Economics Solutions Solutions for Class 12 Commerce Economics Chapter 3 (A) Demand Analysis are provided here with simple step-by-step explanations. These solutions for (A) Demand Analysis are extremely popular among class 12 Commerce students for Economics (A) Demand Analysis Solutions come handy for quickly completing your homework and preparing for exams. All questions and answers from the Economics Solutions Book of class 12 Commerce Economics Chapter 3 are provided here for you for free. You will also love the ad-free experience on Meritnation’s Economics Solutions Solutions. All Economics Solutions Solutions for class 12 Commerce Economics are prepared by experts and are 100% accurate.
Page No 24:
Question 1(A):
Fill in the blanks with appropriate alternatives given in the brackets:
1. When price of commodity rises, the demand for it ______________. (rises/ contracts/ remains constant/ becomes negative)
2. When less is purchased at the constant price, it is called _______ in demand. (increase/ decrease/ expansion/ contraction)
3. When the price of petrol goes up, demand of cars will ___________. (rise/ fall/ not change/ remain unchanged)
4. Market demand is an aggregate of purchasing by _________ buyers. (some/ all/ one/ two)
5. Indirect demand is also known as _____________ demand. (derived/ direct/ composite/ joint)
Answer:
1. When price of commodity rises, the demand for it contracts.
Explanation:
When the price of a commodity increases, other things are kept constant, the demand for the commodity falls/contracts and vice versa.
2. When less is purchased at the constant price, it is called decrease in demand.
Explanation:
Decrease in demand is a condition when the demand for good decreases due to a change in factor other than the price of the commodity. Accordingly, less is purchased even when the price is constant. Some of the factor causing decrease in demand are decrease in income, moving of taste and preferences away from the commodity and rise in prices of other goods.
3. When the price of petrol goes up, demand of cars will fall.
Explanation:
Cars and petrol are complementary goods, i.e., goods that are demanded together. In such cases, a rise in the price of one leads to a fall in the demand for the other good. Thus, a rise in the price of petrol will lead to a fall in the demand for cars.
4. Market demand is an aggregate of purchasing by all buyers.
Explanation:
Market demand is the aggregate (total) of the individual demands for a product by all consumers in the market at different prices.
5. Indirect demand is also known as derived demand.
Explanation:
When goods are demanded so that they can be used in the production of some other commodity, it is called indirect or derived demand. In other words, such demand is derived as a result of the demand/consumption of some other commodity. Cement, for example, has indirect/derived demand as a result of demand for construction of buildings.
Page No 24:
Question 1(B):
Match the following:
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Group A
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Group B
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1. Demand and price
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a. Substitute goods
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2. Tea and coffee
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b. Inverse relation
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3. Inferior goods
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c. Joint demand
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4. Factors of production
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d. Distribution of income
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5. Pen and ink
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e. Composite demand
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f. Giffen goods
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g. Indirect demand
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Answer:
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Group A
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Group B
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1) Demand and price
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b) Inverse relation
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2) Tea and coffee
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a) Substitute goods
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3) Inferior goods
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f) Giffen goods
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4) Factors of production
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g) Indirect demand
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5) Pen and ink
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c) Joint demand
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Other things remaining constant, as the price of a good rises (or falls), the quantity demanded of the good falls (or rises). Thus, the price of a good and the quantity demanded of the good share a negative relationship or an inverse relationship.
2. Tea and coffee - Substitute goods
Substitute goods refer to those goods that can be consumed in place of each other. In other words, they can be substituted for each other. For example, tea and coffee are substitute goods. In such cases if price of one of them increases, the consumer substitutes it for other good.
3. Inferior goods - Giffen goods
Giffen goods are the goods that are highly inferior. Such goods share a positive relationship with the price. That is as the price of the good increases the demand increase. This is because such goods have strong income effect.
4. Factors of production - Indirect demand
When goods are demanded not for direct consumption but for use in the production of other goods, the demand for such goods is known as indirect demand. All the factors of production have indirect demand, as they are used in the production of other goods.
5. Pen and ink - Joint demand
Two or more goods are said to have a joint demand when these goods are demanded together to satisfy a single want. Without the other they will not be demanded. Accordingly, pen and ink have a joint demand.
Page No 24:
Question 1(C):
State whether the following statement are TRUE and FALSE
1. Demand curve slopes upward from left to right.
2. Desire means demand.
3. When demand increases, the demand curve shifts to the left.
4. Quantity demanded varies directly with price.
5. Law of demand is explained by Prof. Robbins.
6. Individual demand is a demand by single buyer.
Answer:
1. FALSE
The demand curve is the graphical representation of the relationship between the demand for a good and its price for a given income, price of related goods, tastes and preferences. This curve slopes downwards from left to right because of the negative relationship between the price of the commodity and its demand. In the diagram below, DD is the demand curve.
2. FALSE
Desires refer to those wishes that a human being cherishes such as to walk on the moon, to be a billionaire and to buy a Rolls-Royce. These wishes may not always be backed by enough finance to realise them. It is only when a desire is backed by sufficient purchasing power, along with the consumer’s readiness to spend on materialising the wish, it becomes demand. Thus, until a consumer has sufficient money and he/she is willing to spend, a desire will remain a desire.
3. FALSE
When demand increase, i.e. when the demand for the good increase as a result of a change n factors other than price, the demand curve shifts parallel towards right. On the other hand, when demand decrease, the demand curve shifts to the left..
4. FALSE
Quantity demanded has an inverse relation with the price of a commodity. Other things remaining constant, as the price of the commodity increases, the quantity demanded decreases, and vice-versa.
5. FALSE
The law of demand was postulated by Dr. Alfred Marshall in his book ‘Principles of Economics’. According to the Law of Demand, other things remaining constant, as the price of a commodity increase, the quantity demanded of it falls and vice-versa.
6. TRUE
Individual demand is the demand of a commodity by a particular consumer. It represents various quantities of a particular commodity that a consumer (single buyer) is willing to purchase at different possible prices at a particular point in time.
Page No 24:
Question 2(A):
Define or explain the following concepts:
1. Demand
2. Increase in demand
3. Derived demand
4. Direct demand
5. Market demand schedule
Answer:
1. Demand for a commodity refers to the quantity of a commodity that a consumer is willing and is able to purchase at a particular price at any particular point in time. For example, a consumer demands 2 kg sugar at Rs 10 per kg and 3 kg sugar at Rs 8 per kg.
2. When the demand for a good increases with the change in factors other than the price of the good, it is called increase in demand. Some of the factors that lead to increase in demand is rise in income, developing a taste and preferences for the commodity, rise in the price of related goods, etc. Graphically, an increase in demand is represented by a parallel rightward shift of the demand curve.
3. When goods are demanded so that they can be used in the production of some other commodity, it is called indirect or derived demand. Thus, in such cases the demand for a commodity is dependent on the demand for the commodity in the production of which it would be used. For instance, when wood is demanded for making furniture, wood is said to have derived demand. As the demand for furniture increases, the demand for wood also increases and vice-versa
4. Demand for the goods that are purchased for direct consumption and are not used as intermediate goods is referred to as direct demand. For instance, goods like clothes and food have a direct demand, as they are meant for final consumption. The demand for such goods does not depend on the demand for any other commodity.
5. The market demand schedule shows the aggregate (total) demand for a product by all consumers in the market at different prices. The following is a market demand schedule.
Market Demand Schedule:
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Price of X
(Rs)
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Quantity Demanded by Consumer 1
(Units) |
Quantity Demanded by Consumer 2
(Units) |
Market Demand (Units)
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10
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5
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6
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5 + 6 = 11
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15
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4
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5
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4 + 5 = 9
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Page No 24:
Question 2(B):
Give reasons or explain the following statements.
1. All desires are not demand.
2. Increase in demand indicates a rightward shift in the demand curve.
3. Demand curve slopes downward from left to right.
4. Demand for factors of production is derived demand.
Answer:
1. Desires refer to those wishes that a human being cherishes such as to walk on the moon, to be a billionaire and to buy a Rolls-Royce. These wishes may not always be backed by enough finance to realise them. It is only when a desire is backed by sufficient purchasing power, along with the consumer’s readiness to spend on materialising the wish, that it becomes demand. Thus, until a consumer has sufficient money and he/she is willing to spend, a desire will remain a desire. Thus, we can say that all desires are not demand.
2. When the demand for a good increases due to a change in the factors other than the price of the good, it is called increase in demand. Graphically, it is shown by a parallel rightward shift of the demand curve.
Parallel rightward shift shows that even at constant prices the quantity demanded of the good rises.
3. Demand curve is the graphical representation of the relationship between the demand for a good and its price, for a given income, price of related goods, tastes and preferences. This curve slopes downwards from left to right because of the negative relationship between price of the commodity and its demand.
4. When goods are demanded so that they can be used in the production of some other commodities, it is called indirect or derived demand. Factors of production have an indirect or derived demand, as they are used in the production of goods meant for final consumption. For example, labour is a factor of production. However, labour would be demanded according to the demand of the commodity in the production of which it would be used. For example demand for labour in furniture producing firm would depend on the demand for furniture. The greater the demand for furniture, the production of furniture would tend to rise, thereby, the demand for labour used in the production of furniture would also increases.
Page No 24:
Question 3(A):
Distinguish between:
1. Desire and demand
2. Increase in demand and decrease in demand
3. Individual demand and market demand
4. Inferior goods and superior goods
Answer:
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Desire
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Demand
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Desires refer to those wishes that a human being cherishes.
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Demand refers to the quantity of goods that individuals are willing to buy.
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They may or may not be backed by financial power.
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It should be backed by financial power.
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For example: Walking on the moon
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For example, a consumer demands 2 kg sugar at Rs 10 per kg and 3 kg sugar at Rs 8 per kg.
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2.
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Increase in Demand
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Decrease in Demand
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More quantity is demanded because of the change in factors other than price.
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Less quantity is demanded because of the change in factors other than price.
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It leads to a rightward shift in the demand curve.
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It leads to a leftward shift in the demand curve.
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3.
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Individual Demand
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Market Demand
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It refers to the demand for a product by a single consumer.
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It refers to the demand for a product by all consumers in the market.
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The demand curve for individual demand is relatively steeper.
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The demand curve for market demand is relatively flatter.
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It represents various quantities of a particular commodity that a consumer (single buyer) is willing to purchase at different possible prices.
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It represents various quantities of a particular commodity that all consumers in the market are willing to purchase at different possible prices.
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4.
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Inferior Goods
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Superior Goods
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They have a negative relationship with the income of a consumer.
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They have a positive relationship with the income of a consumer.
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For example - Maize
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For example - Branded clothing
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Page No 24:
Question 3(B):
Write short notes:
1. Giffen's paradox
2. Types of demand
3. Concept of demand
Answer:
1. We know that, according to the Law of Demand, when the price of a commodity falls the demand for it rises. However, giffen goods are an exception to this Law. In case of giffen goods, the demand shares a positive relationship with price. As the price of giffen goods fall the demand for such goods falls. This is because as the price falls, the real income of the consumer rises and thereby, the consumer shifts to better superior quality goods. Such goods are highly inferior goods. It is named after the 19th century British economist, Sir Robert Giffen, who found that when the price of bread fell, the demand for it also fell.
2. The following are the various types of demand.
ii. Indirect demand - When goods are in demand so that they can be used in the production of some other commodity, it is called indirect or derived demand. For instance, factors of production have indirect demand, as they are used in the production of goods meant for final consumption.
iii. Joint demand - Two or more goods are said to have a joint demand only when these goods are demanded together to satisfy a single want. For instance, pen and ink are demanded together; therefore, they have a joint demand.
iv. Composite demand - It refers to the demand for commodities that are used to satisfy various wants at the same time. For instance, water is used for satisfying several wants.
v. Competitive demand - It refers to the demand for goods that face high competition from their close substitutes, for instance, Coke and Pepsi.
3. Demand for a commodity refers to the quantity of a commodity that a consumer is willing and is able to purchase at a particular price at any particular point of time. In the concept of demand besides ability to purchase, the ability to purchase is also important. It is only when the consumer has sufficient purchasing power the willingness to purchase the commodity can be regarded as demand. Without the purchasing power, the willingness to purchase is only a desire. For example, an individual may be willing to purchase a house. But it can be termed as demand only when the consumer has sufficient purchasing power for the same.
Page No 24:
Question 4.1:
Answer the following questions
What do you mean by demand?
Answer:
Demand for a commodity refers to various quantities of the commodity that a consumer is willing to purchase at various possible prices. For example, a consumer demands 2 kg sugar per week at Rs 10 per kg and 3 kg sugar per week at Rs 8 per kg. It must be noted that price of commodity and time are two important elements when referring demand.
Demand for a commodity has the following features.
1. Utility derived from consumption of a commodity is the basis of demand.
2. Price of commodity and time are two important elements in context of demand.
3. Demand for a commodity is a relative concept.
Page No 24:
Question 4.2:
Answer the following questions
What are the assumptions of the Law of Demand?
Answer:
The law of demand is based on the following assumptions:
ii. Income of the consumer remains unchanged.
iii. Prices of related goods remain unchanged.
iv. Consumer’s tastes and preferences remain unchanged.
v. Government’s policies remain unchanged.
vi. There is no change in the expectations about the future.
Page No 24:
Question 5.1:
Do you agree with the following statements? Give reasons
There are no exceptions to the law of demand.
Answer:
No, the law of demand has certain exceptions. Some of such exceptions are listed below:
i. Giffen goods: These are extremely inferior goods. With a fall in price of the Giffen goods, their demand falls.
ii. Emergency situations: In case of emergency situations such as war, curfew, natural calamities etc consumers purchase the commodities even at a higher price.
iii. Articles of distinction: Articles such as diamonds, jewellery, etc. are accorded high prestige and status as these are very costly. Such articles enjoy a high demand because of their high price. Consequently, the demand for such goods share a positive relationship with price.
Page No 24:
Question 5.2:
Do you agree with the following statements? Give reasons
Many factors influence the demand for a commodity.
Answer:
Yes, demand for a commodity is influenced by a number of factors. Some of the factors that influence the demand for a commodity are:
ii. Income of the consumers- For normal goods, demand for a good shares a positive relationship with income of the consumer. As the income of the consumer increases, the demand for normal goods increases and vice versa
iii. Price of related goods (substitute and complementary goods)- Substitute goods are the goods that are consumed in place of each other. In case of such goods as the price of one good increases, the consumer shifts its demand towards the other good. On the other hand, complementary goods are the goods that are consumed together for the satisfaction of wants. In case f such goods as the price of one good increases the demand for other good falls and vice versa.
iv. Tastes and preferences of consumers- As the consumers develop a taste and preference for a commodity the demand for it increases. On the other hand, if the taste and preference of consumers move away from a commodity, the demand for good falls.
v. Expectations about future prices- If the consumers expect the prices to rise in future, the demand for the good increases at present. On the other hand, if the consumers expect the price to fall in future, they postpone their demand for future.
vi. Size of the population- Greater the size of population, greater is the total number of consumers, greater is the demand for the commodity and vice versa.
Page No 24:
Question 6.1:
Do you agree with the following statements? Give reasons
State and explain the law of demand.
Answer:
The law of demand focuses on the basic relationship between the price of the good and quantity demanded of the good.
According to this law, other things being constant (ceteris paribus), a consumer’s demand shares an inverse relationship with the price of a good and vice versa. In other words, if the income, price of related goods and taste and preferences of the consumer remain unchanged, then the demand for the good moves in the opposite direction of its price.
The law of demand is based on the following assumptions:
ii. Income of the consumer remains unchanged.
iii. Prices of related goods remain unchanged.
iv. Consumer’s tastes and preferences remain unchanged.
v. Government’s policies remain unchanged.
vi. There is no change in the expectations about the future.
The law of demand can be explained with the help of the following demand schedule:
| Price of Commodity (X) (Rs) |
Quantity Demanded of X (Units) |
| 5 | 100 |
| 10 | 75 |
| 15 | 50 |
| 20 | 25 |
The schedule shows that as the price of commodity X increases from Rs 10 to Rs 15, the quantity demanded for X falls from 75 units to 50 units. Thus, there is a negative relationship between demand and price.
Let us plot the above schedule on a graph. On the x-axis, we represent the quantity demanded; and on the y-axis, we represent the price of the good. Joining the different combinations of price and quantity demanded, we get a curve DD. This curve is the demand curve showing the inverse relationship between the price and the quantity demanded.
Page No 24:
Question 6.2:
Do you agree with the following statements? Give reasons
Explain determinants of market demand.
Answer:
Market demand for a commodity depends on the following factors:
i. Market price of the good - Other things remaining constant, as the market price of a good rises (or falls), the quantity demanded of the good falls (or rises). Thus, the market price of a good and quantity demanded of that good share a negative relationship.
ii. Market price of other goods – The quantity demanded of a good also depends on the market price of other goods (i.e., related goods). Any two goods are considered to be related to each other when the demand for one good change in response to the change in the market price of the other good. Related goods can be classified into the following categories:
b. Complementary goods - In case of complementary goods, if the price of one good increases, the consumer reduces his demand for the complementary good as well; that is, a rise in the price of one good results in the fall in the demand for the other good and vice versa.
v. Consumer’s tastes and preferences - Consumers' tastes and preferences highly influence the demand for goods. Other things being constant, if all consumers prefer a commodity over another, then the market demand for that commodity increases and vice versa.
vi. Population size - The market demand for a commodity is also affected by the population size. Other things being equal, an increase in the population size increases the market demand for a commodity and a decrease in the population size decreases the market demand for a commodity. This is because with the change in population size, the number of consumers in the market changes; thus, the market demand also changes.
vii. Distribution of income - If the distribution of income in the society is fair and equal, then the demand for a commodity is more compared to a situation where there is unequal distribution of income.
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