Ans.- The budget set remains same.
Ans.- The consumer will increase the consumption of good-X and will decrease the consumption of good-Y.
Ans.- No, it will depend upon the nature of the good. If good is normal then its demand will increase and if the good is inferior then its demand will decrease.
Ans.- As train and bus service are substitute to each-other, the demand curve for bus service between the two cities will shift leftward to the initial demand curve of bus service.
(a) A new steel plant comes up in Jharkhand people who were previously unemployed in the area are now employed. How will this affect the demand for colour T.V. and Black and White T.V. in the region?
(b) In order to encourage tourism in Goa. The Government of India suggests Indian Airlines to reduce air fare to Goa from the four major cities of Chennai, Kolkata, Mumbai and New Delhi. If the Indian Airlines reduces the fare to Goa, How will this affect the market demand curve for air travel to Goa?
(c) There are train and bus services between New Delhi and Jaipur. Suppose that the train fare between the two cities comes down. How will this affect demand curve for bus travel between the two cities?
Ans: (a) There will be rightward shift in market demand curve for colour and Black and White T.V. This is because of increase of income of the people due to employment in the new steel plant.
(b) The demand for travel to Goa will expand in response to reduction in the air fare. However, this will be reflected by a movement along the demand curve. There will be no shifts in the demand curve.
(c) As train fare comes down the demand for bus travel will reduce. Demand curve for the bus travel will shift to the left showing less demand at the same price.
Q 8. If a good can be used for many purposes, the demand for it will be elastic. Why?
Ans: If a good can be used for many purposes , the demand for it will be more elastic because with a decrease in its price it is put to several uses and with a rise in its price it is withdrawn from its many existing uses. So that, there is a
considerable change in demand in response to some change in price.
Q 9. “If a product price increases, a family‟s spending on the product has to increase.” Defend or refute.
Ans: When product price increases, expenditure on the commodity will not increase in the situation when Ed>1 (elasticity of demand is greater than unity). It will increase only in situation when Ed<1. In a situation when Ed=1. Expenditure
will remain constant, even when prices rise.
Q 10. Suppose there are 30 consumers for a good, having identical demand function: d(p) =10-3P for any price less than or equal to 10/3 and d(p)=0 for any price greater than 10/3. Write the market demand function.
Ans: Market demand function is simply a horizontal summation of individual demand functions. Since demand function for all the 30 consumers is identical,
we can write market demand simply as „individual demand function
multiplying by a factor of 30‟. Thus:
Individual demand function :
D(p)= 10-3P
Market demand function:
Md(p)=10 x 30 – 3 (30)P
= 300-90 P.
Q.11 How would you comment on the elasticity of demand when 8% decrease in price of a commodity causes 2% increase in expenditure of the commodity?
Ans: Elasticity of demand must be greater than unity (implying a situation of elastic demand) when expenditure on the commodity responds inversely to any change in price of the commodity.
Q12. A dentist was charging Rs.300 For a standard cleaning job and per month it used to generate TR is equal to Rs. 30,000. She has since last month increased the price of dental cleaning to Rs.350. As a result fewer customers are now coming for dental cleaning, but the TR is now Rs. 33,250 .From this, what can we conclude about the elasticity of demand for such a dental service?
Ans. PRICE TOTAL EXPENDITURE (Rs.)
300 30,000
350 33,250
When price increases, total expenditure also increases. So elasticity is less than 1.
Q. 13. The elasticity of demand for X is twice the elasticity of demand for Y. Price of X falls by 5% and Price of Y rises by 5% . What will be the % change in the quantity demanded of X and Y?
Ans. Suppose elasticity of demand for Y = 1 , and
elasticity of demand for X will be = 2
So, % decrease in qt. demanded of Y will be 5% , because price rises by 5%, and % increase in qt. demanded of X will be 10% , because price falls by 5% .
Q.14 If prices of salt and cigarettes, both rises by 10% , will the qt. demanded of both goods affected in an equal manner?
Ans. No, because the nature of the two goods is different. Salt , a necessary good, will have constant consumption and marginal consumers will reduce the consumption of cigarettes , which is non-essential.
Q 15. Given eD = - 0.02, and percentage increase in price = 20%, find change in expenditure on the commodity.
Implying that expenditure on the commodity increses by 15.2% owing to increase the commodity by 20% . Which is why ed is less than 1.
.
Q. 16 If MUX/PX> MUY/PY, then the consumer should buy more of commodity Y and less of commodity X to reach the equilibrium position. Is it right or wrong?
Ans.- Wrong. Because in that situation consumer should increase consumption of good-X so that the ration of MUX to its price may become equal to the ratio of MUY to its price.
Q. 17 Law of diminishing marginal utility will operate even if consumption takes place in intervals. Defend or refute.
Ans.- No, the of diminishing marginal utility will operate even if consumption takes place in intervals. Because it is based on the assumption that consumption is taking place in continuation.
Q. 18 What changes will take place in TU, when: (i) MU curv remain above the X-axis, (ii) MU curve touches the X-axis, (iii) MU curve lies below the Xaxis.
Ans.- (i) TU increases at decreasing rate.
(ii) TU becomes maximum. And
(iii) TU starts to decline
Q. 19 A good may be an inferior good for one consumer and normal for another consumer. Defend or refute.
Ans.- Yes it is right. A good may be inferior for a higher income person and the same good may be a superior good for a low income person.
