Theory Of Demand and Supply

When the cost of producing a commodity decreases, it becomes more profitable for suppliers to produce and supply more of the commodity. This is because lower costs mean higher profit margins for suppliers, making it financially viable to increase the quantity supplied. Therefore, the statement "With lower cost, it is profitable to supply more of the commodity" is correct.

When the demand for a good is inelastic, it means that the quantity demanded is not very responsive to changes in price. In this case, if the price of the good increases, the total expenditure of the consumers will also increase. This is because even though the price has increased, the quantity demanded does not decrease significantly, resulting in consumers spending more money on the good. Therefore, an increase in price leads to an increase in total expenditure for consumers when the demand is inelastic.

The correct answer is "The percentage increase in the quantity demanded of hamburger when the price of hamburger falls by 1 per cent per rupee." This is because price elasticity of demand measures the responsiveness of quantity demanded to changes in price. A higher percentage increase in quantity demanded when the price falls indicates a more elastic demand, meaning that consumers are more responsive to price changes. Therefore, this option represents the concept of price elasticity of demand accurately.

A Giffen good is a rare type of inferior good where the demand for the good increases as its price rises. This goes against the law of demand, which states that as the price of a good increases, the quantity demanded decreases. In the case of a Giffen good, the income effect dominates the substitution effect, causing consumers to actually buy more of the good as its price increases. This leads to an upward-sloping demand curve, as the quantity demanded increases with higher prices.

A conspicuous good is a type of product that is purchased for the purpose of displaying wealth or social status. When the price of a diamond increases, its demand also increases because people perceive diamonds as a luxury item that signifies wealth and status. Therefore, the increase in price makes diamonds more desirable and sought after, leading to an increase in demand.

The correct answer is "Can not be changed." This suggests that the supply mentioned in the question cannot be altered or modified within a short period of time. This implies that the supply is either fixed or limited, and cannot be increased or decreased easily.

Zero income elasticity of demand means that the quantity purchased remains constant regardless of changes in income. This implies that the demand for the product is not affected by changes in income levels. In other words, people's purchasing behavior for this product does not depend on their income.

The supply curve shifts to the right because of improved technology. This means that with better technology, producers are able to increase their output at any given price level. This leads to an increase in the quantity supplied at each price, causing the supply curve to shift to the right. As a result, there is a greater supply of goods and services available in the market, which can lead to lower prices and increased consumer welfare.

A vertical supply curve parallel to the Y axis indicates that the quantity supplied does not respond to changes in price. This means that the elasticity of supply is zero, as there is no change in quantity supplied regardless of the change in price.

When the total demand for a commodity increases as a result of a decrease in its price, it is due to the price effect. This means that consumers are more willing to purchase the commodity because it has become more affordable. The price effect is one of the key factors that influences consumer behavior and demand for goods and services.

The individual's preference, monetary income, and the price of related goods are assumed to remain constant while drawing an individual's demand curve for a commodity. However, the price of the commodity itself is the variable that will change and be represented on the demand curve. As the price of the commodity increases or decreases, the quantity demanded by the individual will change, resulting in a movement along the demand curve.

If the price of orange juice increases, it will become relatively more expensive compared to apple juice. As a result, consumers may switch from orange juice to apple juice, increasing the demand for apple juice and causing its price to increase. Similarly, if the price of apple sauce increases, it will raise the production costs for apple juice, leading to a decrease in its supply. This decrease in supply will cause the price of apple juice to increase. Therefore, if the price of orange juice or apple sauce increases, the price of apple juice will increase as well.

The aim of the consumer in allocating his income is to maximize his total utility. This means that the consumer wants to allocate his income in a way that maximizes his overall satisfaction or happiness from consuming goods and services. By maximizing total utility, the consumer is making choices that provide the greatest amount of satisfaction and enjoyment from the goods and services he purchases.

The elasticity of demand measures the responsiveness of the quantity demanded to a change in price. When a good has many substitutes available, consumers have more options to choose from if the price of the good increases. This means that consumers are more likely to switch to a substitute if the price of the good becomes too high, making the demand for the good more elastic.

Conspicuous goods are products or services that are purchased and displayed to show off one's wealth or social status. They are meant to be seen and admired by others. These goods are often associated with prestige, as they are expensive and exclusive. They are also referred to as snob goods because they are sought after by individuals who want to be seen as elite or exclusive. The term "Veblen goods" is derived from the economist Thorstein Veblen, who described them as goods that have an inverse relationship between price and demand - as the price increases, the demand also increases due to their perceived high status. Therefore, all three terms - prestigious goods, snob goods, and Veblen goods - are used interchangeably to refer to conspicuous goods.

As income increases, consumers tend to shift their preferences towards superior goods, which are considered higher quality or more luxurious. This leads to a decrease in the demand for inferior goods, which are lower quality or less desirable. Therefore, the relationship between income and demand for inferior goods is negative, indicating a negative income elasticity of demand.

The correct answer is "Necessaries and luxuries". This answer suggests that comforts are positioned between necessaries and luxuries. This implies that comforts are not essential like necessaries, but they are also not as extravagant as luxuries.

The coefficient of price elasticity measures the responsiveness of demand to a change in price. In this case, the price decreases from Rs. 6 to Rs. 4, which is a 33.33% decrease. The demand increases from 10 units to 15 units, which is a 50% increase. To calculate the coefficient of price elasticity, we divide the percentage change in demand (50%) by the percentage change in price (-33.33%). The result is -1.5, indicating that the demand for the commodity is relatively elastic, meaning that a small change in price leads to a relatively larger change in demand.

The law of diminishing marginal utility states that as a consumer consumes more units of a particular good or service, the additional satisfaction or utility derived from each additional unit decreases. This concept helps explain how rational consumers allocate their expenditure on goods and services. As the marginal utility of a good decreases, consumers are less willing to spend additional money on it and instead allocate their expenditure towards goods or services that provide higher marginal utility. Therefore, the law of diminishing marginal utility best describes the way in which rational consumers allocate their expenditure.

The Veblen effect refers to the phenomenon where people demand more of certain goods at higher prices, not because of their intrinsic worth, but because they have a higher prestige value. In other words, the higher the price of a product, the more desirable it becomes as a status symbol. This effect is named after Thorstein Veblen, an economist who first identified and described this behavior in his book "The Theory of the Leisure Class" in 1899.

If the percentage change in supply is less than the percentage change in price, it is called "less elastic supply." This means that the quantity supplied is not very responsive to changes in price. In other words, even if the price increases or decreases by a certain percentage, the change in the quantity supplied will be smaller than that percentage. This indicates that the supply is relatively inelastic and less responsive to changes in price.

The elasticity of substitution between two goods to a consumer is not necessarily zero. It can vary depending on the preferences and substitutability of the goods.

An increase in the supply of a good can be caused by improvements in its technology, as this allows for more efficient production and higher output levels. A fall in the prices of other goods can also lead to an increase in supply, as producers may shift their resources and production towards the goods that have become relatively more profitable. Additionally, a fall in the prices of factors of production, such as labor or raw materials, can reduce production costs and incentivize producers to increase their supply. Therefore, all of the above factors can contribute to an increase in the supply of a good.

When the percentage change in quantity demanded is greater than the percentage change in price, a decrease in price will result in an increase in total revenue. This is because the decrease in price leads to a proportionally larger increase in the quantity demanded, causing the total revenue to rise. In other words, the increase in quantity sold compensates for the decrease in price, resulting in higher total revenue.

When the price of a commodity falls, the consumer's real income increases because they can now purchase more of the commodity with the same amount of money. This means that the purchasing power of the consumer has increased, allowing them to afford more goods and services. Therefore, the correct answer is that the consumer's real income increases.

When good growing conditions increase the supply of strawberries and hot weather increases the demand for strawberries, the quantity of strawberries bought will increase. However, the price of strawberries might rise, fall, or not change depending on the balance between the increase in supply and the increase in demand. If the increase in supply is greater than the increase in demand, the price might fall. If the increase in demand is greater than the increase in supply, the price might rise. And if the increase in supply and demand is balanced, the price might not change.

When electricity demand is inelastic, it means that the quantity demanded is not very responsive to changes in price. Therefore, if electric rates increase, the quantity demanded will not decrease significantly. Instead, it will only fall by a relatively small amount. This suggests that consumers are not very sensitive to price changes and will continue to consume electricity even at higher rates, albeit at a slightly lower quantity.

Point elasticity is a measure of how responsive the quantity demanded or supplied is to a change in price at a specific point. In this case, the auto producer wants to determine the response of consumers to a specific price change of lowering the price of cars by Rs.100. This situation involves a specific price change and the corresponding change in quantity demanded, making it suitable for point elasticity analysis. The other situations mentioned involve different types of price changes (doubling the price, lowering the price by a percentage), which would require different elasticity measures.

The theory of demand based on analysis of indifference curves assumes that consumers have a scale of preferences, meaning they can rank different combinations of two goods. It also assumes that there is a diminishing marginal rate of substitution, which means that as a consumer consumes more of one good, they are willing to give up less of the other good to obtain additional units of the first good. Additionally, the theory assumes that consumers would always prefer more of a particular good to less of it, assuming all other factors remain constant. However, the theory does not assume constant marginal utility of money, as the value of money can vary for consumers depending on their individual circumstances and preferences.

When the percentage change in quantity demanded is less than the percentage change in price, it means that the demand for the product is inelastic. Inelastic demand indicates that consumers are not very responsive to price changes, so even if the price increases, the quantity demanded will not decrease significantly. As a result, the increase in price will lead to an increase in total revenue because the additional revenue gained from the higher price outweighs the decrease in quantity demanded.

When income increases, if the money spent on necessaries of life does not increase in the same proportion, it suggests that the demand for these necessaries is not very responsive to changes in income. In other words, the percentage change in quantity demanded is less than the percentage change in income. This indicates that the income elasticity of demand is less than one.

The factor that generally keeps the price-elasticity of demand for a good low is its low price. When a good has a low price, consumers are less sensitive to changes in its price because the cost of purchasing it is relatively low compared to their income. Therefore, even if the price of the good increases, consumers may still continue to purchase it, resulting in a low price-elasticity of demand.

The price elasticity of demand measures the responsiveness of quantity demanded to a change in price. In this case, the price of CDs is reduced from Rs.150 to Rs.100, resulting in an increase in quantity demanded from 700 CDs to 1,300 CDs. The price elasticity of demand is calculated by dividing the percentage change in quantity demanded by the percentage change in price. Since the quantity demanded increases by 85.7% (from 700 to 1,300) and the price decreases by 33.3% (from Rs.150 to Rs.100), the price elasticity of demand is 85.7% / 33.3% = 2.57. However, since the options provided are not exact matches, the closest option is 1.50.

When the demand for meals at a medium-priced restaurant is elastic, it means that consumers are highly responsive to changes in price. Therefore, if the restaurant decides to raise prices, it can expect a large fall in the quantity demanded. This is because the increase in price will result in a significant decrease in the number of meals that consumers are willing to purchase. The elasticity of demand indicates that even a small increase in price can have a substantial impact on the quantity demanded.

A decrease in the price of the book would not lead to a decrease in the supply of books. In fact, it could potentially lead to an increase in the supply as more people may be willing to purchase books at a lower price. The other options mentioned in the question, such as a decrease in the number of book publishers, an increase in the future expected price of the book, and an increase in the price of paper used, could all potentially lead to a decrease in the supply of books.

An increase in the demand for cameras indicates that more people are interested in buying cameras. This increase in demand, coupled with an increase in the number of sellers of cameras, will result in a higher price for cameras due to increased competition. However, it will also lead to an increase in the number of cameras bought as there are more options available for consumers to purchase from. Therefore, both the price and the number of cameras bought will increase.

The elasticity of supply measures the responsiveness of quantity supplied to a change in price. To calculate the elasticity using the point method, we need to find the derivative of the supply function with respect to price, and then multiply it by the ratio of price to quantity. In this case, the supply function is Q = -100 + 10P, and we want to find the elasticity when the price is Rs.15. Taking the derivative of the supply function with respect to price gives us 10. Multiplying this by the ratio of price to quantity (15/(-100 + 10(15))) gives us a result of 3. Therefore, the elasticity is 3.

An increase in the demand for computers indicates that more people are interested in buying computers. At the same time, an increase in the number of sellers of computers means that there are more options available in the market. As a result, both the demand and supply of computers are increasing. This will lead to an increase in the price of computers due to the higher demand, but it will also result in an increase in the number of computers bought as there are more sellers offering the product.

When the price of a good decreases, it becomes less profitable for producers to supply it. As a result, they may reduce their production or exit the market altogether, leading to a contraction of supply. This decrease in supply is a direct consequence of the decrease in the price of the good concern.

When a good is a small part of the consumer's income, it means that the consumer does not heavily rely on that particular good for their day-to-day needs. Therefore, even if the price of the good increases, the consumer is less likely to reduce their demand for it because they can still afford it without significant financial strain. This indicates that the demand for the good is more inelastic, as it is not easily affected by changes in price.

Giffen goods are goods that exhibit a direct price-demand relationship. This means that as the price of a Giffen good increases, the quantity demanded also increases. This is contrary to the law of demand, where an increase in price leads to a decrease in quantity demanded. Giffen goods are typically inferior goods that are essential for survival and have no close substitutes. As the price of these goods increases, consumers are forced to allocate a larger portion of their income towards them, resulting in an increase in quantity demanded.

Supply is a concept that refers to the continuous flow of goods or services into the market. It is not a static or fixed quantity, but rather a dynamic process that involves the production and distribution of goods over a period of time. This concept emphasizes the ongoing nature of supply and highlights the importance of understanding the factors that affect its flow.

An indifference curve slopes down towards the right because it represents different combinations of two goods that provide the same level of satisfaction to the consumer. This means that as the consumer gives up some of one good, they can compensate by increasing their consumption of the other good in order to maintain the same level of satisfaction. Therefore, the consumer remains indifferent or equally satisfied along the curve.

The price elasticity of demand measures the responsiveness of quantity demanded to a change in price. In this case, the price of movies increased from Rs. 120 to Rs. 200, and as a result, attendance at a given movie decreased from 300 to 200 persons. The price elasticity of demand is calculated by dividing the percentage change in quantity demanded by the percentage change in price. In this scenario, the percentage change in quantity demanded is -33.33% (100 persons decrease out of 300) and the percentage change in price is 66.67% ((200-120)/120). Dividing the percentage change in quantity demanded by the percentage change in price gives us -0.5. However, since price elasticity of demand is typically reported as a positive number, the absolute value of -0.5 is 0.5. Therefore, the correct answer is 0.5.

The price elasticity of demand measures the responsiveness of quantity demanded to a change in price. In this case, the price of a medium pizza has increased by 40% (from Rs.60 to Rs.100) and the quantity demanded has decreased by 85.7% (from 700 pizzas to 100 pizzas). The formula for price elasticity of demand is the percentage change in quantity demanded divided by the percentage change in price. Therefore, the price elasticity of demand in this scenario is 85.7% divided by 40%, which equals 3.0. This means that the quantity demanded is highly responsive to changes in price, indicating a relatively elastic demand.

The law of demand states that, all else being equal, as the price of a good or service increases, the quantity demanded decreases, and vice versa. This is a qualitative statement because it describes the inverse relationship between price and quantity demanded without providing specific numerical values or measurements. It is a general observation about consumer behavior rather than a precise mathematical equation.

When the price of the air-conditioner increases slightly from Rs. 30,000 to Rs. 30,010 and there is no significant change in demand, we can use the measure of point elasticity to measure elasticity. Point elasticity is a measure of the responsiveness of demand to a change in price at a specific point on the demand curve. In this case, the small increase in price does not cause a noticeable change in demand, indicating that the demand is relatively inelastic at that specific price point.

When demand is inelastic, it means that changes in price have a relatively small impact on the quantity demanded. In this case, when prices rise, consumers will still continue to purchase the same quantity of the product, resulting in an increase in total consumer expenditures. This is because the increase in price outweighs the decrease in quantity demanded, leading to a net increase in total spending.

The supply curve for perishable commodities is perfectly inelastic. This means that the quantity supplied does not respond to changes in price. Perishable commodities have a limited shelf life and cannot be stored or held for future use. Therefore, producers are unable to adjust their supply based on changes in price. Regardless of the price, the quantity supplied remains constant, resulting in a perfectly inelastic supply curve.