Short Answer TypeExplain “large number of buyers and sellers” features of a perfectly competitive market.
Production in an economy is below its potential due to unemployment. Government starts employment generation schemes. Explain its effect using production possibilities curve.
Explain the conditions of producer’s equilibrium with the help of a numerical example.
The price elasticity of demand for a good is − 0.4. If its price increases by 5 percentage, by what percentage will its demand fall? Calculate.
Explain any two factors that affect the price elasticity of demand. Give suitable examples.
Giving reasons, state whether the following statements are true or false.
A monopolist can sell any quantity he likes at a price.
Long Answer TypeExplain the Law of Variables Proportions with the help of total product and marginal product curves.
Short Answer TypeExplain the relationship between prices of other goods and demand for the given period.
Price of Other Goods and Demand for the given Good:
Quantity demanded of a good depends on the 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 changes in response to the change in the price of the other good. The related goods can be classified into following two categories.
A. 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, Colgate and CLOSE UP, Cello pens and Reynolds pen, etc. In case of substitute goods, if the price of one good increase, the consumer shifts his demand to the other (substitute) good i.e. rise in the price of one good result in a rise in the demand of the other good and vice-versa.
For example, if price of tea increases, then the demand for tea will decrease. As a result, consumers will shift their consumption towards coffee and the demand for coffee will increase. It should be noted that the demand for a good moves in the same direction as that of the price of its substitute.
B. Complementary Goods:
Complementary goods refer to those goods that are consumed together. The joint consumption of these goods satisfies wants of the consumer. For example: Tea and sugar, ink pen and ink, printer and paper, etc.
In case of complementary goods, if the price of one good increases then a consumer reduces his demand for the complementary good as well, i.e. a rise in the price of one good results in a fall in demand of the other good and vice-versa.
For example, sugar and tea are complementary goods. Since, sugar and tea consumed together, so a rise in price of tea reduces the demand for sugar and vice-versa. It should be noted that demand for a good moves in the opposite direction of the price of its complementary goods.
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