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Economics 2 Marks Each

Demand · Gujarat Board (GSEB) STD 11 Commerce (GSEB - English Medium). 54 questions.

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Question 12 Marks
State the names of methods to measure price elasticity of demand.
Answer
The five types of price elasticity of demand are:
$1.$ Perfectly elastic demand $\left(\varepsilon_p=\infty\right)$
$2.$ Perfectly inelastic demand $( \varepsilon_p=0 )$
$3.$ Unitary $($unit$)$ elastic demand $( \varepsilon_p=1)$
$4.$ Relatively elastic demand $\left(\varepsilon_p>1\right)$
$5.$ Relatively inelastic demand $\left(\varepsilon_p<1\right)$
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Question 22 Marks
Which commodities are called prestigious commodities?
Answer
The price of a commodity good is typically determined as a function of its market as a whole: well-established physical commodities have actively traded spot and derivative markets. The wide availability of commodities typically leads to smaller profit margins and diminishes the importance of factors $($such as brand name$)$ other than price.
Most commodities are raw materials, basic resources, agricultural, or mining products, such as iron ore, sugar, or grains like rice and wheat. Commodities can also be mass-produced unspecialized products such as chemicals and computer memory.
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Question 32 Marks
What is price elasticity of demand?
Answer
Price elasticity of demand:
The law of demand explains that when other factors of demand are assumed to be constant, as price falls demand expands and as price rises demand contracts. However, this law does not state by what proportion demand expands or contracts. The concept of price elasticity of demand explains this.
Meaning:
A measure that shows the proportion $($extent$)$ to which demand changes with . respect to change in price is called price elasticity of demand. It is denoted by $\varepsilon p$.
Definition:
According to Marshall, the degree of elasticity of demand depends upon the extent of rise in demand because of a fall in price and upon the extent of fall in demand because of a rise in price.
Expression Example:
Let us assume that the price of a good $‘X’$ falls by $1 \%$. This fall leads to a price rise of $5\%$ in demand of good $‘X’$.
Price Elasticity of Demand $(εp) =\frac{\text { Percentage change in demand for } X}{\text { Percentage change in price of } X }$
$=\frac{+5 \%}{-1 \%}$
$=|5|$
Price elasticity of demand i.e. ep is expressed as a pure number and is unit-less i.e. it does not have any unit of measurement such as $%, \ kg$., meter, etc.
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Question 42 Marks
What is market demand?
Answer
Market demand:
  • The sum total of all individual demands of all existing consumers in the market at a given price at a particular point of time is called ‘market demand.
  • The table given below shows individual demand of customers $A, B$ and $C$.
  • The last column of the data table is as summation of individual demands. This summated demand is called the market demand.
  • The first three diagrams show individual demand of each customer whereas the fourth diagram shows their combined demand i.e. market demand.
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Question 52 Marks
What is individual demand?
Answer
Individual demand:
The demand of a good by an individual consumer at a given price at a particular point of time is called individual demand.
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Question 62 Marks
What is meant by Giffen goods?
Answer
Giffen goods $($Inferior goods$):$
  • When price of certain goods namely inferior goods fall and the real income of a consumer rises he may reduce the consumption of such goods and substitute them with goods of superior quality.
  • It was Robert Giffen who made these observations and explained this concept. Hence, these goods i.e. inferior goods are also called Giffen goods. Such goods are necessary goods and are purchased by the low-income groups.
Example:
  • A person with low income purchases grains such as Jowar or Bajra for his daily diet. When the price of Jowar/Bajra falls drastically, the real income of the consumer tends to increase.
  • Hence, he will reduce consumption of such goods and will purchase more of wheat which is the superior good.
  • Another example is that of vegetable $($vanaspati$)$ ghee and pure ghee.
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Question 72 Marks
What is substitution effect?
Answer
Substitution effect:

  • When price of the concerned good falls, it becomes relatively cheaper than its substitutes.
  • Hence, a consumer wHI reduce the consumption of substitute goods and increase the demand for the concerned good. This is called substitution effect.

Example:
Consider two varieties of pants, namely, a pair of cotton pants and denim pants. If the price of cotton pants falls and that of denim pants remains the same .then the consumer finds the cotton pants cheaper compared to the denim pants. Hence, the demand for cotton pants will rise.

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Question 82 Marks
What is demand function?
Answer
Demand function:
The cause and effect relationship between demand and its various factors can be expressed as a mathematical function.
  • The demand function is a mathematical function between demand for a good and the determinants that affect its demand.
  • The demand function shows that demand for a good is dependent on many factors such as price of the good, tastes and preferences of a consumer, income of the consumer, prices of related good, size of the population, etc.
The mathematical form of the demand function:
$D_x=f\left(P_x, P_y, P_e, T, Y, U\right)$
Where $D _x=$ Demand for commodity $X$
$f =$ Functional notation
$P _{ x }=$ Price of commodity $X$
$P_y=$ Price of related commodity $Y$
$P _{ e }=$ Expectations regarding future price
$T =$ Tastes and preferences of the consumer
$Y =$ Consumer's income
$U =$ Other factors
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Question 92 Marks
What is elasticity of Demand ?
Answer
  • There are several determinants of demand. The change in these factors affects the demand.
  • Elasticity of demand explain the amount of change in demand due to change in these factors.
  • Generally the demand for a commodity depends on price, price of relative goods, income of the consumer, quality of the good, advertisement, taste etc.
  • There are four types of elasticity of demand.
  • Price elasticity of demand
  • Cross elasticity of demand.
  • Income elasticity of demand.
  • Advertisement elasticity of demand.
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Question 102 Marks
How the taste and preference of the consumer affect the demand?
Answer
  • When consumer has the strong preference for the commodity, the change in price does not affect the demand.
  • E.g. Specific Soap, Tooth paste etc.
  • The change in price of these commodity does not effect, the demand for these commodities.
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Question 112 Marks
Explain the total outlay method of calculating elasticity of demand. How many types are described by this method?
Answer
  • The change in price affects the total expenditure of the consumer.
  • This method takes into account the total expenditure of the consumer to calculate the elasticity of demand.
  • There are three types : Elastic demand, Inelastic demand, Unit elasticity of demand.
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Question 122 Marks
“The nature of the goods can be known by the value of income elasticity. ‘-Explain.
Answer
  • If the income of the customer and demand are related positively, the income elasticity is positive.
  • If the value exceeds one, the goods are luxurious.
  • If it is less than one the goods are primary.
  • If the value of the income elasticity is negative, it represents inferior goods. E.g. jowar.
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Question 132 Marks
What is perfectly elastic demand ?
Answer
  • Perfectly elastic demand means the change in demand is very huge with a small change in price.
  • The demand curve in such case is parallel to horizontal axis.
  • The demand elasticity is infinity.
  • This is not possible in real world.
  • This concept is important to explain the perfect competition.
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Question 142 Marks
What is the different between increases – decreases in demand and expansion – contraction of demand ?
Answer
  • Expansion – contraction of demand change the point on the same demand curve.
  • It does not shift the demand curve.
  • The point shifts to the right in case of expansion and to the left in case of contraction.
  • Increase-decrease in demand changes the demand curve.
  • An increase in demand shifts the demand curve to the right and decrease in demand shifts the demand curve to the left.
  • The price of the commodity is constant.
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Question 152 Marks
Why the law of demand does not apply in case of inferior goods ?
Answer
  • Salt, needles are inferior goods. The total expenditure of purchasing these goods is very low.
  • It does not effect budget of consumer.
  • Therefore the change in price does not effect the demand.
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Question 162 Marks
What is the difference between law of demand and Price elasticity of demand?
Answer
  • The law of demand explain the change of direction in demand due to change in price of commodity. The Price elasticity of demand explains the amount of change in demand due to the change in price of commodity.
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Question 172 Marks
What is the different between price elasticity of demand and cross elasticity of demand ?
Answer
  • The Price Elasticity of demand is he ration of percentage change in demand of the commodity to the percentage change in th price of the same commodity.
  • If other factors remain constant, the change in demand due to change in income of the consumer can be measured by the income elasticity of demand.
  • In short, the Price Elasticity of demand shows the quantitative relationship between price and demand where as the Income elasticity of demand shows the quantitative relationship between income and demand.
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Question 182 Marks
Discuss the types of elasticity of demand.
Answer
  • There is five types of elasticity of demand :
  • Perfectly elastic demand $(Ep =$ Infinite$)$
  • Perfectly inelastic demand $(Ep = 0)$
  • Unit elasticity of demand $(Ep = 1)$
  • Elastic demand $(Ep > 1)$
  • Inelastic demand $(Ep < 1)$
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Question 192 Marks
What is increase – decrease in demand and expansion – contraction of demand?
Answer
  • If other factors remain constant, the change in demand to the change in price is known as expansion – contraction of demand.
  • If price of commodity remain constant, the change in demand due to change in other factors then it is called increase-decrease in demand.
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Question 202 Marks
Give the reason behind the inverse relationship between price and demand. Or why demand expands with a fall in price?
Answer
  • The price and demand are inversely related because of income and substation effect.
  • The fall in price of a commodity make it m ore cheap compare to its substitutes.
  • Consumers reduce the demand for substitutes and increase the demand for commodity whose price has fallen.
  • This is because of substitutes and increases the demand for commodity whose price has fallen.
  • This is because of substitution effect.
  • The fall in price increases the real income of the consumer which in turn increases the demand for commodity.
  • This is due to income effect.
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Question 212 Marks
What is function?
Answer
  • The cause – effect relationship between two or more variable is known as function.
  • The function explains the functional $($mathematical$)$ relationship between dependent and independent variables.
  • The effect of changes in one variable on another variable can be found out by the function.
  • E.g. demand function shown the relationship between price and demand.
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Question 222 Marks
Explain the assumption of law of demand.
Answer
  • The factors are assumed to be constant while explaining the law of demand.
  • The other factors are :
  • Population is constant
  • Income of the consumer is constant
  • Taste and preferences of the consumer are constant
  • Price of substitutes and complimentary goods are constant
  • No speculation about future price.
  • Quality of the commodity is constant.
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Question 232 Marks
What is demand?
Answer
  • Generally the desire of the consumer to buy a commodity is known as demand.
  • But there is huge difference between desire and demand in economics.
  • In economics, demand means the desire to buy a commodity = capacity and willingness to pay.
  • In short, demand depends on six things :
  • Desire
  • Capacity
  • Willingness to pay
  • specific time
  • Specific place
  • Specific price
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Question 242 Marks
Which commodities are called prestigious commodity ?
Answer
  • Commodities $($goods$)$ consumed by the very rich people to enhance their social status and prestige are called prestigious commodity. Their demand is likely to remain unchanged or increase when their price rises.
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Question 252 Marks
What is Price Elasticity of demand?
Answer
  • if other factors remain constant, the Price elasticity of demand is the ratio of percentages change in demand to the percentages change in price.
  • The law of demand explains the direction of changes whereas the concept of price elasticity of demand explains the amount of change.
  • It shows the quantitative relationship between price and demand.
  • The value of Price Elasticity is represented without any unit like meter, $ \%$ etc. 
  • Generally the value of Price Elasticity is represented without any unit like meter, $ \%$ etc.
  • Generally the value of Price Elasticity of demand is negative because price and demand are inversely related to each other .
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Question 262 Marks
What is the difference between price elasticity of demand and income elasticity of demand ?
Answer
  • The Price Elasticity of demand is the ratio of percentage change in demand of the commodity to the percentage change in the price of the same commodity.
  • If other factors remain constant, the change in demand due to the change in income of he consumer can be measured by the income elasticity of demand.
  • In short, the Price Elasticity of demand shows the quantitative relationship between price and demand where as the income elasticity of demand shows the quantitative relationship between income and demand.
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Question 272 Marks
What is law of demand?
Answer
  • The law of demand explains the demand for a commodity at different price level.
  • It means it shows the relationship between price and demand.
  • The other factors are assumed to be constant while explaining the law of demand.
  • Law :
  • If other factors remain constant, the demand expands with fall in price and demand contracts with an increase in price.
  • There is inverse relationship between price and demand.
  • The change in price is the reason and the change in demand is the result.
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Question 282 Marks
What are the determinates of demand? Or Explain the factors affecting demand.
Answer
  • The following factors affect the demand of commodity :
  • Price of the commodity
  • Population and age composition
  • Income of the consumer
  • Distribution of income
  • Price of the relative goods which include substitutes and complementary goods
  • Speculation about future price
  • Geographical situation of country
  • Quality of the commodity etc.
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Question 292 Marks
State the names of methods to measure Price elasticity of demand ?
Answer
  • There are three methods used to calculate the Price Elasticity of demand :
  • Percentages method.
  • Total outlay method.
  • Geometric method.
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Question 302 Marks
What is market demand?
Answer
  • the market demand curve is delivered from the summation of the individual demands. The concept of market demand is more important than the concept of individual demand economics.
  • The market demand curve is negatively sloped which shows the inverse relationship between price and demand.
  • In short, the summation of individual demand at different prices gives the market demand curve.
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Question 312 Marks
What is individual demand ?
Answer
  • During a particular period, demand made by an individual or family for a commodity at different prices is called individual demand.
  • The market demand is delivered from the summation of the individual demands.
  • The concept of market demand is more important than the concept of individual demands.
  • The concept of market demand is more important than the concept of individual demand in economics.
  • The individual demand curve is negatively slopped which shows the inverse relationship between price and demand.
  • The individual demand curves vary with the individuals because the demands of individual are different at different prices.
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Question 322 Marks
What is meant by Giffen goods ?
Answer
  • Giffen goods are the inferior goods. E.g. jowar, bajar, etc.
  • The consumer buys these goods because of lower level income.
  • The decreases in price of Giffen goods decreases the demand for them.
  • The decreases in price of Giffen goods increase the real income of consumer will buy the high quality goods.
  • This concept was introduced by sir Robert Giffen and therefore these goods are known as Giffen goods.
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Question 332 Marks
What is the meaning of status symbol goods ?
Answer
  • Diamonds, gems, pearls, etc are status symbol articles and law of demand does not apply to then because such things are demanded by the rich people only.
  • Therefore, if their price decreases, the rich people do not buy then because they are no more status symbols.
  • The rich people feel that even the ordinary man is able to buy these things are therefore, their status value decreases.
  • On the other hand, ordinary people do not want to buy these things because only rich people afford them.
  • Now they could buy these things decreases, demand does not increase.
  • Thus, the law of demand does not apply to such articles.
  • In short, such things get status value when they are costlier.
  • Their status increases if price increases.
  • When their price decreases, their demand decreases because their status value decreases.
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Question 342 Marks
What is substitution effect ?
Answer
  • When a commodity becomes cheaper, it becomes cheaper in comparison to its substitute because the price of a substitute is constant.
  • Thus, the consumer will decrease his demand of the substitute goods and he is prompted to buy the commodity with the reduced price.
  • As a consequence, demand extends.
  • This effects is known as substitute effects.
  • E.g. if other vegetables are constant in price and only potatoes are cheap, they, will be cheaper in comparison to other vegetables.
  • Thus, the consumer will decrease his demand of other vegetables are buying of more potatoes.
  • Thus, there is increase in demand of potatoes, is the influences of substitute of other vegetables are buying of more potatoes.
  • Thus, there is substitute effect. On the contrary, if the price of a commodity increase, it will be dearer in comparison with other goods.
  • There fore, the consumer will decrease its demand.
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Question 352 Marks
What is demand function?
Answer
  • Demand function explains the relationship between demand and factors which effect demand. If shown the functional relationship.
  • If shows the functional relationship.
  • Individually demand depends on price of goods, income of the consumer, price of relative goods, taste of the consumer, population and other factor.
  • The Demand function can be represented as:
  • $Dx = f (Px’ Py’ Pe’ T, Y, U)$
  • Where, $Dx$ = Demand for commodity $x$
$Px =$ Price of commodity $x$
$Py =$ Price of related commodity $y$
$Pe =$ Expectations Regarding Future Prices
$T =$ Taste of consumer
$Y =$ Income of the consumer
$U =$ Other Factors
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Question 362 Marks
What is elasticity of Demand ?
Answer
  • There are several determinants of demand. The change in these factors affects the demand.
  • Elasticity of demand explain the amount of change in demand due to change in these factors.
  • Generally the demand for a commodity depends on price, price of relative goods, income of the consumer, quality of the good, advertisement, taste etc.
  • There are four types of elasticity of demand.
  • Price elasticity of demand
  • Cross elasticity of demand.
  • Income elasticity of demand.
  • Advertisement elasticity of demand.
View full question & answer→
Question 372 Marks
How the taste and preference of the consumer affect the demand?
Answer
  • When consumer has the strong preference for the commodity, the change in price does not affect the demand.
  • E.g. Specific Soap, Tooth paste etc.
  • The change in price of these commodity does not effect, the demand for these commodities.
View full question & answer→
Question 382 Marks
Explain the total outlay method of calculating elasticity of demand. How many types are described by this method?
Answer
  • The change in price affects the total expenditure of the consumer.
  • This method takes into account the total expenditure of the consumer to calculate the elasticity of demand.
  • There are three types : Elastic demand, Inelastic demand, Unit elasticity of demand.
View full question & answer→
Question 392 Marks
“The nature of the goods can be known by the value of income elasticity. ‘-Explain.
Answer
  • If the income of the customer and demand are related positively, the income elasticity is positive.
  • If the value exceeds one, the goods are luxurious.
  • If it is less than one the goods are primary.
  • If the value of the income elasticity is negative, it represents inferior goods. E.g. jowar.
View full question & answer→
Question 402 Marks
What is perfectly elastic demand ?
Answer
  • Perfectly elastic demand means the change in demand is very huge with a small change in price.
  • The demand curve in such case is parallel to horizontal axis.
  • The demand elasticity is infinity.
  • This is not possible in real world.
  • This concept is important to explain the perfect competition.
View full question & answer→
Question 412 Marks
What is the different between increases – decreases in demand and expansion – contraction of demand ?
Answer
  • Expansion – contraction of demand change the point on the same demand curve.
  • It does not shift the demand curve.
  • The point shifts to the right in case of expansion and to the left in case of contraction.
  • Increase-decrease in demand changes the demand curve.
  • An increase in demand shifts the demand curve to the right and decrease in demand shifts the demand curve to the left.
  • The price of the commodity is constant.
View full question & answer→
Question 422 Marks
Why the law of demand does not apply in case of inferior goods ?
Answer
  • Salt, needles are inferior goods. The total expenditure of purchasing these goods is very low.
  • It does not effect budget of consumer.
  • Therefore the change in price does not effect the demand.
View full question & answer→
Question 432 Marks
What is the difference between law of demand and Price elasticity of demand?
Answer
  • The law of demand explain the change of direction in demand due to change in price of commodity. The Price elasticity of demand explains the amount of change in demand due to the change in price of commodity.
View full question & answer→
Question 442 Marks
What is the different between price elasticity of demand and cross elasticity of demand ?
Answer
  • The Price Elasticity of demand is he ration of percentage change in demand of the commodity to the percentage change in th price of the same commodity.
  • If other factors remain constant, the change in demand due to change in income of the consumer can be measured by the income elasticity of demand.
  • In short, the Price Elasticity of demand shows the quantitative relationship between price and demand where as the Income elasticity of demand shows the quantitative relationship between income and demand.
View full question & answer→
Question 452 Marks
Discuss the types of elasticity of demand.
Answer
  • There is five types of elasticity of demand :
  • Perfectly elastic demand $(Ep =$ Infinite$)$
  • Perfectly inelastic demand $(Ep = 0)$
  • Unit elasticity of demand $(Ep = 1)$
  • Elastic demand $(Ep\ > 1)$
  • Inelastic demand $(Ep\ < 1)$
View full question & answer→
Question 462 Marks
What is increase – decrease in demand and expansion – contraction of demand?
Answer
  • If other factors remain constant, the change in demand to the change in price is known as expansion – contraction of demand.
  • If price of commodity remain constant, the change in demand due to change in other factors then it is called increase-decrease in demand.
View full question & answer→
Question 472 Marks
Give the reason behind the inverse relationship between price and demand. Or why demand expands with a fall in price?
Answer
  • The price and demand are inversely related because of income and substation effect.
  • The fall in price of a commodity make it m ore cheap compare to its substitutes.
  • Consumers reduce the demand for substitutes and increase the demand for commodity whose price has fallen.
  • This is because of substitutes and increases the demand for commodity whose price has fallen.
  • This is because of substitution effect.
  • The fall in price increases the real income of the consumer which in turn increases the demand for commodity.
  • This is due to income effect.
View full question & answer→
Question 482 Marks
What is function?
Answer
  • The cause – effect relationship between two or more variable is known as function.
  • The function explains the functional $($mathematical$)$ relationship between dependent and independent variables.
  • The effect of changes in one variable on another variable can be found out by the function.
  • E.g. demand function shown the relationship between price and demand.
View full question & answer→
Question 492 Marks
Explain the assumption of law of demand.
Answer
  • The factors are assumed to be constant while explaining the law of demand.
  • The other factors are :
  • Population is constant
  • Income of the consumer is constant
  • Taste and preferences of the consumer are constant
  • Price of substitutes and complimentary goods are constant
  • No speculation about future price.
  • Quality of the commodity is constant.
View full question & answer→
Question 502 Marks
What is demand?
Answer
  • Generally the desire of the consumer to buy a commodity is known as demand.
  • But there is huge difference between desire and demand in economics.
  • In economics, demand means the desire to buy a commodity = capacity and willingness to pay.
  • In short, demand depends on six things :
  • Desire
  • Capacity
  • Willingness to pay
  • specific time
  • Specific place
  • Specific price
View full question & answer→
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2 Marks Each - Economics STD 11 Commerce Questions - Vidyadip