demand & supply

Meaning of Demand

Demand

The concept ‘demand’ refers to the quantity of a good or service that consumers are willing and able to purchase at various price during a period of time. The effective demand for a thing depends on

Desire Means to purchase ,and On willingness to use those means for that

purchase.

Definition of Demand

Demand refers to the Quantities of Commodity that the Consumers are Able to Buy at each possible Price during a given Period of Time, other things being equal.

By : Ferguson Demand is the Ability and Willingness to

buy Specific Quantity of a Good at Alternative Prices in a given Time Period, Ceteris Paribus.

By : B. R. Schiller

Meaning of Demand “By demand, we mean the various quantities

of a given commodity or services which consumers would buy in one market in a given period of time, at various prices, or at various income, or at various prices of related goods.”

Demand Determines

There are number of factors which influence household demand for a commodity. Important among these are

Price of the commodity Price of related commodities Level of income of the household Taste and preferences of consumers Other factors like size of population, composition of

population, and distribution of income.

Demand Determinant

Price of a commodity:Ceteris Paribus i.e. other things being equal, the demand of a commodity is inversely related to its price. It implies that a rise in price of a commodity brings about a gall in its purchase and vice-versa.

1DP

Demand Determinant

Related commodities are of two types:a. Complementary goodsb. Competing or substitute goods

Complementary goods are those goods which are consumed together or simultaneously. Competing goods or substitutes are those goods which can be used with ease in place of one another.

Demand Determinant

Level of income of household:

Other things being equal, the demand for a commodity depends upon the money income, of the household. In case of Inferior goods when average level of income increases the quantity demand for goods decreases.

Demand Determinant

Taste and preference of consumer:

The demand for a commodity also depends upon tastes and preference of consumers and changes in them over a period of time. Goods which are more in fashion command higher demand than goods which are out of fashion.

Demand Determinant

Other factors:

A part form the above factors, the demand for a commodity depends upon the following factor:

A. Size of populationB. Composition of populationC. Distribution of income

Law of Demand

Other things being equal, if the price of a commodity falls, the quantity demanded of it will rise and if the price of a commodity rises, its quantity demanded will decline.

There is an inverse relationship between price and quantity demanded, other things being same.

Law of Demand

Law of demand states that People will Buy more at Lower Prices and Buy less at Higher Prices, Ceteris paribus, or other things Remaining the Same.

By : Samuelson The Law of Demand states that Quantity

Demanded Increases with a Fall in Price and Diminishes when Price Increases, other things being equal.

By : Marshall

Demand Function

Demand Function: Dx=f (PX, Pr, Y, T, E)

where, Dx = Demand for commodityPx = Price of Commodity XPr = Price of Other GoodsY = Income of the

ConsumerT = Tastes

Demand Schedule

Demand Schedule is a Series of Quantities which Consumer would like to Buy per unit of Time at Different Prices.

Two Aspects of Demand Schedule Individual Demand Schedule Market Demand Schedule

Demand Schedule Demand Schedule of an individual Consumer

Price (Rs.) Quantity Demanded (units)

A 5 10

B 4 15

C 3 20

D 2 35

E 1 60

Demand CurveIndividual Demand Schedule

X

Y

5

4

3

2

1

0 10 20 30 40 50

D

D

Price

Quantity

Market Demand Schedule

It is defined as the Quantities of a Given Commodity which all Consumers will buy at all Possible Prices at a given Moment of Time. In Market there are many Consumers of a Single Commodity. The Schedule is based on the Assumption that there are in all, 2 Consumers ‘A’ & ‘B’ of Commodity ‘X’. By aggregating their Individual Demand, the Market Demand Schedule is constructed.

Price of Commodity ‘X’ (in Rs.)

Demand of A

Demand of B

Market Demand(Units)

1 4 6 4+6=10

2 3 5 3+5=83 2 4 2+4=64 1 3 1+3=4

It indicates that when price of ‘X’ is Rs 1.00 per unit, Demand of ‘A’ is for 4 units and that of ‘B’ is for 6 units. Thus the Market Demand is 10 units. As the Price Increases, Demand Decreases.

Market Demand Curve

D

Demand Curve

Y

0D

1

2

3

4

4 6 8 10X

Quantity

Pric

e

Why the demand curve slope downwards? Income Effect : It is the Effect that a Change in a Person’s Real Income caused by Change in the Price of a Commodity has on the Quantity of that Commodity. In other words, the Increase in Demand on Account of Increase in Real Income is known as Income Effect.

Substitution Effect : It is the Effect that a Change in Relative Prices of Substitute Goods has on the Quantity Demanded. Substitutes are Goods that can be used in place of each other.

Why the Demand Curve Slope Downwards? Different Uses: Demand for

Commodities with Alternative Uses tends to Extend Consequent upon the fall in their prices.

Size of Consumer Group: When the Price of a Commodity falls, then many Consumers, who are unable to buy that Commodity at its Previous Price, Come Forward to buy it.

Exception to the Law of Demand Article of Distinction or Veblen Goods:

Goods like Jewellary, Diamonds & Gems are considered as Articles of Distinction. These Goods command More Demand when their Prices are High.

Ignorance: Many a time, Consumers out of sheer Ignorance or Poor Judgment consider a Commodity to be of Low Quality if its Price is Low and of High Quality if its Price is High.

Exception to the Law of Demand Giffen Goods : Giffen Goods are those Inferior

Goods whose Demand falls even when their Prices Falls. For example, ‘Bajra’. Only those Inferior Goods are called Giffen Goods where Law of Demand Fails.

Expectation of Rise or Fall in Price in Future: If Prices are likely to Rise More in the Future then even at the Existing Higher Price people may Demand more Units of the Commodity in the Present and vice versa.

Exception to the Law of Demand Demand for Necessaries: The law of demand

does not apply much in the case of necessaries of life. Irrespective of price changes, people have to consume the minimum quantities of necessary commodities.

Speculative goods: In speculative market, particularly in stock and shares, more will be demanded when the price are rising and less will be demanded when the price declines.

Expansion and Contraction in Demand Expansion in the demand means when the

price decrease then the quantity of demand increase. There will be a downward movement along the demand curve.

Contraction in the demand means when the price increases then the quantity demand will decrease. There will be a upward movement along the demand curve.

Expansion & Contraction in Demand

O

P`

P

P``

L M N

D

D

Y

X

Quantity Demanded

Contraction of Demand

Expansion of Demand

Increase and Decrease in Demand Curve Increase in the demand curve where price

remains same, when the quantity of demand increase due to change in other factor it will shift towards right.

Decrease in the demand curve where price remains same, when the quantity of demand decrease due to change in other factor it will shift towards left.

Increase & Decrease in Demand

D

DD

DD`

D`

D`

D`

Quantity Demanded Quantity Demanded

Increase in DemandDecrease in Demand

Elasticity of Demand Elasticity of demand is defined as the

responsiveness of the quantity demanded of a good changes in one of the variables on which demand depends or we can say that it is the percentage change in quantity demanded decided by the percentage in one of the variables on which demand depends.

Types of ElasticityPrice Elasticity of Demand: It is Measured as a Percentage Change in Quantity Demanded Divided by the Percentage Change in Price, Other things Remaining Same.

% Change in Q.D.Ep = % Change in Price

Change in Quantity Original PriceEp = Change in Price Original Quantity

Types of Price ElasticityPerfectly Elastic Demand

A Perfectly Elastic Demand is one in which a Little Change in Price will Cause an Infinite Change in Demand.

A very little Rise in Price causes the Demand to Fall to Zero and a very little Fall in Price causes Demand to Extend to Infinity.

10 20 300

4

6

Y

X

D DE = infinite

Quantity

Pric

e (R

s.)

Perfectly Inelastic Demand

Perfectly Inelastic Demand is one in which a Change in Price Produces No Change in the Quantity Demanded.

In this case, Elasticity of Demand is Zero.

E = 0

Y

X0 42 6

2

4

6

D

D

Quantity

Pric

e (R

s.)

Unitary Elastic Demand

Unitary Elastic Demand is one in which a % Change in Price Produces an Equal % Change in Demand.

This type of Demand Curve is called Rectangular Hyperbola.M N

E = 1

D

D

P

T

O

Y

X

Quantity (%)

Pric

e (R

s.) (

%)

Greater than Unitary Elastic Demand

Greater than Unitary Elastic Demand is one in which a Given %Change in Price Produces Relatively more %Change in Demand.

In this case Elasticity of Demand is Greater than Unitary.M N XO

Y

P

T

E>1

D

D

Quantity (%)

Pric

e (R

s.) (

%)

Less than Unitary Elastic Demand Less than Unitary

Elastic Demand is one in which a given % Change in Price Produces Relatively Less % Change in Demand

In this case, Elasticity of Demand is Less then Unitary.M N X

Y

D

D

E< 1

T

P

O

Quantity (%)

Pric

e (R

s.) (

%)

Point Elasticity of Demand Refers to Measuring the Elasticity at a

Particular Point on Demand Curve. Makes Use of Derivative Changes Rather than

Finite Changes in Price & Quantity. Defined As:

Where, is the derivative of Quantity with respect to Price at a point on Demand Curve.

dq p dp q

Point Elasticity of Demand

As we Move from N to M, Elasticity Goes on Increasing. At Mid Point, Ep = 1, at N Ep = 0 & at M Ep = ∞

A

P

B

M

N

Y

X

Mid Point

E>1

E =1

E<1

E =0

OQuantity

Pric

e (R

s)

E = ∞

Upper SegmentPoint Elasticity = Lower Segment

PM PN

Arc Elasticity of Demand

When Elasticity is to be found between 2 Points, we use Arc Elasticity.

Y

XO

Quantity

Pric

e (R

s)1 2 1 2

1 2 1 2

q q p p Elasticity =

q q p p

Where, p1 = Original Priceq1 = Original Quantity

p2 = New Price

q2 = New Quantity

Arc ElasticityA

B

P1

P2

Q1 Q2

Total Outlay Method This Method was evolved by Alfred

Marshall.

According to this Method, To Measure the Elasticity of Demand it is Essential to Know How Much & In What Direction the Total Expenditure has Changed as a Result of Change in the Price of a Good.

Income Elasticity of Demand Income Elasticity of Demand is the Degree

of Responsiveness of Quantity Demanded of a Good to a Small Change in the Income of Consumer.

Ey = % Change in Quantity Demanded

% Change in Income

Cross Elasticity of Demand

Cross Elasticity of Demand is a Change in the Demand of One Good in Response to a Change in the Price of Another Good.

Where, Ec = Cross Elasticityqx = Original Q.D. of X∆qx = Change in Q.D. of Xpy = Original Price of Y∆py = Change in Price of Y

yxc

y x

pqE =

p q

SUPPLY

Meaning of Supply It may mean the total stock of goods in

existence.

It may also mean the amount of goods offered for sales per unit of time.

Economist agree that supply means the commodity offered for sale at a price. This means that ‘supply’ refers to total supply offered for sale at a price, by retailers and wholesalers.

Meaning of supply

The term ‘Market Supply is used to denote the supply of perishable commodities with the retailers only.

In short supply is defined as “how much of good will be offered for sale at a given time”.

Meaning of supply

Prof. McConnell defines supply in the following terms: “ Supply may be defined as a schedule which shows the various amounts of a product which a producer is willing to and able to produce and make available for sale in the market at each specific price in set of possible during some given period”

Supply

The term supply refers to the amount of a good or service that the producers are willing and able to offers to the market various prices during a period of time. Two important points apply to supply.

The supply refers to what firms offer for sale, not necessarily to what they succeed in selling.

Supply is a flow.

Supply Schedule

Just as demand schedule, supply of different quantities placed on the market at different prices are mentioned with the help of a schedule called supply schedule. Supply is also related to time, place and price like demand. The supply schedule represents the functional relationship between the quantity supplied and the price.

Supply Schedule of Commodity x

Price in Rs. Quantity supplied in units

1 10

2 20

3 30

4 40

5 50

From the above schedule, we can understand that when the price is the highest, i.e., Rs.5 per unit, the supply is maximum, i.e., 50 units. When the price falls to Rs.1, the supply gets contracted to 10 units. So, there is functional relationship between the price and quantity supplied. This relation is stated in the form of law called the law of supply which is just the opposite of law of demand.

Law of Supply

The law of supply can be stated as: Other things remaining constant, the price of a commodity has a direct influence on the quantity supplied. As the price of a commodity rises, its supply is extended; as the price falls, its supply is contracted”. In other words, large quantities are supplied at higher price and small quantities are supplied at lower prices.

Supply curveThere is positive relationship between price and quantity supply.

y

0 x

s

s

5

4

3

2

1

10 20 30 40 50

Quantity Supplied

Pric

e

Determinants of Supply

The supply schedule and the curve are prepared and drawn on certain assumptions. The factors which are likely to ‘change’ the supply should be kept constant. The determinants of supply, except the price factor, have been kept constant. What are the other factors influencing supply?

Factors influencing supply Number of firms or sellers State of Technology Cost of Production Price of related goods Price expectations Natural factors Labour trouble Change in Government policy

Number of firms or sellers When the sellers are few, the supply will be

small. If they are in large numbers, the supply will also be large. Hence every schedule of supply is prepared on the assumption that the number of firms producing the particular commodity is given and constant, and the scale of production and rate of production are assumed to be constant. If this assumption is not made, any change in number of firms, scale of production etc., will push up the supply curve to the right.

State of Technology

It is assumed that the level of technology of production remains constant. Generally any improvement in technology will reduce the cost of production and consequently there will be an increase in supply. Similarly any obstacles to existing technology will increase the cost of production and consequently the supply will get decreased. Hence we keep the state of technology constant to keep the supply curve at the same level.

Cost of Production

The cost of production is an important item affecting the supply and so this is assumed to remain constant. Wages, rate of interest, price of machinery and equipment, raw materials, etc., remain unchanged. If the cost of production gets reduced, the supply curve will shift down.

Price of related goods

It is assumed that supply of a commodity depends purely on its price and not on the price of other commodities related to it. If prices of related products, fall, the firm producing many goods may increase the supply of a particular product even though its price has not gone up.

Price Expectations It is assumed that the seller sells the

commodity or supplies the commodity on the basis of the prevailing prices and he does not expect any change in prices of that commodity. If he feels that future price will be higher, he will reduce the present supply of product. If he feels that future prices may fall, he will be tempted to sell more at the current prices. Hence, the assumption that there is no expectation of a change in price.

Natural Factors

It is assumed that there is no change in natural factors, as the supply is governed by natural factors like rain, drought, et. This is more so in agro-industries. Further, monsoon failure may result in the reducing of power generation and it may eventually lead to curtailment of production. So all these factors are assumed to be constant.

Labour Trouble

It is assumed that there is no labour trouble and consequent strike or lockout reducing the quantity of supply. The productive units are supposed to be working smoothly without any interruption, according to schedule.

Change in Government Policy Any change in government policy will

affect the supply. A fresh tax or levy of excise duty on a commodity will affect the price of the commodity and as a result the supply will get affected. An increase in tax will reduce the supply and granting of subsidy will increase the supply. Hence it is assumed that there is no change in the government policy.

As the above factors affect the supply conditions, it is likely that the supply curve may be either pushed up or pushed down. Hence, in order to study the supply in relation to price only, we keep all the above stated factors constant. In that case, more will be supplied at higher prices and the law of supply will hold good.

Contraction and Expansion of Supply Other things remaining equal, the supply

of a commodity will expand if there is a rise in price and contract if there is a fall in price. This is expansion and contraction of supply due to change in price of the commodity. This can be explained by a following diagram.

Expansion or Contraction of Supply

Quantity Supplied

Pric

e

O

Y

X

S2

SS1

S2 S

S1

P

M1 M M2

From the diagram, the original supply is shown by curve SS. At price OP, a quantity OM is supplied. Any movement on this curve is expansion or contraction of Supply.

Supply curve S1S1, just below the original curve, indicates that the supply has increased. This means that for the same old price OP large quantities are supplied, i.e., OM2.

Supply curve S2S2 just above the original curve, indicates that the supply has decreased. This means that for the same old-price OP lesser quantities are supplied i.e., OM1 as indicated in the diagram.

A movement on the same supply curve will expand or contract supply depending on the price. A higher price the supply will be expanding and at a lower price the supply will be contracting.

An increase in supply means, larger supply at the old price or the old quantity is supplied at a lower price.

A decrease in supply means, smaller quantity of supply at the old price or the old quantity of supply at a higher price.

A lower supply curve indicates larger supply than a higher supply curve, which indicates smaller supply.

Supply on the Basis of Time Period Very short period is the supply is available in the

market at any given time. So there is no possibility of change in the supply.

Short period supply is that supply which is fixed for the entire market but can be varied for retailers. This is because there is a given supply with the stockists which is diminished whenever price rises as they supply more to the retailers. This implies that the total supply in the market is given and it is as much as can be produced with the existing factors of production.

Supply on the Basis of Time Period

Long period supply refers to change in supply because the existing factors of productions can be changed. This refers to change in the total supply, both with the stockists and with the retailers.

Elasticity of Supply and its Measurement The concept of elasticity of supply, like

elasticity of demand, tells the responsiveness of supply to changes in price. The supply of a commodity may be called elastic if a small change in price causes more than proportionate change in supply. The supply is said to be inelastic if small change in price produces less than proportionate change in supply. In short, elasticity of supply measures the adjustability of supply to price.

Elasticity of Supply and its Measurement

This is expressed as the ratio between the proportionate change in the quantity supplied and proportionate change in the price. The formula for this is as follows:

Es = Proportionate change in quantity supplied Proportionate change in price

Example

Suppose the price of a commodity x increase from Rs. 2000 per unit to Rs. 2,100 per unit and consequently the quantity supplied rises form 2,500 units to 3,000 units. Calculate the elasticity of supply.

ES = ∆q q

∆p p

ES = ∆q × p q ∆p

Elasticity of Supply = 4.

Determines of Elasticity of Supply Availability of suitable factors of

production The time involved is the most important

factor as the supply has to be adjusted to demand

Whether there are possibilities of changing the technique of production

Availability of markets How cost behaves as output is varied is

the criterion for changing the output.

Types of elasticity

Perfectly inelastic supply – Supply curves of zero elasticity.

Relatively less-elastic supply – Showing relatively less elastic supply.

Relatively greater-elastic supply – Showing relatively greater elastic supply

Unit-elastic – Showing unitary elasticity Perfectly elastic supply – Supply curve of

infinite elasticity.

Perfectly Inelasticity A change in the price, the quantity

supplied of a goods remains unchanged, we say that the elasticity of supply is zero or the good has perfectly inelastic supply.

Quantity

Pric

e

O X

YS

Relatively less-elastic Supply A Change in the price of a good its supply

changes less than proportionately, we say that the good is relatively less elastic or elasticity of supply is less than one.

P2

P1

O Q1 Q2X

Y S

Pric

e

Quantity

Relatively greater-elastic Supply If elasticity of supply is greater than one i.e.,

when the quantity supplied of a good changes substantially in response to a small change in the price of the good we say that supply in greatly elastic.

P2

P1

O Q1 Q2X

YS

Pric

e

Quantity

Unit- elastic If the relative change in the quantity supplied

is exactly to the relative change in the price, the supply is said to be unitary elastic. Here coefficient of elasticity of supply is equal to one.

P2

P1

O Q1 Q2X

Y S

Pric

e

Quantity

Perfectly Elasticity The Supply elasticity is infinite when nothing is supplied

at a lower price but a small increase in price causes supply to rise from zero to an indefinitely large amount indicating that producers will supply any quantity demanded at that price.

Quantity

Pric

e

O X

Y

S

Measurement of supply-elasticity The elasticity of supply can be considered

with reference to a given point on the supply curve or between two points on the supply curve.

Point-elasticity : dq × p dp q

Arc-Elasticity: Elasticity of supply between two prices can be found out with the help of the following formula:

Es = q1 – q2 × p1 + p2 q1+ q2 p1 – p2

Multiple Choice QuestionsQuestion 1

The concept ‘demand’ refers to the quantity of a good or service that consumers are:

a. Willing and able to purchaseb. Willing and able to sellc. Unwilling to desired. None of the above

Answer: Question 1

The concept ‘demand’ refers to the quantity of a good or service that consumers are:

a. Willing and able to purchaseb. Willing and able to sellc. Unwilling to desired. None of the above

Question 2

Rise in the price of a commodity brings about:

a. Increase in its purchaseb. Fall in its purchasec. No change in its purchased. None of these

Answer: Question 2

Rise in the price of a commodity brings about:

a. Increase in its purchaseb. Fall in its purchasec. No change in its purchased. None of these

Question 3

Competing goods are also known as

a. Complementary goodsb. Substitute goodsc. Independent goodsd. None of these

Answer: Question 3

Competing goods are also known as

a. Complementary goodsb. Substitute goodsc. Independent goodsd. None of these

Question 4

Larger the size of population of a country

a. Greater is the demand for goods in generalb. Lower is the demand for a goods in generalc. Stable is the demand for goods in generald. None of the above

Answer: Question 4

Larger the size of population of a country

a. Greater is the demand for goods in generalb. Lower is the demand for a goods in generalc. Stable is the demand for goods in generald. None of the above

Question 5

The law of demand is one of the most important law of

a. Social theoryb. Psychological theoryc. Economical theoryd. Mathematical orientation

Answer: Question 5

The law of demand is one of the most important law of

a. Social theoryb. Psychological theoryc. Economical theoryd. Mathematical orientation

Question 6

The demand curve is also known as:

a. Marginal revenue curveb. Marginal utility curvec. Average revenued. Average utility curve

Answer: Question 6

The demand curve is also known as:

a. Marginal revenue curveb. Marginal utility curvec. Average revenued. Average utility curve

Question 7

When two goods are perfect substitutes of each other then

a. MRS is fallingb. MRS is raising c. MRS is constantd. None of the above

Answer: Question 7

When two goods are perfect substitutes of each other then

a. MRS is fallingb. MRS is raising c. MRS is constantd. None of the above

Question 8

The horizontal demand curve parallel to x-axis implies that the elasticity of demand is

a. Zerob. Infinitec. Equal to oned. Greater than zero but less than infinity

Answer: Question 8

The horizontal demand curve parallel to x-axis implies that the elasticity of demand is

a. Zerob. Infinitec. Equal to oned. Greater than zero but less than infinity

Question 9 When quantity demanded changes by larger

percentage than does price, elasticity is termed as:

a. Inelasticb. Elasticc. Perfectly elasticd. Perfectly inelastic

Answer: Question 9

When quantity demanded changes by larger percentage than does price, elasticity is termed as:

a. Inelasticb. Elasticc. Perfectly elasticd. Perfectly inelastic

Question 10

If the goods are perfect substitutes for each other than cross elasticity is

a. Infiniteb. Onec. Zerod. None of the above

Answer: Question 10

If the goods are perfect substitutes for each other than cross elasticity is

a. Infiniteb. Onec. Zerod. None of the above

Question 11

A rightward shift in the demand curve refers to

a. More demanded at each priceb. Less demand at same pricec. More demand at lower priced. And less demand at higher price

Answer: Question 11

A rightward shift in the demand curve refers to

a. More demanded at each priceb. Less demand at same pricec. More demand at lower priced. And less demand at higher price

Question 12

When the elasticity of demand will be zero?

a. Quantity demand remains unchanged irrespective of any change in price

b. Percentage change in quantity demand is more than percentage change in price

c. No change in price and quantity demandd. None of the above

Answer: Question 12

When the elasticity of demand will be zero?

a. Quantity demand remains unchanged irrespective of any change in price

b. Percentage change in quantity demand is more than percentage change in price

c. No change in price and quantity demandd. None of the above

Question 13

Elasticity of demand is greater than one isa. The percentage change in quantity demand

is less than percentage change in priceb. The percentage change in quantity demand

is equal to the percentage change in pricec. The percentage change in quantity demand

is greater than percentage change in priced. No change in quantity demand when price

changes.

Answer: Question 13

Elasticity of demand is greater than one isa. The percentage change in quantity demand

is less than percentage change in priceb. The percentage change in quantity demand

is equal to the percentage change in pricec. The percentage change in quantity demand

is greater than percentage change in priced. No change in quantity demand when price

changes.

Question 14

Perfectly elastic means elasticity of demand is

a. One b. Zeroc. Greater than zero but less than one\d. Infinity

Answer: Question 14

Perfectly elastic means elasticity of demand is

a. One b. Zeroc. Greater than zero but less than one\d. Infinity

Question 15

Total outlay method is also known as

a. Total revenue methodb. Total expenditure methodc. Revenue and expenditure methodd. None of the above

Answer: Question 15

Total outlay method is also known as

a. Total revenue methodb. Total expenditure methodc. Revenue and expenditure methodd. None of the above

Question 16

The demand for common salt is

A. ElasticB. InelasticC. Equal to oneD. Greater than one

Answer: Question 16

The demand for common salt is

A. ElasticB. InelasticC. Equal to oneD. Greater than one

Question 17

Price elasticity can be measured

a. At a point of a demand curveb. Outside the demand curvec. Middle point of the demand curved. None of these

Answer: Question 17

Price elasticity can be measured

a. At a point of a demand curveb. Outside the demand curvec. Middle point of the demand curved. None of these

Question 18

If two goods are perfect substitutes then cross elasticity demand is

a. Finiteb. Infinitec. Income d. Price

Answer: Question 18

If two goods are perfect substitutes then cross elasticity demand is

a. Finiteb. Infinitec. Income d. Price

Multiple Choice Questions

1. Supply refers to the amount of a goods and services that

producer are willing to produce and sell the amount of a goods and services that the

consumers are willing to purchase changes in consumer’s activity none of the above

Question 2

Supply is a ------------------ concept stock flow stock and Flow none of the above

Question 3

If the price of a product rises then the profit level of the producer:

may decrease may remain unchanged may increase all the above

Question 4

Supply and price are inversely related directly related not at all related none of the above

Question 5

The greater the profit lesser the supply lesser the price higher the price none of the above

Question 6

In the short run, the producer can: increase the supply decrease the supply unchange the supply none of the above

Question 7

When the supply curve shifts to the right decrease in supply when there is no change in supply when there is increase in supply

none of the above

Question 8

When the supply curve shift to the left decrease in supply when there is increase in supply when there is no change in supply none of the above

Question 9

The decrease in the quantity supplied shows -----------------

upward movement on the supply curve downward movement on the supply curve no change in the supply curve

none of the above

Question 10

The elasticity of supply is defined as the responsiveness of the quantity supplied of a

good to a change in its price responsiveness of the quantity supplied of a

good without change in its price responsiveness of the quantity demanded of

a good to a change in its price responsiveness of the quantity demanded of

a good without change in its price

Question 11

Elasticity of supply is measured by dividing the percentage change in quantity supplied of a good by ---------------------

Percentage change in income Percentage change in quantity demand of

goods Percentage change in price Percentage change in taste and preference

Question 12

Elasticity of supply is zero means perfectly inelastic supply perfectly elastic supply imperfectly elastic supply

none of the above

Question 13

Elasticity of supply is greater than one when

proportionate change in quantity supplied is more than the proportionate change in price.

proportionate change in price is greater than the proportionate change in quantity supplied.

change in price and quantity supply are equal None of the above

Question 14

If the quantity supplied is exactly equal to the relative change in price then the elasticity of supply is

less than one greater than one unitary elastic none of the above

Question 15

A horizontal supply curve parallel to the quantity axis implies that the elasticity of supply is:

a. Zerob. Infinitec. Equal to oned. Greater than zero but less than one

Question 16

Contraction of supply is the result of

a. Decrease in the number of producerb. Decrease in the price of the good concernc. Increase in the price of other goodsd. Decrease in the outlay of sellers

Question 18

Supply is the

a. Limited resources availableb. Cost of producing a goodc. Entire relationship between the quantity

supplied and the price of goodd. Willing to produce a good if the technology

to produce it become available.

Question 18

Supply is the

a. Limited resources availableb. Cost of producing a goodc. Entire relationship between the quantity

supplied and the price of goodd. Willing to produce a good if the technology to

produce it become available

Question 19

In the book market, the supply of books will decrease if any of the following occur except

a. A decrease in the number of book publisherb. A decrease in the price of a bookc. An increase in the future expected price of a

bookd. An increase in the price of paper

Question 19 In the book market, the supply of books will

decrease if any of the following occur except

a. A decrease in the number of book publisherb. A decrease in the price of a bookc. An increase in the future expected price of a

bookd. An increase in the price of paper

Question 20

Comforts lies between the

a. Necessariesb. Luxuriesc. Both (a) and (b)d. None of the above

Question 21

A lower supply curve indicates

a. Smaller supplyb. Larger supplyc. Constant supplyd. None of the above

Question 22

In a very short period the supply can be

a. Changedb. Unchangedc. Increased. None of the above

Question 23

The law of equi-marginal utility is also known as

a. Law of demandb. Law of supplyc. Law of substitutiond. None of the above

Question 24

When supply curve move to right it means

a. Supply increaseb. Supply decreasec. Supply remains constantd. None of the above

Question 25

If the quantity supplied is exactly equal to the relative change in price then the elasticity of supply is

a. Less than oneb. Greater than onec. Unitary elasticd. None of the above

demand & supply

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