petrol run vehicles and adopted bicycles that became the need of the hour.
Many people have started using car pool in system also.
On the basis of the above paragraph answer the following questions:
1. What will happen to the demand of petrol with the increase in the price of it?
2. What will be the impact of high prices of petrol on the demand for cars and why?
3. Draw a demand curve of petrol showing increase in the price of it.
4. What will happen to the demand curve of cars when price of petrol is increasing? Show it diagrammatically

CASE 3
Summer season in India means a season of mangoes. Mango is treated as a king of fruits in India. Most of the
India like eating mangoes in different forms. Like many other people Akshaya also likes mangoes. Mangoes
in India are available at reasonable prices. This year due to less production of mangoes it is available at very
high price. Due to increase in the price Akshaya purchases it in a lesser quantity. But due to better economic
conditions after some come increases, and he starts buying it in a larger quantity.
Based on the above paragraph answer the following questions:
1. What kind of goods is mango and why?
2. What will you call it if demand increases with increase in income keeping price of the product constant?
Show it with the help of diagram.
3. What will be the shape of the demand curve if it increases with increase in income and vice-versa.
4. When demand increases with increase in income does it follow the law of demand?

CASE 4
Wheat is considered as a superior quality grain but rich in gluten. Bajra is different from wheat. People don't
treat it as a superior grain. It is available at a lower price than wheat. Ram and Sham are two consumers of
Bajra. Ram consumes Bajra because he can not afford wheat as his economic condition is not good. On the
other hand, Sham consumes it because he is very health-conscious person, and he wants to eat gluten free
grains.
Based on the above paragraph answer the following questions:
1. Is Bajra an inferior goods for Ram and Sham both?
2. What is the difference between a normal goods and inferior goods?
3. Draw a graph to show the relation between price and demand for the inferior good.
4. How is the demand curve of an inferior goods affected when income of the consumer increases? Show it
with the help of a graph.

QUESTIONS WITH HIGH DIFFICULTY LEVEL

1. What happens to the demand for a good when the price of substitute goods falls?
Ans. When the price of substitute good falls, then the demand for the given good also falls.
2. Determine how the following changes (or shifts) will affect market demand curve for a product?
(i) A new industry comes up in Azamgarh people who were previously unemployed in the area are now
employed. How will this affect the demand for T.V. in the region?
(ii) In order to encourage tourism in Gujarat. The Government of India suggests Indian Airlines to reduce air
fare to Gujarat from the four major cities like Chennai, Kolkata, Mumbai and New Delhi. If the Indian Airlines
reduces the fare to Gujarat, how will this affect the market demand curve for air travel to Gujarat?
(iii) There are train and bus services between New Delhi and Lucknow suppose that the train fare between the
two cities comes down. How will this affect demand curve for bus travel between the two cities?
Ans. (i) There will be rightward shift in market demand curve for T.V. This is because of increase of income of
the people due to employment in the new industry-
(ii) The demand for travel to Goa will expand in response to reduction in the air fare. However, this will be
reflected by a movement along the demand curve. There will be no shifts in the demand curve.
(iii) As train fare comes down the demand for bus travel will reduce. Demand curve for the bus travel will
shift to the left showing less demand at the same price.

3. Identify from the following situations of expansion of demand, contraction of demand, increase in demand
and decrease in demand. Give reasons for your answer.
(i) Fall in demand of petrol due to rise in its price.
(ii) Rise in demand of tea due to rise in price of coffee.
(iii) Fall in demand of pepsi due to fall in price of coca-cola.
(iv) Increase in demand of gold due to fall in its price.
Ans. (i) It is contraction of demand as fall in demand is caused by rise in its price.
(ii) It represents a situation of increase in demand as demand of tea rises due to factors other than change in
its price.
(iii) It is a situation of decrease in demand as fall in demand is caused by factors other than price of the
commodity.
(iv) It represents a situation of expansion of demand as demand for gold increases due to fall in its own price.

4. There are 3 households; A, B and C in a market. From the following table, calculate demand for household
B at various levels of price:

Price (₹) Household A Household B Household C Market Demand

14 12 - 22 52
12 16 - 32 72
10 24 - 44 102
8 34 - 60 142
6 48 - 84 198
Ans.
Price (₹) Household A Household B Household C Market Demand
14 12 18 22 52
12 16 24 32 72
10 24 34 44 102
8 34 48 60 142
6 48 66 84 198

5. Prepare the market demand schedule from the given demands of individuals. (Assuming that there are only
the individuals X, Y, and Z in the market)

Price (₹) Demand (X) Demand (Y) Demand (Z)

4 10 5 4
5 8 4 3
6 6 3 2
7 4 2 1

Ans.
Price (₹) Demand (X) Demand (Y) Demand (Z) Market Demand
(X+ Y + Z)
4 10 5 4 19
5 8 4 3 15
6 6 3 2 11
7 4 2 1 7

6. If the demand for good Y increases as the price of good X rises, how are the two goods related?
Ans. The goods X and Y are substitutes of each other like, tea and coffee.

7. If the price of good X-rises and this leads to a decrease in demand for good Y, how are the two goods
related?
Ans. The goods X and Y are complement to each other.
8. More of a commodity is demanded at same price. Does it indicate change in demand or change in quantity
demanded?
Ans. It indicates change in demand because price of the commodity remains same and demand changes due
to the change in other determinants of demand.

9. What do you mean by substitution effect?

Ans. It is an effect caused by a rise in price that induces a consumer to buy more of a relatively lower priced
good and less of higher priced one

10. What is price effect?

Ans. It refers to change in quantity demanded of a commodity due to change in its price.
Price effect = Income effect + Substitution effect.

WORKSHEET FOR SELF EVALUATION

1. What is income effect of a fall in the price of a commodity? (2 Marks)

2. What causes expansion in demand? (2 Marks)
3. Draw an abnormal demand curve. Also state the reason for this type of demand curve. (2Marks)
4. What is ceteris paribus? (2 Marks)
5. Differentiate between economic goods and free goods. (2 Marks)
6. Mention any two determinants of demand other than price of the commodity. (2 Marks)
7. What is the shape of demand curve and tell why? (2 Marks)
8. What will be the effect on the demand for ink if the price of pen falls? (2 Marks)
9. Draw the diagram for the following (10 Marks)
(a) Normal demand curve.
(b) Expansion and contraction of demand.
(c) Increase and decrease in demand
(d) Demand curve for Giffen goods.
(e) Show the relation between diminishing marginal utility and demand curve.
10. Suppose there are three buyers : Ajay, Vijay and Gopal in a market. Their demand
schedules are given in the following table: (6 Marks)

Price Ajay Vijay Gopal

2 20 40 10
4 18 30 8
6 16 20 6
8 14 10 4
10 12 5 2

Answer the following questions on the basis of above table:

(a) Derive the market demand schedule and make a market demand curve.
(b) Suppose Ajay leaves the market. Make a new market schedule and curve.
(c) Suppose one more buyer joins the market and his demand is 100% more than Gopal's demand at each
price Derive a new demand schedule and a demand curve.