Demand and Supply related Short Questions:

1. What is meant by demand? What are its different types?

Demand means the willingness and ability of a consumer to buy a good or service at a given price and time. It is not just desire; the person must have purchased power.

Types of Demand:

• Individual and Market Demand: Individual demand is the desire of one person, whereas market demand is the demand of all people.
• Price Demand: Demand that has to do with fluctuations in the price of an item.
• Income Demand: Demand that varies as a person’s income fluctuates.
• Cross Demand: When the price of one thing goes up, people want more.
• Joint Demand: The need for things that are utilized together, like pen and ink.

2. Explain any five determinants of demand.

1. Price of the Good: When price rises, demand falls; when price falls, demand rises.
2. Income of Consumers: Higher income increases demand for most goods, while lower income reduces demand.
3. Price of Related Goods: Demand changes with changes in prices of substitutes (tea/coffee) or complements (car/petrol).
4. Consumer Taste and Preference: If a product becomes fashionable, its demand rises.
5. Future Expectations: If people expect future prices to rise, they buy more now; if they expect prices to fall, they delay purchases.
   

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3. Explain the law of demand.

The law of demand states that other things remain the same. Consumers buy more of a goods when its price falls and less when its price rises. This means price and quantity demanded have an inverse relationship. The law works because of the income effect, the substitution effect, and diminishing marginal utility.

Demand Schedule:

     Law of Demand:

Fig: Law of Demand

4. Why does a demand curve slope downward?

A demand curve slopes downward from left to right because:

1. Law of Diminishing Marginal Utility: Each additional unit gives less satisfaction, so consumers buy more only at a lower price.
2. Income Effect: A fall in price increases real income, so people buy more.
3. Substitution Effect: When the price of a good falls, people substitute it for other costlier goods.
4. New Buyers Effect: Lower prices attract new consumers into the market.
   These reasons make the curve slope downward.

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5. Explain the concept of a shift in the demand curve.

A shift in the demand curve means that demand changes even when the price remains the same.
 If the demand increases due to factors of demand like income, taste, or population, the entire curve shifts rightward.

If demand decreases due to opposite reasons, the curve shifts leftward. A shift is caused by determinants other than price.

Fig: Shift in Demad Curve

6. Distinguish between movement along a demand curve and a shift in the demand curve.

7. What is supply? Explain its five determinants.

Supply means the quantity of goods that producers are willing and able to sell at a given price and time.

Determinants of Supply:

1. Price of the Good: Higher price encourages more supply; lower price reduces supply.
2. Cost of Production: If production costs rise, supply decreases, and vice versa.
3. Technology: Improved technology increases production and supply.
4. Number of Sellers: More sellers in the market increase supply.
5. Government Policies: Taxes reduce supply, while subsidies increase supply.
   

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8. Explain the law of supply.

The law of supply states that if other things remain the same, producers supply more when the price rises and less when the price falls. This shows a direct relationship between price and quantity supplied. Producers respond this way because higher prices mean higher profit.

Fig: Law of Supply

9. Explain the concept of shift in supply curve.

A shift in the supply curve means that supply changes even when price stays the same.
 If supply increases due to factors like better technology or lower production cost, the curve shifts rightward.

If supply decreases due to higher cost or bad weather, the curve shifts leftward.
Shifts occur due to non-price factors.

Fig: Shift in Supply Curve

10. Distinguish between movement along a supply curve and shift in supply curve.

11. Explain any five factors causing shift in supply curve.

1. Change in Cost of Production: Higher cost lowers supply; lower cost increases supply.
2. Technology: Better technology boosts production and shifts supply rightward.
3. Number of Producers: When more firms join the industry, supply increases.
4. Government Policies: Subsidies raise supply; taxes reduce it.
5. Natural Factors: Good weather increases agricultural supply; disasters reduce supply.
   

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12. What are the exceptions to the law of supply? Explain.

The law of supply may not apply in the following cases:

1. Perishable Goods: Sellers quickly sell at any price to avoid spoilage.
2. Agricultural Goods: Supply depends more on nature than price.
3. Rare Goods: Supply cannot increase even if price rises.
4. Future Expectations: If producers expect a higher future price, they may reduce current supply.
5. Fixed Production Capacity: At full capacity, supply cannot increase further even at a higher price.
   

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13. How is equilibrium price determined? Explain.

Equilibrium price is determined at the point where demand and supply are equal. Buyers and sellers agree on a price where the quantity demanded equals the quantity supplied. If price is higher than equilibrium, supply is higher and demand is less, creating a surplus. If prices are lower, demand is higher and supply is less, creating a shortage. The market naturally moves toward the point where supply and demand are equal, which is known as the equilibrium price.

Fig: Equilibrium Price