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Economics 2 Marks Each

Supply · Gujarat Board (GSEB) STD 11 Commerce (GSEB - English Medium). 27 questions.

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27 questions · timed · auto-graded

Question 12 Marks
The supply curve is positively sloped. Explain with reasons.
Answer
  • As per the law of supply, as price increases, supply expands and as price decreases, supply contracts. This means there is a direct relationship between price and supply.
  • When we plot the points of any direct relationship between two variables, we get an upward positively sloped curve.
  • Hence, the supply curve is also positively sloped.
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Question 22 Marks
Why can supply be more than production, but can not be more than stock?
Answer
  • Supply of a commodity can be equal to or less than the total stock plus production but not more than that.
  • For example, during a year a firm produces $100$ units. The past stock is $30$ units. So, the total sellable stock becomes $130$ units. This means that the seller can supply maximum $130$ units but not more than that.
  • Hence, the supply can be more than production but not more than the stock.
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Question 32 Marks
Distinguish : Stock and Supply.
Answer
Point Stock Supply
Meaning Stock refers to entire quantity of a commodity which is in the custody of the seller. So it is the potential supply. Supply refers to the quantity of a commodity offered for sale at a given price and at a given time and place.
Dependence Stock depends on production. Supply depends on stock and price and Willingness
Relationship Stock can be greater than the supply. Supply cannot be greater than the stock. Supply can be either equal or less than the stock.
Order of existence Stock comes before supply Supply follow stock. There cannot be supply without stock.
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Question 42 Marks
What is law of supply ?
Answer
  • All factors remaining constant, at a particular price, at a particular time, the willingness and capacity of the firm to sell goods is called supply. The supply is not created if the firm has no capacity or no willingness to sell the product.
  • The law of supply explains the direction of change in supply due in price. The change in price is the reason and the change in supply is the result in the law of supply.
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Question 52 Marks
What is equilibrium market price ?
Answer
  • Generally the equilibrium price is established when demand and supply of the good is same. The price remains for the long run. It means that equilibrium price will not change.
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Question 62 Marks
What is market price determination ?
Answer
  • The prevailing price of the goods in market at any specific time is called market price. The explanation of the determination of the market price is known as market price determination. The market price is determined by the demand and supply of any goods or service.
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Question 72 Marks
Why rare goods are not considered as exception of the supply law.
Answer
  • Supply increases with an increase in price according to law of supply. The law of supply does not apply to goods like old paintings, original copies of old books, ancient sculpture etc.
  • The supply of this goods will not increase with increase in price. In reality there is no supply of rare good. There is only stock of rare goods. Therefore rare goods are not considered as exception of the supply law.
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Question 82 Marks
What is increase-decrease in supply ?
Answer
  • If the prices remain constant and if the supply increases due to other factors, it is an increase in the supply and if the supply decreases because of other factors, it is the decrease of supply. Increase and decrease of supply are caused by other factors than price.
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Question 92 Marks
Write the assumptions of the law of supply.
Answer
  • The assumption of law are as follows :
  • Price of inputs are constant.
  • Level of technology does not change.
  • Prices of relative goods are constant.
  • There are no rumors about the future price.
  • Production cost is constant.
  • Other factors like government policy, transportation , number of firms and goals of the firm, interest rate etc. are constant.
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Question 102 Marks
What will be change in demand and supply if market price is greater than the equilibrium price ?
Answer
  • When the market price of the goods is greater than the equilibrium price of the goods it creates surplus of the goods. It again creates competition among the firms to sell their goods in the market. This process decreases the price of the goods until it reaches the equilibrium level.
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Question 112 Marks
What is difference between market price and equilibrium market price ?
Answer
  • Equilibrium price may be destroyed by the forces and hence market price and equilibrium price are different. Market price is for the short run.
  • This price changes the demand and supply in the free economy. It will establish equilibrium price in the long run. Market price can be at a equilibrium and disequilibrium.
  • Equilibrium market price is established when demand and supply of the good is same in the market. This price remains for the long run.
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Question 122 Marks
What are the determinants of supply ?
Answer
  • The determinants of supply are…
$(1)$ Price of Goods
$(2)$ Price of inputs
$(3)$ Level of technology
$(4)$ Rumours about future price.
$(5)$ Number of firms
$(6)$ Natural determinants.
$(7)$ Economics policy of the government
$(8)$ Political stability.
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Question 132 Marks
What is supply function? Write equation of supply curve.
Answer
  • Supply function explains the functional relationship between supply and factors affecting the supply. It can be explained through following equation.
  • $S = f (Px, T, Pf, Pe, U.)$
  • Where, $Sx =$ Supply of the commodity,
  • $Px =$ Price of commodity,
  • $T =$ Level of Technology
  • $Pf =$ Price of factors of production,
  • Pe $=$ Rumours about future price
  • $U =$ Other factors.
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Question 142 Marks
"Generally, there is direct relationship between price and supply." - Explain.
Answer
  • Generally, if all other factors remain constant and the price of a commodity decreases the producer's profit decreases and he is less interested in production. As a result supply decreases. On the other hand, with the increases in the price of commodity, there is more profitability and changes in the supply of a commodity are more in the same direction. Thus, direct relationship exists between the price of a commodity and the supply of a commodity.
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Question 152 Marks
How does rumors about price of future affect the current supply ?
Answer
  • When there is a rumors about increase in price in future , even if the current price remains constant the supply contracts. Traders to gain more profit in future will increase the stock in present and therefore, supply contracts. On the contrary, if there is rumors regarding decrease of price in future, traders will reduce stock and increase sale. Thus, though the price is constant supply will be extended.
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Question 162 Marks
" The development of transport increases supply." - Explain.
Answer
  • In any country, when transportation develops its facility becomes cheaper and easily available the commodities can be transported speedily and they become less costly. Thus, supply increases. Because of transport facilities, the supply of certain commodities becomes national and international instead of being only local or regional and therefore, such a supply increases.
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Question 172 Marks
When does the supply remain constant or decrease when the price increases ?
Answer
  • A commodity or service may be produced not for consumption or profit but for prestige presenting or social service or it may be harmful for welfare of society. Even if the prices of such commodities increases, because of government control, its supply does not increases but remains constant and sometimes it decreases.
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Question 182 Marks
Flow the supply of food grains affected when the price of cash crops are very high? Why?
Answer
  • If the Price of cash crops is very high, the farmers will produce cash crops instead of food grains. Thereto re supply of the food gains decreases with no price change.
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Question 192 Marks
Explain the meaning of supply.
Answer
  • All factors remaining constant, at a particular price, at a particular time, the willingness and capacity of the firm to sell goods is called supply.
  • The supply is not creates if the firm has no capacity or no willingness to sell the product. In short, supply means the willingness and capacity of the firm to sell the product at a particular price and at a particular time.
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Question 202 Marks
"Changes in technology brings a change in supply." — Explain.
Answer
  • The change in technology influence supply. If price is constant but if production cost increases because of technological changes, supply of a commodity may increase. In such cases, firm can increases production and earn more profit with the help of more supply.
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Question 212 Marks
What is the difference between law of supply and elasticity of supply ?
Answer
  • The law of supply shows how the supply of a commodity will change with the change in price. This means that price and supply have direct relationship. The elasticity of supply is a measurement of ratio of proportion in which supply will change with the change of price.
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Question 222 Marks
In what circumstances supply increases though the price of a commodity remains constant ?
Answer
  • Though the price of a commodity remains constant, if production cost decrease, the price of substitute goods decreases, if there is rumors about decrease of price in future, facilities of transport increase, if credit facilities are provided at lower rate of interest, if the government removes taxes or reduces them or provides subsidies, if a number of firms increase in the field of production and if natural circumstances are favorable, supply of a commodity increases.
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Question 232 Marks
How the contraction in supply and decrease in supply can be explained with the help of supply curve ?
Answer
  • The producer supply curve moves from one point to another point on cause of contraction of supply. It means that contraction in supply can be explained by the movement of downward shifting of the point on the same supply curve.
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Question 242 Marks
Explain the difference between expansion of supply and increase in the supply.
Answer
  • If all other factors remain constant and price of a commodity increases, the supply increases and this increase is called expansion. While if supply increases because of other factors except price, it is called increases in supply. In other words, expansion of supply is caused by increase in price while increase in supply is caused by other factors expect price.
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Question 252 Marks
Why does the supply of labour decrease, when the price of certain kinds of labour increases ?
Answer
  • Some labourers want to get certain expected wages for their work and when their wages increases, they reduce the hours of work and prefer rest. Thus, the. supply of labour decreases.
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Question 262 Marks
When prices decreases, what happens to supply of perishable goods ?
Answer
  • Generally, in normal circumstances with the decreases in price, supply also decreases. But as perishable goods cannot he preserved or stocked, their supply does not decreases even though the price decreases. E.g. The price of vegetable decreases but its stock is not possible to be therefore its supply does not decreases.
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Question 272 Marks
When production, stock and supply are same ?
Answer
  • storage of production is not possible and goods are perishable, production, stock and are same. Because there is no past unsold stock and it is not possible to store the production for future. Therefore the present production and supply are same.
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