BHALOTIA CLASSES (9883034569/9330960172) Business Economics [1 Sem] [40 Marks] [2022-23 T Chapter 1 Demand 01-29 2 Chapter 2: Consumer behaviour 30-50 3 Chapter 3: Theory of Production 51-68 4 Chapter 4: Theory of Cost 69-81 5 Chapter 5: Perfect Competition 82-98 5 Question Paper: 2017 99-102 5 Question Paper: 2018 103-106 5 Question Paper: 2019 107-110 5 Question Paper: 2020 u-14 5 Question Paper: 2021 115-119 1st Semester Economics complete course @ % 1500. Contact: 9883934569. [Faculty: Abhishek Pandey Sir] 1st Semester All subjects complete course fees of 6 months @ % 7500. [Faculty: Ravi Bhalotia Sir & Faculty Team] Admission going on throughout the year but join early to finish early and then do free revision till exams. Contact 9883034569 Book Price: = 120Microeconomics: Syllabus Unit I: Demand and Consumer behaviour [15 Marks) © Concept of demand, demand function, Jaw of demand, derivation of individual and marketdemand curves, shifting of the demand curve, elasticity of demand, © Consumer behaviour: Marshallian uty approach and Indifference Cue approach; utility maximization conditions . Income-Consumption Curve (ICC) and Price-Consumption Curve(PCC): Derivation of demand curve from PCC. I Production and Cost [10 Marks) ‘+ Production fiction: Short-1mn and Long-run; Relation among Total Product, Average Productand Marginal Product, Law of retums to a variable factor, Law of Retums to Scale; Concepts of Iso-quant and iso-cost line; Conditions for optieization (graphical approach), * Cost: Accounting and Economic Costs; Social and Private’ Costs, Short-run and Long-run Costs; Relation between Average and Marginal (sis? Determination of LAC curve fiom SACcurves, LMC. Unit: III Perfect Competition [15 Marks Concept of Perfectly Competitive market: Aésiimptions, Profit maximization conditions, Related concepts of Total Revenue, Average Revenue and Marginal Revenue, Short- run and Long run equilibrium of a finf; determination of short-run supply curve of a firm, measuring producer surphis undes-perfect competition, Stability analysis~ Walrasian and Marshallian, demand supply :halysisincluding impact of taxes and subsidy Expected Question Pattern essment: 10 marks, Semester-end Examinations: 40 marks Unit I: Demand and Consimer behaviour [3 Questions of I marks each] Unit: II Production and Cost [4 Questions of 1 marks each] Unit: IITPerfect Competition [3 Questions of 1 marks each] Group B: 15 Question of 2 Marks Each Unit I: Demand and Consumer behaviour [6 Questions of 2 marks each] Unit: II Production and Cost [3 Questions of 2 marks each] Unit; IIL Perfect Competition [6 Questions of 2 marks each]Classes (9883034569): 1‘! Sem Eco complete course @ 1500 Chapter 1 Demand and Consumer behaviour 1. Explain the concept of demand? ‘Concept of Demand ‘Ondinatily, the terms, desire and demand are used interchangeably. But in economics, demand has a distinct ‘meaning supposing, you desire to have a colour TV, but you do not have enough money to buy it, Then, this desire will remain just a wishful thinking: it will not be called demand. And, if in spite of having enough ‘money, you do not want to spend it on colour TV, demand does not emerge. The desire becomes demand only when you are to spend money to buy TV. Thus, demand for a commodity refers to the desire to buy a commodity backed with sufficient purchasing power and the willingness to spend. Definition of Demar ‘Demand refers the amount of a commodity which a buyer is willing to buy iniaarket at the given price of the commodity or at the given price of related commodities or at the give?"income of consumers over a given time period”. Dx=F (Px, Po, Y, T,U) Dx = Demand for goods X. ‘unction Px=Price of X. Po=Price of related commodities (@) Price of sub-goods (0) _ Price of complimentary govtls Y =Income of consumers T=Taste and reference U = Other factors eg, population, climate, fashion Demand Schedule Demand Schedule isla “Schedule which expresses the relation between different quantities of the commodity demanded different prices. According to Samuelson, “The table relating to price and quantity demanded is called the demand Schedule Demand Curve Demand curve is simply a graphic representation of demand schedule expressing the relationship between different quantities demanded at different possible prices of a commodity demand curve is two types: -1- Admission Going on For B.com/ Regular/Crash Course. Call/SMS for details.Bhalo Classes (9883034569): 1‘! Sem Eco complete course @ 1500 2. What is ‘law of demand’? State its assumptions. Law of Demand This law explains the functional relationship between price of a commodity and the quantity demanded of the same, It is observed that the price and the demand are inversely related which means that the two move in the opposite direction. An increase in the price leads to a fall in the demand and vice versa. This relationship can be stated as “Other things being equal, the demand for a commodity varies inversely as the price” Assumption eis based on following assumptions (@ __Thereisno change in taste, preference and habit of the consumer (b) Income of the consumer should remain constant, (© Price of other related goods should not change. (@) There should be no close substitute of the commodity. (©) The commodity should not conform any distinction. (® The demand for the commodity should be continuous. (@ People should not expect any change in the price of the commodity det Explanation Law of demand may be explained with the help of demand sehédals Demand Schedule Ps) ey 10 1900 9 150 8 200 ‘The schedule shows extension of damand in tasponse to decrease in price of the commodity, Thus, demand stretches from 100 to 150 units when price reduces from Rs 10 to Rs 9 per unit. It may be futher illustrated with the help of a den(and’eurve P, . Price (R5) \o book Quanity Inthe above diagram, demand curve DD shown that demand for commodity-X extends from OL to OL) when price falls from OP to OP, In fact, downward slope of demand curve is an expression of the law of demand. Admission Going on For B.com/ Regular/Crash Course. Call/SMS for details.Bhalo Classes (9883034569): 1‘! Sem Eco complete course @ 1500 3. What is ‘law of demand’? Why does a demand curve have negative slope?**4* Lawof Demand ‘This law explains the functional relationship between price of a commodity and the quantity demanded of the same. It is observed that the price and the demand are inversely related which means that the two move in the opposite direction. An increase in the price leads to a fall in the demand and vice versa. This relationship can be stated as “Other things being equal, the demand for a commodity varies inversely as the price” Assumption of Law of Demand or Meaning of other things being constant (i) Price of substitute goods should be constant (i) Price of complementary goods constant (i) Income of consumer should be constant. (iv) Other determinant like fashion, climate and population unchanged, Ww Downward slope of demand curve indicates that more is purchased in reSuGnde to fall in price ‘Thus, there is inverse relationship between price of a commodity and i-duantity demanded. This may be explained in tems of the following factors: (a) Law of Diminishing Marginal Utility: According ty-tlus Law, as consumption of a commodity increases, the utility from each successiv3-init goes on diminishing to a consumer. Accordingly, for every additional unit-wy be purchased, the consumer is willing to pay less and less price. Thus, more“1s purchased only when price of the commodity falls, (>) Income Effects: Income effect refers to,cliayge in quantity demanded when real income of the buyers changes as a result of change in price of the commodity. Change in the price of a commodity causes a chahge-in real income of the consumer. With a fall in price, real income increase, Aecormigly, demand for the commodity expands, (©) Substitution Effect: Substitution x \ » \ é ge é Ns \p ° a a ~ ‘Quantity (units) Market Demand Curve Market Demand Curve is the horizontal summation of the individual demand curves. It various. quantities of a commodity that all the buyers in the market are ready to buy at different possible prices of the commodity at a point of time. -5- Admission Going on For B.com/ Regular/Crash Course. Call/SMS for details.Classes (9883034569): 1‘! Sem Eco complete course @ 1500 ve va ve 5 | AsDemand curve Demand Curve Market Demand Curve 5 D (are D 4 4 4 Bs 3 Bs 8 1 1 > 1 D D CT 2e4 se? SC Trea sot ° TESTS ST EON Quantity (units) ‘Quantity units ‘ouantty (units) “ a i) Aand B are two buyers in the market. Fig. () Is A’s demand eurve, Fig. (ji) Is B’s demand curve Fig. (ii) Is the market demand curve. When price is Re 1 per ice cream euyA’s demand is 4 cup and B’s demand is for 5 cups. Accordingly, market demand is 4+-5=9 onps-wtien the price is Re 1 per cup. Likewise, when price is Rs 4 per cup, market demand is 12-3 cups. Market demand curve also slopes downward, Slope indicating inverse relationship between price of the commodity and its quantity demanded. 's of demand? ** 6. What are the determina Determinants of Demand or factors Effectine Demand, ‘Quantity of a commodity bought at a given price in @-given period of time is called demand. According to Benham, “The demand for anything at a given price ¥he amount of it which will be bought per unit of time at that price.” @® Price of the Product: Under usual Bewétion, demand is influenced by the price of the product Generally, buyers like to purchase ikote when price falls and less when price increases. But in case of certain commodities demand itefeases with the increase in price and falls, with the fall in price. ‘These goods are known as Gite Goods. Normal goods. Compulsory Goods Giffen Goods. , px Px Ps De Dx De (i) Income: 1c iclationship between income and the demand is a direct one. It means the demand changes in the same ditection as the income. An inerease in income leads to rise in demand and vice versa, Population: The size of population also affects the demand. The relationship is a direct one. The higher the size of population, the higher is the demand and vice versa. -6- Admission Going on For B.com/ Regular/Crash Course. Call/SMS for details.Bhalo Classes (9883034569): 1‘! Sem Eco complete course @ 1500 ww ™ (wi, (vit) (will) ) @ Tastes and Habits The tastes, habits, likes, dislikes, prejudices and preference etc. of the consumer have a profound effect on the demand for a commodity. If a consumer dislikes a commodity, he will not buy it despite a fall in price. On the other hand a very high price also may not stop him from buying a good if he likes it very much, Price of other related goods. This is another important determinant of demand for a commodity The effect depends upon the relationship between the commodities in question. If the price of a complimentary commodity rises, the demand for the commodity in reference falls. E.g. the demand for petrol will decline due to rise in the price of ears and the consequent decline in their demand. Opposite effect will be experienced incase of substitutes Advertisement: This factor has gained tremendous importance in the modern days. When a product is aggressively advertised through all the possible media, the consumers buy the advertised commodity even at a high price and many times even if they don’t need it Fashions: Hardly anyone has the courage and the desire to go against the prevailing fashions as well as social customs and the traditions. This factor has a great impact on the demand. Imitation: This tendency is commonly experienced everywhere. This is known as the demonstration effects, due to which the low income groups imitate the consumption pattems of the rich ones. This operates even at international levels when the poo: ountries try to copy the consumption patterns of rich countries. Price of the commodity: demand of a commodity is inveisél/ proportional to the price of commodity, Price of the commodity increase, then the demand decreases and vice-versa. Distribution of Income: Market demand is also influsiced by change in the distuibution of income in the society. If income is equally distributed, ches? will be more demand, IF income is not ‘equally distributed, there will be less demand. In cas¢-oP unequal distribution, most people will not have enough money to buy things 7. Explain diagrammatically the difference between the change in demand & change in quantity’ demanded?*** ‘Change in quantity demanded & Changes ii) ynand The law of demand explains the effectvof only-one factor viz., price, on the demand for a commodity, under the assumption of constancy of other determinants. In practice, other factors such as, income, population etc. couse the rise or fall in demand without any change in the price. These effects are different from vhe law of demand. They are termed as changes in demand in contrast to variations in demand which occur due to changes in the price of a commodity. In economic theory a distiri made between (a) Variations i.e. extension and contraction in demand due to price anzia) Changes i.e. increase and decrease in demand due to other factors. {a) Variations in demand refer to those which occur due to changes in the price of a commodity (change in quantity demanded): 1. 2 Extension of Demand: This refers to rise in demand due to a fall in price of the commodity, It is shown by a downwards movement on a given demand curve Contraction of Demand: This means fall in demand due to increase in price and can be shown by an upwards movement on a given demand enrve =T- Admission Going on For B.com/ Regular/Crash Course. Call/SMS for details.Bhalotia Classes (9883034569): 1‘! Sem Eco complete course @ 1500 Yo D Py op ts z = Py D ——EE—E—_—— ° a a x (QUANTITY 2.3 (A) Extension/Contraction of Demand Changes in demand imply the rise and fall due to factors other thar: jirice, (Change in Demand) It means they occur without any change in price. They are of tw types. 1. Increase in Demand: This refers to higher demand at ame price and results from rise in income, population etc., this is shown on a new demanghstirve lying above the original one 2. Decrease in demand: It means less quantity demanded at the same price. This is the result of factors like fall in income, population ete. this is shown on a new demand lying below the original one Y Sp = & D, D ° a, aa x QUANTITY Fig. 2.3 (B)| INCREASE / DECREASE IN DEMAND. In above figure , the original price is OP and the Quantity demanded is OQ. With a rise in price from OP to OP1 the demand contracts from OQ, to OQ and as a result of fall in price from OP to 02, the demand extends from OQ to 02. — Admission Going on For B.com/ Regular/Crash Course. Cal/SMS for details.Bhalo Classes (9883034569): 1‘! Sem Eco complete course @ 1500 In figure, B an increase in demand is shown by a new demand curve, D1 while the decrease in demand is expressed by the new demand curve 02, lying above and below the original demand curve D respectively. On D1 more is demand (OQ1) at the same price while on 02 less is demanded (0Q2) at the same price OP. bi change in D Chance i ity D Change In demand Change in Quantity Demand 1. Here consumer's demand schedule will change. | 1. Here constmer’s demand schedule remains the Demand schedule is a chat showing different | same, Only consumers will move fiom one ‘quantities at different price levels ‘quantity to mother due to.a change in price. 2, Here conswmer will shift fom one demand curve | 2 Here consumer will move from one point of to another demand curve to another point ofthe same curve. 3. Change in one or more of the following factor will | 3. Only change in cumrantpiice of the product will, cause a change in demand, Income, Distribution, | canse the change is-qrulity demanded. Other price of related product; taste; population and | factors affectins:sestiand will remain tnchanged. expectation about future price change 8. What is price elasticity of demand? How #uuld you measure the price elasticity of demand at a point on a dowr:werd sloping straight line demand Price Elasticity of Demand The law of demand explains the direction of # ebange as it states that with a rise in price the demand contracts and with a fall in price it expands \The law of demand explains the qualitative but not the quantitative aspect of price- demand relationship. The concept of the price elasticityvof demand has great significance as it explains the degree of responsiveness of demand to a chang’ in price. Different commodities react to", Change in price in the same direction, the degree of their response Giffet Elasticity of demands v-sheasure of relative changes in the amount demanded in response to a small change in price. Ceitaint goods are said to have an elastic demand while others have an inelastic demand. The demand\is said to be elastic when a simall change in price brings about considerable change in demand. Cayhe other hand, the demand for a good is said to be inelastic when a change in ptice fails to bring about significant change in demand, Elasticity is defined as the responsiveness of the quantity demanded of a good to change in one of the variables on which demand depends. ‘The concept of elasticity can be expressed in the form of an equation as Eu= [Percentage change in quantity demanded / Percentage change in the price] -9- Admission Going on For B.com/ Regular/Crash Course. Call/SMS for details.Bhalo Classes (9883034569): 1‘! Sem Eco complete course @ 1500 Point clastic method: This is also known as geometrical method. This method is used when we have to find out elasticity at a point onthe demand curve, _ Lower Segmentionthe demand curve(LS) y ~ Upper Segment on the demand curve US) Eno uantty Inthe figure given below at the point ‘C’ lower segment is CE of the demand curye-and upper segment is AC of the demand cnrve and CE/AC = 1, so elasticity is E = 1, And at the point ‘D) lower segment is De ‘and upper segment is Ad and DE/AD (DE US, then Es> 1 ILS slasticity will also be less. So then the product will be relatively inelastic. On the other lund if the expenciteré 20 parchase the product takes large share of consumers income, then a small rise in price will lead to fall in greater are, then it will be relatively elastic. (Price Level: Highly priced product such as diamonds and low priced pryxtictuike salt have low price elasticity because ‘a change in their price has very litle effect on demand. @)_ Time Period: Inthe short period price elasticity is low and for thé Toa period itis high. (&) Joint Demand: Ifthe demand for car is relatively inelastic, then Wie demand for petrol will also be inelastic, (@)_ Range of prices: The demand for very low-priced as sysfs very high-price commodity is generally inelastic. When. the price is very high the commodity is consumed offy by the rich people, A rise or fall in the price wall not have significant effect in the demand, Simnilariy, whei Yue price is so low that the commodity can be brought by all those who wish to buy, achange, ie, arise or fallin ie plive, will hardly have any effect onthe demand 10. What are the Uifferent types of price elasticity of demand? Types of Price Elasticity The concept of price elasticity-reveals that the degree of responsiveness of demand to the change in price differs from cohafnodity to commodity. Demand for some commodities is more elastic while that for certain/uthers are less elastic. Using the formula of elasticity, it possible to mention following different types of price elasticity: Perfectly inelastic demand (e = 0) Inelastic (less elastic) demand (e < 1) Unitary elasticity (= 1) Elastic (tmore elastic) demand (e > 1) Perfectly elastic demand (e = <0) Perfectly inelastic demand (Ed = 0) This describes a situation in which demand shows no response to a change in price. The vertical straight line demand curve as shown alongside reveals that with a change in price the demand remains same. Thus, demand does not at all respond to a change in price. Thus Ed=0. BuswRe —11- Admission Going on For B.com/ Regular/Crash Course. Call/SMS for details.Bhalo Classes (9883034569): 1‘! Sem Eco complete course @ 1500 2, Inelastic (less elastic) demand (Ed < 1) In this case the proportionate change in demand is smaller than in price. 3. Unitary elasticity demand (e = 1) When the percentage change in price produces equivalent percentage change in demand, we have a case of unit elasticity. 4. Elastic (more elastic) demand (e > 1) In case of certain commodities the demand is relatively more responsive to the change in price. It means a small change in price induces a significant change in, demand. 5. Perfectly elastic demand (e = ©) This is experienced when the demand is extremely sensitive to the changes in price. In this case an insignificant change in price produces tremendous change in demand. The demand curve showing perfectly elastic demand is a horizontal straight line. It can be noticed that at a given price an infinite quantity is demanded. A small change in price produces infinite change in demand. A perfectly competitive firm faces this type of demand. Summery: 11.What are the different Methods of Measurement of price Elasticity of demand? “Measurement of Price Elastidty of Demand:- Different methods are used for measuring price clasticity of demand. The one explained above, is proportionate method/percentage method of measuring price elasticity other method are 1. Arc Elasticity 2. Point Elasticity 3. Total Outlay Mebiod (@) Arc elasticity : This is the average measwe of the elasticity on the arc of the demand cure. Here within the entire demand curve, two points A & B are considered. Joining them, we get an atc, and on average, the elasticity is measured, —12- Admission Going on For B.com/ Regular/Crash Course. Call/SMS for details.le initial price = initial quantity = a8 B . car P, «: Price elasticity = SG dQ _@+P)/2 “OP @+O)/2 a a, a re Figre; Arc Plasticity of Demand Point clastic method: This is also known as geometrical method. This method is used when we have tid out elasticity at a point onthe demand curve. pq - Laer Segmentionthe demand eurve(LS) Upper Segment on the demand curve US) D x, Ed Best i Dest Emo anit Using the above formula we can get elasticity at various point on the demand curve, As we move from E towards A elasticity goes on incressing at the mid point it is equal to one, at A it is infinity and at E it is Zeto Elasticity lies. 1, Tflower sector = Uppet sector, then E: 2. IfLS>US, thenEy>! 3. IfLS Total Outlay Method: The elasticity of demand can be measured by considering the changes in price and the consequent changes in demand causing changes in the total amount spent on the goods. The change in price changes the demand for a commodity which in turn changes the total expenditure of the consumer or total revenue of the seller. TO=PxQ ‘Where TQ = Total Expenditure; P = price; Q= Quantity purchased 1. Ifa given change in price fails to bring about any change in the total outlay, it is the case of unit elasticity. It means if the total revenue (price x Quantity bought) remains the same in spite of a change in price, ‘eis said to be equal to 1. —13- Admission Going on For B.com/ Regular/Crash Course. Call/SMS for details.Bhalo Classes (9883034569): 1‘! Sem Eco complete course @ 1500 2. If price and total revenue are inversely related, i.e., if total revenue falls with rise in price or rises with fall in price, demand is said to be elastic or e > 1 3. When price and total revenue are directly related, i.e. if total revenue rises with a rise in price and falls with a fall in price, the demand is said to be inelastic e<1. Price Total Expenditure Elasticity of Demand Increase Increases Less than 1 Remains Same Equal to | Falls ‘More than 1 Falls Less than 1 Remains Same Equal to | Increases More than 1 12. Explain the concepts of income elasticity of demand The income elasticity of demand explains the extent of change in demand as,avesult of change in income. In other words, income elasticity of demand means the respodsiveness of demand to changes in income. Thus, income elasticity of demand can be expressed a Ey = [Percentage change in demand / Percentage change in income] In Other Words Income elasticity of demand means the ratio of perezatsze change in quantity demanded due to percentage change in income of consume? %Changeis quantity demanded %Changein Income Ey= For example if income inczease fromiS~L00 % 110 and Quantity demanded also increases from. 50 to 55 then income elasticity 6f desiand will be AQ=5 AY =10 Y=10 oes) 3 By= Og be bay By=1 0 30 The following types of jiiceme elasticity can be observed: 1, Income Elasticity af Demand Greater than One: When the percentage change in demand is greater than the percentage change in income, a greater portion of income is being spent on a commodity with an increase in income- income elasticity is said to be greater than one 2. Income Elasticity is unitary: When the proportion of income spent on a commodity remains the same or when the percentage change in income is equal to the percentage change in demand, Ey = | or the income elasticity is unitary. 3, Income Elasticity Less Than One (Ey< 1): This occurs when the percentage change in demand is less than the percentage change in income 4, Zero Income Elasticity of Demand (Ey=0): This is the case when change in income of the consumer does not bring about any change in the demand for a commodity. —14- Admission Going on For B.com/ Regular/Crash Course. Call/SMS for details.Bhalo Classes (9883034569): 1‘! Sem Eco complete course @ 1500 5, Negative Income Elasticity of Demand (y< 0): It is well known that income effect for most of the commodities is positive, But in case of inferior goods, the income effect beyond a certain level of income becomes negative, This implies that as the income increases the consumer, instead of buying more of a commodity, buys less and switches on to a superior commodity. The ineome elasticity of demand in such cases will be negative 13.Define cross-price elasticity of demand. How are the concerned goods related to each other if this cross-price elasticity is positive? The concept of cross elasticity explains the degree of change in demand for X as a result of change in price of ¥. This can be expressed as: Ec= [Percentage Change in demand for X / Percentage change in price of Y] In other words The cross elasticity of demand is proportional change in quantity of X demanded resulting fiom given relative change in the price of the related commodity Y. pre —20Change inquantity of 'X" ,, %NOx %Change in price of 'Y' — %APy Be= SO Py APy Ox 1. Positive Ee- In case of substinite goods for e.g. Tea Bd Coffee, there is positive relation so positive cross elasticity is found there, Positive lie'bet veen to 2 ‘Negative Ec — In case of complementary goods like Car and petrol, There is inverse relation, so negative cross elasticity is found here, NegsitveTie between 0 to. Examples If the quantity demanded of X increases t%-5.% when the price of Y increases by 20%, the cross price elasticity of demand between X anic¥ will be: NOx OS Ly 95Ko <1 AP 20% +0.25 indicates that X and V-azeComplementary goods. ‘There may be another methouin which average of the two prices and quantity are taken. Type Cross elasticity will be of tire’ types: 1. Negative cross elactitify — Complementary commodities 2. Positive cross elesiisity ~ Substitutes, 3. Zero cross elasticity — Unrelated goods. Ec of XY commodity In nutshell, it can be concluded that the concept of elasticity of demand has great significance in ‘economic analysis. Its usefulness in branches of economic such as production, distribution, public finance, international trade etc., has been widely accepted. —15- Admission Going on For B.com/ Regular/Crash Course. Call/SMS for details.Classes (9883034569): 1‘! Sem Eco complete course @ 1500 Summary INDIVIDUAL DEMAND MARKET DEMAND It refers to demand for a commodity by an individual buyer in the market. itis defined as the total demand for a commodity by all the consumers in| Demin refs to he aunties of ammody thet te consumers ar lable and willing to buy at each possible price of the commodity during iven period of time. he market. jQuaNTITY it refers to a specific quantity of a commodity purchased against its specifi DEMANDE! [price at a point of time. DETERMINANTS OF DEMAND INDIVIDUAL DEMAND, (i). Price of the Commodity (ii) Price of Related commodities (iil) Income of the Individual (iv) Taste and Preference (v) Expectation Regarding Future Price Chang (vi) Need of the Individual (vii) Demonstration Effect MARKET DI (i) Number of Consumers (ii) Population and Its Compositing (iil) Advertisement Expendicure (iv) Terms of Credit ang Rate of Interest (v) Introduction of New Products (vi) Distribution of|ncernes DEMAND SCHEDULE it refers to a schedule’ which expresses the relation between different| (quantities of the catnimodity demanded at different prices, assuming other things remairiing constant’ DEMAND CURVE LAW OF DEMAND EXCEPTIONS TO YHE LAW OF DEMAND it is a graphic representation of the inverse relationship between price and |quanty.csmianded of a commodity. lLaw-of demand states that other things being equal, the amount demanded lof ».chmmodity decreases with rise in its price and increases with a fallin its [oie So, there is an inverse relationship between price and quantity \demanded of a commodity. ignorance of the consumer: when the consumer is driven by the idea costlie |Articles of social distinction (Giffen goods he better MOVEMENT ALONG |THE DEMAND CURVE It refers to a situation of change in quantity demanded of a commodity due| {to change in its price alone. Increase in quantity demanded of a commodit (due to fall in its price is called Extension of Demand and decrease in quantity idernanded due to rise in its price is called Contraction of Demand. HIFT IN DEMAND URVE [tis defined as a situation of change in demand for a commodity due t {change in factors other than price of the same commodity. When more i (demanded at the same price, it is a situation of increase in demand (0 isa situation of decrease in demand (or backward shift in demand curve). forward shift in demand curve). When less is demanded at the same price, i —16 - Admission Going on For B.com/ Regular/Crash Course. Call/SMS for details.Bhalo Classes (9883034569): 1‘! Sem Eco complete course @ 1500 jt is the one whose income effect is positive so that there is a positive| NORMAL GOOD ‘relationship between consumer's income and quantity demanded. jt is the one whose income effect is negative, So that there is a negative| INFERIOR Goop [relationship between consumer's income and quantity demanded. However, |quantity demanded may or may not fall in response to a fall in price of the! commodity. [That inferior good whose income effect is negative, So that there is a Inegative relationship between consumer's income and quantity demanded. |also, quantity demanded must fall in response to a fall in price of the| Icommodity. SUBSTITUTE GOODS SOMPLEMENTARY [these are the goods which are used simultaneously. If price of one good [These are the goods which can be interchanged for use. If price of a good increases, quantity demanded of its substitute will increase and vice versa. Types of Price jasticity of Demand OODS: increases, demand for its complementary will decrease and vice versa, Elasticity of Elasticity of demand may be defined as the percentage chang in quantity jemand lemanded due to the percentage change in one of the variable on which demand lepends Price elasticity of demand may be defined as the ppccentage change in quantit lemanded due to percentage change in price-of the commodity, ceteris paribus. symbolically, Ep = % Change in Quantity Ds (i) Unitary Elastic Demand (ii) Elastic Demand (ii) Inelastic Demand (iv) Perfectly Elastic Demand (v) Perfectly Inelastic Dentand aided /% Change in Price. Unitary Elastic Demand It refers to a situation wtjon proportionate change in quantity demanded is same s proportionate ctianige in price. implying itis the one when prOportionate change in quantity demanded is greater than roportionste’jange in price. implying "* Tor elastic demand. Inelastic Demand It refers to Situation when proportionate change in quantity demanded is less than proportionate change in price. Implying #« “or inelastic demand. Perfectly Elastic Demand itJs “he one when any amount will be purchases at a certain price but a slightest. Fahge in price couses an infinite change demand. malying = Perfectly ‘Quantity demanded does not change as price changes. Implying = Inelastic Demand Methods of (i) Percentage or Proportionate Method Measurement of i) Arc Elasticity Method i ii) Geometric or Point Method Pi Sf rice Elasticity f(,) Total expenditure Method Demand Percentage or. _,A2,,? Proportionate APR Method Admission Going on For B.com/ Regular/Crash Course. Call/SMS for details.Bhalo Classes (9883034569): 1‘! Sem Eco complete course @ 1500 Elasticity {:, - @-@ x PEPE Method eee wee eometric or Lower Segment ef the DD Cure Point Method Uppe Seement of the DD Curve Importance of Price Elasticity offi) For the Finance Minister 21, ifrise or fallin price of a good causes no change in its total expenditure. 'Ee> 1, if with fall in price of a good total expenditure increases and with rise in its, price, total expenditure decreases. Es <1, if with fall in price of a good, total expenditure decreases and with rise in it price, total expenditure increases, (i) Availability of Substitutes (il) Position of a Commodity in a Consumer's Budget (ii) Nature of Commodity (iv) Number of Uses to Which a Commodity Can Be Put {v) Postponement of the Use (vi) Time Period (vii) Consumer Habits (viii) Tied Demand (ix) Price Range (i). For Businessmen and Monopolists (iii) Joint Products (iv) In industrial Production (v) Paradox of Poverty in Penalty (vi) In international Trade (vii) Determination of Wages Income elasticity lof demand income elasticity of demand thay be defined as percentage change in quantit lemanded of any commodity due to percentage change in income of the onsumer, ceteris paiibus. Symbolically, By = % Change in Quantity Demanded /% Change in Income of the Consumer. ross elastiityof demand may be defined as percentage change in quantity lemandéa)oi any commodity due to percentage change in price of othe -ommadity, ceteris paribus. Symbolically, Ec — % Change in Quantity Demanded of Commodity X } (/% Change in Price of Commodity Y. = 18 - Admission Going on For B.com/ Regular/Crash Course. Call/SMS for details.Bhalotia Classes (9883034569): 1‘! Sem Eco complete course @ 1500 INCREASE AND DECREASE IN DEMAND/SHIFTS IN DEMAND CURVE (i) Meaning: Increase & Decrease in Demand take place as a result of changes in factors other than price, while price remains constant. (ii) Shift of Demand Curve: Increase / Decrease in Demand indicates rightward / leftward shift of the Demand Curve respectively. (ii) Effect: The two concepts are as under — Terms Reasons Effect ‘* Rise in the price of Substitute Goods, ‘+ Fallin the price of Complementary Goods, Increase in| * Increase in Income Levels, Rightward shift Demand ‘© Change in tastes in favour of this commodity, of the Demand © Increase in population, Curve ‘+ Re-distribution of income to Consumers who favour this commodity. + Fallin the price of Substitute Goods, ‘+ Increase in the price of Complementary Goods, Decrease in |e Decrease in Income Levels, Leftward shift of Demand ‘© Change in tastes against this commodity, the Demand © Decrease in population, Curve ‘+ Re-distribution of income away from groups/sonsumers who favour this commodity. oO _aMOVEMENT ALONG” vs. “SHIFTS OF” DE} Movement along the Demand Curve ot Shift of the Demand Curve ()| Demand Curve remains the same. {ij-| There is shift in the Demand Curve itself (ii This arises due to price changes, other factérs | (ii)| This arises due to changes in factors other than remaining constant. price, price remaining constant Tif te may be — Gil} tt may be— a). Expansion, or a) Increase, or b)_ Contraction in Demand“. b) Decrease in Demand, (iv] © Expansion = Downward Movement (iv) * Increase = Rightward Shift. ‘© Contraction = Upward ovement. # Decrease ~ Leftward Shift ‘HE SLOPE OF TKE DEMAND CURVE: The demand curve slopes downward from left to right to show that more is Geffidnded at lower prices. The slope of the demand curve is expressed as ~ AP/AQ = Absolute Change In Price/ Absolute Change In Quantity The slope, which is the ratio of two absolute changes, is negative because one of the two changes(AP or AQ) is negative. If price falls, AP is negative and quantity rises, AQ is positive. If price rises, AP is positive and AQ is always negative. So AQ/AP is always negative. ‘* Elasticity means expansion and contraction. ‘+ Elasticity of Demand means expansion and contraction of demand + Price Elasticity of Demand means expansion and contraction of demand due to change in price. -—19- Admission Going on For B.com/ Regular/Crash Course. Call/SMS for details.Bhalotia Classes (9883034569): 1‘! Sem Eco complete course @ 1500 ELASTICITY OF DEMAND: Elasticity of demand is defined as the responsiveness of the quantity demanded of a good to changes in ‘one of the variables on which demand depends. In other words, it may be defined as the percentage change in quantity demanded due to the percentage change in one of the variable on which demand depends. These variables are mainly price of the commodity, income of the consumers and price of the related ‘commodities. Thus we have: (i) Price Elasticity of Demand, (ii) Income Elasticity of Demand and (iii) Cross Elasticity of demand. Note: When we talk of elasticity of demand, unless and until otherwise mentioned, we talk of price elasticity of demand which is usually referred to as elasticity of demand. DEMAND: Demand refers to the quantity of a commodity that the consumers are able and willing to buy at each possible price of the commodity during a given period of time. INDIVIDUAL DEMAND AND MARKET DEMAND Basi Individual or Household Demand | __ Iralustry or Market Demand Meaning _ | It refers to demand for a commodity by an | It tors to total demand for a commodity individual buyer in the market, at various |-hy all the buyers in the market, at various prices prices. Concept [tis sub-system of the market demand. [Ics the sum total demand of all individuals, inthe market. ie is depicted by — (a) Individual Demand Schedule, (b} Individual Demané-Curve. It is depicted by — (a) Market Demand Schedule, (b) Market Demand Curve, DEMAND FUNCTION: The functional relation of dependence Ketween the demand for the commodity and the determinants of demand is called demand function: &.g-y ceteris paribus, in any time the relation between the prices of the commodity (P} with the demand fof)that commodity (D) will be D=#(P) his demand function is called special demand function. This is a demand function, DEMAND SCHEDU:E: The demand schedule is generally represented by a table which shows how the quantity demanded of a ‘commodity varies with price, ceteris paribus. According to Prof, Samuelson, “The table relating to price and quantity demanded is called the demand schedule.” Demand schedule is of two types — (i) INDIVIDUAL DEMAND SCHEDULE and (ii) MARKET DEMAND SCHEDULE. Individual_Dema Schedule (IDS): Individual demand schedule Is defined as the quantities of a given commodity which a consumer will buy at all possible prices, at a given moment. The following table is an individual demand schedule which indicates the different quantities of ice cream bought by a consumer at different prices, at a given time. o — 20 - Admission Going on For B.com/ Regular/Crash Course. Call/SMS for details.Classes (9883034569): 1‘! Sem Eco complete course @ 1500 ‘Table-1: Individual Demand Schedule Price of Commodity X (%) ‘Quantity Demanded (Units) 25 20 15 10 05. 6 00 Ttis seen from Table-1 that as the price of Commodity X goes on increasing, the quantity demanded goes ‘on falling. When price is Re.1 per unit, then the consumer demands 25 units but when price increases to ® 6 per unit, the demand of the consumer falls to 00 units. (i) Market Demand Schedule (MDS): Market demand schedule is one that shows total demand of all the consumers in the market at different prices of the commodity. On the assumption that there are only 2 buyers in the market, market demand schedule for Commodity X may be drawn as under ~ Price of Commodity X (% ‘A’s Demand (1) B’s Demand (2) ‘Market Demand (3) ) , (142) r 75 30 35 2 20 2s 45 3 4s 2 35 4 10 a5 25 5 05 10 15 6 00 05 05 (Assumption: There are only 2 buyers in the marke ‘The schedule shows that when price of commodit\fells its market demand extends. E.g., when price is ® 6 then A’s demand is for 0 units and B’s demand for § units. Thus, the total market demand at & 6 is 5 units. But when price falls to Re.1 per unit thefymiarket demand rises to 55 units LAW OF DEMAND: The law of demand states that ceteris Jaribus, if the price of one good increases its quantity demanded decreases and vice-versa. The aliove law reveals an inverse relationship between the demand and price of the commodity. Assumptions of the Lavy sf Demand: A demand curve is drawn on the assumption that other determinants of demang other than P,) remain constant. These are therefore the assumptions of law of demand — (i) That prices of related goods do not change. (li) That consumer's income is constant. (iii) That there is no change in consumer's tastes and preferences. ‘THE SLOPE OF THE DEMAND CURVE: The demand curve slopes downward from left to right to show that more is demanded at lower prices. ‘The slope of the demand curve is expressed as — AP/AQ = Absolute Change In Price/ Absolute Change In Quantity The slope, which is the ratio of two absolute changes, is negative because one of the two changes(AP or AQ) is negative. If price falls, AP is negative and quantity rises, 4Q is positive. If price rises, AP is positive and AQ is always negative. So AQ/AP is always negative. —21- Admission Going on For B.com/ Regular/Crash Course. Call/SMS for details.Bhalotia Classes (9883034569): 1‘! Sem Eco complete course @ 1500 PRICE ELASTICITY OF DEMAND (Ep): Price elasticity of demand express the response of quantity demanded of a good to a change in its price, given the consumer's income, his taste and preference, price of related commodities etc. In other words, it may be defined as the percentage change in quantity demanded due to percentage change in price of the commodity, ceteris paribus. Symbolically, Ep = % Change in Quantity Demanded /% Change in Price. TYPES OF PRICE ELASTICITY OF DEMAND: (i) Unitary Elastic Demand (Ep=1); The change in demand is exactly equal to change in price, say, by 5 % in both cases: Ep = 5%/5%= (ii) Elastic Demand (Ep>1): The change in demand is more than change in price, say, by 5% and 2.5% respectively: Ep = 5%/2.5%=2 (ii) Inelastic Demand (Ep< 1): The change in demand is less than change in price,s@¥2.5% and 5% respectively. Then : Ep = 2.5%/5%=5 (iv) Perfectiy Elastic Demand (Ep=) It refers to situation where slight change in price of a commodity ‘causes an infinite change in the quantity demand of a commodity‘ Vite demand in such case is hyper sensitive and elasticity of demand is infinite. Then : Ep = 5%/0%= (v) Perfectly inelastic Demand (Ep=0); There is no change int2mand and only price changes. Suppose price changes by 5%. Ep =0%/5%=0 INCOME ELASTICITY OF DEMAND (Ey: Income elasticity of demand is the degree of re:punsiveness of quantity demanded of a goods to a small cchange in the income of consume In other Words, it may be defined as percentage change in quantity demanded of any commodity due to percentage change in income of the consumer, ceteris paribus. symbolically, Ey ~% Change in Quantity Demanded /% Change in Income of the Consumer. Income Elasticity of Demand inaptational form can be expressed as = 22 X 7 Where = Change in Quantity, AY = Change in Income, Y = Income & Q = Quantity. GROSS ELASTICNY OF DEMAND (Ec): ‘A change in demand for one goods in response to a change in the price of other goods represents cross elasticity of demand of the former goods for the latter goods. In other words, it may be defined as percentage change in quantity demanded of any commodity due to percentage change in price of other commodity, ceteris paribus. Symbolicaly, Ee ~ % Change in Quantity Demanded of Commodity X /% Change in Price of Commodity Y. Cross Elasticity of Demand in notational form can be expressed as = 2 X i Where AQ = Change in Quantity, AY = Change in Income, Y = Income & Q = Quantity. —22- Admission Going on For B.com/ Regular/Crash Course. Call/SMS for details.Bhalo Classes (9883034569): 1‘! Sem Eco complete course @ 1500 ‘SOME USEFUL ILLUSTRATIONS () When price of the good increases from 10 to < 15 per unit, total expenditure on the commodity increases from & 1,000 to 1,500. Find elasticity of demand. ‘Aus: The elasticity of demand is less than one or commodity has inelastic demand. (ii) There is 50% fall in price of the commodity, But quantity demanded remains to be 150 units. Find elasticity of demand. AUS Here, elasticity of demand is zero. (ii) A certain quantity of the commodity is purchased when its price is € 10 per unit. Quantity demanded increases by 50% in response to a fall in price by 2 2 per unit. Find elasticity of demand. ‘Aus: Elasticity of Demand 5 (iv) At a certain price of the commodity quantity purchased is 150 units. When price falls by 25%, ‘quantity purchased increases by 75 units. Find elasticity of demand. ‘Aus: Elasticity of Demand (v) Price elasticity of demand is found to be (2)2. Price falls from & 10, permit to & 8 per unit. Find the percentage change in quantity demanded. ‘Aus; Percentage change in quantity demanded: 0. (vi) For a commodity, AP/P = -0.2, and elasticity of dema’ quantity demanded. ‘Aus: Percentage change in quantity demanded = 6, 0.3, Find percentage change in (vil) For a commodity, AP/P = -0.2, and elasticity of demand is 0.5. Find quantity demanded after a fall in price when initially It was 60 units. Aus: Quantity demanded = 66 units. (viii) A commodity shows Ea~ (2, Quantity demanded reduces from 300 units to 150 units. In response to increase in price. Find the increased price when initially it was & 20 per unit. ‘Aux: New price = 25. (ix) Given Ka = -02 and perdeniage increase in quantity demanded = 20%, find the percentage change in expenditure. Aus; Total expenditure seduces by 40%, (0) When price of a’@od rises from & 5 per unit to 6 per unit, its demand falls from 20 units to 10 units. Compare expenditures on the good to determine whether demand is elastic or inelastic. Aus: Here, total expenditure decreases with rise in price: hence elasticity of demand is more than ‘unity. Its a situation of elastic demand. (0) Price elasticity of demand of a good is 1. At a given price the consumer buys 60 units of the good. How many units will the consumer buy if the price falls by 10 per cent? Aus: The consumer will purchase 66 units of the good when price falls by 10 percent. — 23 — Admission Going on For B.com/ Regular/Crash Course. Call/SMS for details.Classes (9883034569): 1‘! Sem Eco complete course @ 1500 MCQ of 1 & 2 Marks: 1. Demand for a commodity refers (0 : (a) Desire for a commodity (b) Need for the commodity (©) Quantity demanded of that commodity (@) Quantity of the commodity demanded at a certain price and any particular period of ime 2. Movement along the same demand (a) Expansion of demand (B) Expansion of supply (©) Expansion and contraction of demand (@ Increase and dectease of demand 3. The price of hot-dogs increases by 22% and the quantity demanded by 28% this indicates that demand for hot dogs is: (a) Elastic () Inelastic (©) Unitary elastic (@ Perfectly elastic 4. The quantity demanded does not respond to price change ands te elastidty (@) Zero (b) One (©) Infinite @ None 5. In case of straight line demand curve meeting (¢ two axes, the price elast anid-point of the line would be: (@o m1 15 @2 6. Compute income elasticty if éémisid Increase by 5% and income by 1%. @Ss @) Us 0 @ None For a commodity @ith a unitary elastic demand curve if the price of the commodity rises, then the consumer's total expenditure on this commodity would? (a) Increase (b) Decrease (©) Remains constant (@ Either increase or decrease 8. Whatis the value of elasticity of demand if the demand for the good is perfectly elastic? (ao @) 1 © Infinity (@ Lessthan 0 ve shows: ity of demand at the —24 - Admission Going on For B.com/ Regular/Crash Course. Call/SMS for details.Bhalo Classes (9883034569): 1‘! Sem Eco complete course @ 1500 9. If the price of any complement goods rises? (a) Demand curve shifts to Left (b) Demand curve shifts to right (© Demand curves moves downwards (@) Ddemand curves moves upward 10. What is income elasticity of demand, when income changes by 20% and demand changes by 40%? @ % 2 © 033 (@ None 11, If demand is parallel to x axis, what will be the nature of elasticity? (a) Perfectly elastic (b) Inelastic (© Elastic @ Highly elastic 12, Law of demand is a? (@) Quantitative Statement (b) Qualitative Statement (© Botha& b (@) Hypothetical 13. The demand of which type of goods do not decrease with incase in its price? (a) Comforts (b) Luxury (© Necesdites (@) Capital goods 14, Increase in price from % 4 to@ 6 than decrease; demand from 15 unitsto 10 units. What is the price elasticity?(point elasticity) (a) 0.6 5 1s @ 15, Expansion & contraction of demand curve occurs due to? (a) Change in the price.of commodity (b) change in price-of substitute (© Change in income (@) None 16. Demand of a comrtiodity depends upon? (a) Price (b) Income (© Price of related good (@) All of the above 17. In case of subsitute goods, cross elasticity i. (a) Negative (b) Zen (©) Positive (@) None of these —25- Admission Going on For B.com/ Regular/Crash Course. Call/SMS for details.Bhalo Classes (9883034569): 1‘! Sem Eco complete course @ 1500 18, If Other things constant, if the price of the inferior goods decrease then what will be the effect? (a) Demand increase (b) Demand decrease © Quantity decreases (@) Quantity demand decreases 19. A consumer spends @ 80 on purchasing a commodity when its pricels 2 1 per unit and spends 7 96 when the price is & 2 per unit. Calculate the price elasticity of demand? (@ 0.2 (b) 03 © 04 @os 20. When the price of cylinder rises from % 120 to % 200, the demand falls from 300 to 200.0 Calculate price elasticity of demand (a) 1.00 ®) 050 (© 5.00 (@) None 21. If the price is decreased from % 10 to % 8 of a commodity but the quent!iy demanded remains the same price elasticity is... @1 @) 0 (© Infinity 22. If income of a person in elasticity will be....2 (a) Equal to one (b) Less than one (© More than one (@ None of these 23. In case of luxury goods, the income elasiteity of demand will b (@) Zero (b) Negative but greater than. Ge. (© Fosltive but greater tian (@) Positive but less then one 24, When price falls by 5% and xiemand increases by 6% then elasticity of demanc (a) Elastic (b) Inelastic (© Unitary diane @ Zero 25. Cross elasticity of complementary goods is...? (@) Positive (b) Negative (© Infinity (@) None of these 26. Demand of i-pod increase from 950 to 980 and income increases from 9,000 to 9,800. What is income elasticity? (a) 0.53 (b) 035 (© 043 (@) None ‘eases by 10% and his denietd for goods increases by 30%, income — 26 - Admission Going on For B.com/ Regular/Crash Course. Call/SMS for details.Bhalo Classes (9883034569): 1‘! Sem Eco complete course @ 1500 27. Normal goods have. (a) Zero income elasticity (b) Negative income elasticity (©) Positive income elasticity (@) Infinite income elasticity 28. If the 20% fall in price of a commodity brings about a 40 % increases in the demand, then the demand for the commodity will be termed as..? (a) Inelastic (b) Elastic (© Highly elastic (@ Perfectly elastic 29, Cross elasticity of demand between two perfect substitutes will be? (a) Very high (b) Very low (© Infinity @ Zero 30. Which statementiis true about the law of demand? (a) Income rises, demand rises (b) price rises, demand rises (©) Price falls, demand falls (@) Price falls, demand rises 431. Which of the following is not a determinant of demand? (a) Consumer’s tastes and preferences (b) Quality supplied of a commodit (© Income of the consumers (@ Price of related goods 32. if the quantity demanded of X commodity ‘uer¥ases by $% when the price of Y commodity Increases by 20%, the cross price elasticity: of @emand between X and Y commodity will be? (@ 0.25 (b) 25 (© +00 @ 4.00 33. A horizontal demand curve-parallel to x axis shows that the elasticity of demandis...? (@) Zero (b) Equal to utility (©) Greater than vikity @ Intute 34, Which one of the following is correct about the price elasticity of demand of a commodity? (a) I-remains same under all situations (b) ithas several degressnature (©) Umalfected by the price of other sood (@) Tis an immeasurable concept 35. Suppose income of the residents of locality increase by 50% and the quanitty of X commodity increase by 20% what is income elasticity of demand for commodity X? (a) 0.6 ) o4 © 12 @ 13: -—27 - Admission Going on For B.com/ Regular/Crash Course. Call/SMS for details.Bhalo Classes (9883034569): 1‘! Sem Eco complete course @ 1500 36, The price elasticity of demand at the midpoint ofa straight line demand curve Is? (a) Equal to zero (b) Greater than zero (©) Less thn zero @ Eaualtoone ‘37. In the case of luxury items income elasticity of demand is? (a) Zero (b) Positive and greater than one (©) Negative but greater than mins one @ Positive and less than one 38, if as a result of $09% rise in price, the quantity demanded does not change at all, implies that the lasticity of a demand is? @ Zero (b) Infinit (©) Greater than one @ Bqualto one 39, If the price electricity of demand for a commodity is zero, the demand curbs) [2017], 8) Parallel to the vertical axis \b) Parallel to the horizontal axis ©) Rectangular hyperbola 4) A negative sloped stinight Hine 40. Consider a situation where the price of petrol in India r'sas suddenly due to a disturbance in the international petroleum market. How do you expect th demand curve for motor cars in India to behave? [2017] a) Will shiftto the sight b) Will shift to the left ©) Will remain unchanged 4) Will become horizontal 41, When the income of the consumers vises by 10%, the quantity of a commodity decreases from 2000 units to 1900 units. What ie \'ié income elasticity of demand for this commodity? [2017] a2 >) 05 o) 15 a 2 42. If the absolute vatut of price elasticity of demand for a commodity is one (unity) throughout the demand curve then the demand curve is: [2018] 18) Parallel (o the horizontal axis b), Parallel fo the vestical axis ©) Arectangular hyperbola 4) Concave to the origin 43, When the price of a good falls from © 10 to % & per unit, quantity demanded increases from 1250 to 1750 units. The absolute value of price elasticity of demand for the good is: [2018] a) 2 ») 5 8 a) 10 —28-— Admission Going on For B.com/ Regular/Crash Course. Call/SMS for details.Bhalo Classes (9883034569): 1‘! Sem Eco complete course @ 1500 44, Assume that the absolute value of price elasticity of demand for a commodity is one (unity). When the price is @ 4, the demand is 300 units. What amount will be demanded is price falls to 2 3? pois) a) 400 units 1b) 300 units ©) 200 units 8) 900 units 5. If for an increase in the price of a commodity. There is no change in the expenditure incurred on that commodity, than that commodity is, with respect to its price [2019] a) Unit elastic b) Infinitely elastic ©) Inelastic 4) Elastic 46, Price elasticity of demand at the mid point of a linear demand curve is : [2020] (A) Elastic (B) Inelastic (©) Unitary elastic (©) Perfectly inelastic. 47. When the takers. is perfectly inelastic, a rightward shift in the eta (A) Arise in both price and quantity 3) Atisein pri o ‘Arise in price and fall in quantity (D) Unchanged price and rise in quantity id curve will produce [2020] 48. When the income of the consumer rises by 10%, the quantity of a commodity decreases from 2000 units to 1900 units. What is the income etasticity of demand? [2020] @ 2 COM*#LETE COURSE FEES: ‘Subject's Nome Marks ‘Complete Course fees: Financial Accounting I 100 2500 Statisties 30 1500 Micro-Economies I 50 1500 Business Law 100 1500 Principal of Management 100 1500 ‘All subjects (excluding Communicative English) 7500 -—29- Admission Going on For B.com/ Regular/Crash Course. Call/SMS for details.Classes (9883034569): 1‘! Sem Eco complete course @ 1500 Chapter 2: Consumer behaviour 1. What is utility? How do you measure it? ‘What is Utilitv? ‘Utility is the want satisfying power of a commodity. It is a subjective entity and varies from person to person. It should be noted that utility is not the same thing as usefulness. Even harmful things like liquor, may be said to have utility from the economic stand point because people want them. Thus in Economics, the concept of utility is ethically neutral ‘Utility is an anticipated satisfaction by the consumer, and the satisfaction is the actual satisfaction derived. Utility hypothesis fons the basis for the theory of consumer's behaviour. From time to time different theories have been advanced to explain consumer's behaviour and thus to explain his demand for the product. Two important theories are (i) Marginal Utility Analysis propounded by ‘Marshall, and (ii) Indifference Curve Analysis propounded by Hicks and Allen. ‘Measurement of Utility Ineconomic theory, utility is measured in two ways i) Cardinal: In cardinal measurement, utility is expressed in absolute’ standard units. According to cardinal utility concept, it is possible to measure and coltpire the utilities of two commodities. The cardinality explain the theory of consumer ehaviour on the assumption that utility can be measured. Utility analysis or cardinal utilily~analysis: Propounded by Prof. Marshall i) Ordinal: ordinal aneasurement is not expressed in absc!v¥2 units. According to ordinal utility it is not possible to measue and compare the utility/of two commodities. The ordinalists maintain that quantities of utility are inherently hon measurable, theoretically, conceptually as well as practically. Characteristics of utility: i) Utility isa Psychosocial concept it miezins we can only feel it ii) Utility depends upon the intensity o£ wants. iii) Utility is relative i.e. change fronrihan to man, place to place and from time to time. iv) Utility has got no social or ¢trical implication. Assumption of utility analysis. i) Rationality ii) The cardinal measieinent of utility iii) Constancy of thewiarginal utility of money iv) Total ulility dep2nds upon quantities of individual commodities Total Utility, Average Utility and Marginal Utility Total utility: It is the sum of the utility derived from an different units of a commodity consumed by a consumer. In other Wards, Total utility = the sum total of all marginal utility. ‘Marginal utility: \t is the additional utility derived from additional unit of a commodity. In short, Marginal utility = the addition made to the total utility by the addition of consumption of one more unit of ‘commodity. Average Utility (AU): Average utility is the per unit uti ‘commodity, AU =TU/N received from the consumption of a -—30- Admission Going on For B.com/ Regular/Crash Course. Call/SMS for details.Bhalotia Classes (9883034569): 1‘! Sem Eco complete course @ 1500 2. Law of d ing marginal utility (Marshallian utility approach) THE LAW OF DIMINISHING MARGINAL UTILITY Initially this law formulated by a German economist H.H. Gossen and it was later used Marshall to explain consumer's behaviour. This law states that, “As a consumer increases the consumption of a commodity, keeping constant the consumption of other commodities, the utility obtained from every s (.e. Marginal utility) goes on dininishing. It can eventually fall to zero and becomes. 1. Consumption should be in adequate quality. 2. All the units of the conunodity must be equal in size and quality 3. The consumption should be continuous, 4. There should be no change in the assets in the tastes habits fashion preference and income of consumer 5. There should be no change in the mental condition of the consumer. 6. Cardinal measurement of utility is possible. 7. Marginal utility of money is assumed to be constant, ‘We can explain this law with the help of following example or a table Utility schedule for Mangoes Unit of Mangoes Consumed | Tu D Mu 1 16 16 2 28 2 3 36 8 4 40 4 5 40 0 6 35 4 Nu aaTu 5 Units ww -—31 - Admission Going on For B.com/ Regular/Crash Course. Call/SMS for details.Bhalo Classes (9883034569): 1‘! Sem Eco complete course @ 1500 The above schedule and curve show that MU tends to diminish as consumption increases. It is important to note that when MU diminishes, TU tends to inerease only at diminishing rate. 5% unit of mango does not provide any marginal utility to the consumer and this is the point of maxiaum satisfaction. If consumers continue consumption on 6" unit than his marginal utility will be negative. From the above diagram we can conclude the three important relationships between total utility and marginal utility 1. When the total utility rises the marginal utility diminishes 2. When the total utility is maximum then the marginal utility is zero. 3. When the total utility is diminishing then the marginal utility is negative Exceptions to the Law of Diminishing Marginal Utility There are certain conditions in which the law does not apply. These conditions are known as its exceptions. Important exceptions to this law are as follows: 1. Very Small Unit of Consumption: The law does not apply when the-enit of consumption is very small, For eg., if only one spoonful water is provided fo‘s))person who is very thirsty, he will not feel satisfied and the marginal utility of néxt/spoon of water will be more. 2. Money and wealth Accumulation: This law does not appli; Gi the accumulation of money and wealth, With every successive increase in his accuni}4tion, he gets more satisfaction. 3. A Drunker: The law does not hold good on the coisuiption of liquor. Every additional does of liquor will increase its marginal utility to yrelnmiker 4. Music, Recital or Beautiful Scenic View: This law does not apply on listening to the music, recital of a song or poem or witnessing Yeautiful scenery Limitations of the Law The law of diminishing marginal utility is appticable only under certain assumptions, (@) The different units consumed should be identical in all respects. The habit, taste, ‘tveatment and income of the consuiier also remain unchanged. (b) The different units consiimed should consist of standard units. If a thirsty man is given water by successive spoons, the utility of second spoonfidl may conceivably be greater than the utility of the firs) (©) There should be-nd-éime gap or interval between the consumption of one unit and another unit ie, thefe should be continuous consumption. (@) The law ma net apply to articles like gold, cash where a greater quantity may increase the lust for it. (e) The shape of the utility curve may be affected by the presence or absence of articles which are substitutes or complements. Criticism of the MU theory (a) Cardinal measurability of utility is unrealistic. () Hypothesis of independent utility is wrong, (©) Assumption of constant MU of money is not valid. (@)_ Law of demand generally can not be derived except ina one-commodity case. (©) This theory explains law of demand through substitution effect alone not explains the income effect. -—32- Admission Going on For B.com/ Regular/Crash Course. Call/SMS for details.Bhalo Classes (9883034569): 1‘! Sem Eco complete course @ 1500 3. Explain the concept of consumer surplus.*** ‘The concept of consumer's surplus was developed by Prof Marshall. It is closed related to the law of diminishing Marginal utility and the law of demand, According to this concept, a consumer is willing to pay more for goods than he actually pays for them. Thus he gets surplus satisfactions from the purchase of goods, The concept has an important place not only in economic theory but also in economic policies. ‘The concept is stated by Marshall as follows: “the excess of prices which a consumer is willing to pay rather than go without a thing over that which he actually does pay is the economic measure of surplus satisfaction. ......t may be called consumer's surplus” ‘Thus consumer's surplus = what he is willing to pay minus what he actually pays, ‘The concept is illustrated with the help of the table showing the law of diminishing marginal utility ‘Measurement of Consumer’s Surplus:— Units of Commodity MUG) Price &) ‘Consumer's Surplus @ ) 1 5 5 20 2 20 5 15 3 15 5 10 4 10 5 5 3 3s 5 0 From the above table, we find that when he buys the first unit he is willingsto pay % 25 but he pays only & 5. He gets consumer surplus as he goes on buying the commodity. Fie bys 5 units. He is willing to pay for these units — 25+% 2042 154% 10+% S=z 75. He aritally pays @ 20 for these 5 units (@ Sx 5= 25), Hence, consumer surplus is € 75% 25=% 50. ‘The concept can be illustrated by the following diagram) = 3 a AMOUNT OF G22 SA0DITY Marshall's Measure of Consumer's Surplus In above Figure, the total utility is equal to the area under the marginal utility curve up to point Qi, OPRQ. But given the price equal to OP, the consumer actually pays OPRQ. The consumer derives extra utility equal toDPR whichis nothing but consumer's surplus, Assumpti (It is based on all the assumptions of law of diminishing marginal utility and law of demand, (ii) Ttasstunes cardinal utility (iii) Ttdeals with a single commodity (iv) MU of money remains constant (¥) Consumer’s surplus arises due to opportunities -—33- Admission Going on For B.com/ Regular/Crash Course. Call/SMS for details.Bhalo Classes (9883034569): 1‘! Sem Eco complete course @ 1500 Limitations: (2) Consumer's surplus camnot be measured precisely - because itis dificult to measure the marginal utilities of different tits of a commodity consumed by a person. (2) In the case of necessaries, the marginal utilities of the earlier units are infinitely lange. In such case the ‘consumer's suuphis is always infinite (3) The consumer's surplus derived from a commodity is affected by the availability of substitutes, (@) There is no simple rule for deriving the utility scale of articles which are used for their prestige value (e.g, diamonds). {5) Consumer's swplus camo be measured in terms of money because the marginal utility of money changes as purchases are made and the consumer's stock of money diminishes. (Marshall assumed that the marginal utility of money remains constant. But this assumption is unsealistc) (6) The concept can be accepted only if i is assumed that utility can be measured in terms of money ot otherwise. Many modem economists believe that this cannot be done. 4. What is an indifference map? Discuss the assumptions.oF indifference curve. INDIFFERENCE CURVE ANALYSIS, Approach to consumer behaviour is based on consumer preferences. It believes that human satisfaction being a psychological phenomenon cannot be measwred quantitatively-in iponetary terms as was attempted in Marshall's utility analysis. In this approach it is felt that it is rii'cl-asier and scientifically more sound to onder preferences than to measure them in terms of money. ‘The consumer preference approach, is, therefore an oftlinal-concept based on ordering of preferences ‘compared with Marshall's approach of cardinality What are Indifference Curves? ‘Ondinal analysis of demand (here we will discuss the one given by Hicks and Allen) is based on indifference curves, An indifference curve is a curve whicti represents all those combinations of goods which give same satisfaction to the consumer. Since ail. @-combinations on an indifference curve give equal satisfaction to the consumer, the consumer is indifferent among them. In other words, since all the combinations provide same level of satisfaction the conmner prefers them equally and does not mind which combination he gets. Indifference Map: An Indifference map‘epresents a collection of many indifference curves where each curve represents a certain level of satisfaction. In short, set of indifference curves is called indifference map, Assumptions Underlying Indifference Curve Approach (a) The consumer is rational and possesses full information about all the relevant aspects of economic environment in which he lives (b) The consumer is capable of ranking all conceivable combinations of goods according to the satisfaction they yield. Thns if he is given various combinations say A. B, C, D. E he can rank them as first preference, second preference and so on. If a consumer happens to prefer A to B, he can not tell quantitatively how much he prefers A to B (©) Ifthe consumer prefers combination A to B, and B to C, then he must prefer combination A to C. In other words, he has a consistent consumption pattem behaviour (@) If combination A has more commodities than combination B, then A must be preferred to B. —34- Admission Going on For B.com/ Regular/Crash Course. Call/SMS for details.Bhalo Classes (9883034569): 1‘! Sem Eco complete course @ 1500 5. Properties of Indifference Curves: ‘The following are the main characteristics or properties of indifference curves: (a) Indifference curves slope downward to the right: This property implies that when the amount of one ood in combination is increased, the amount of the other good is reduced, This is essential if the level of satisfaction is to remain the same on an indifference curve Indifference Schedule [eombination Food [Clothing A 1 2 B 2 6 c 3 4 D 4 3 CLOTHING (b) Indifference curves are always convex (0’the origin: It has been observed that as mote and more of ‘one commodity (X) is substituted jer another (Y), the consumer is willing to part with less and less of the commodity being substituted:(’e) Y), This is called diminishing marginal rate of substitution, Thus in our example of food and clsthing, as a consumer has more and more units of food, he is prepared to forego less and less units OS clothing, (©) Indifference curves vai Hever intersect each other: No two indifference curves will intersect each other although it aot necessary that they are parallel to each other. In case of intersection the relationship becomes logically absurd because it would show that higher and lower levels are equal which is not possible, This propeity will be clear from the following diagram. —35- Admission Going on For B.com/ Regular/Crash Course. Call/SMS for details.Bhalo Classes (9883034569): 1‘! Sem Eco complete course @ 1500 (@) A higher indifference curve represents a higher level of satisfaction than the lower indifference curve: This is because combinations lying on a higher indifference curve contain more of either one ot both goods and more goods are preferred to less of them. ‘Apoop (©) Indifference curve will not touch the axis Another characteristic feature of indifference curve is that it willslef Yotch the X axis or Y axis. This is bom out of cur assumption that the consumer is considering ciffercnt combination of two commodities. If an indifference curve touches the Y axis at a point it reais that the consumer is satisfied with zero ‘units of x commodity. This is contrary to our assumptioi’ that the consumer wants both commodities although in a smaller or larger quantities. Thereforé\th inifference curve will not touch either the X axis or Y axis, 6,__ Substitutes and Completsents in Indifference Curve Analysis The indifference curve analysis is based on the assumption that there are two related goods which may be substitutes or complements, Pareto explzited the relation between substitute and complementary goods as reversible which means that if X is’ estdstitute of Y, Y is a substitute of X, and if X is a complement to Y then Y is complement to X. In this sense, the shape of qn indifference cwve depends on whether the two related goods are perfect or imperfect substitutes or covntlements, In case of impericct substitutes indifference curvea are negatively sloping shape: ‘The shape of an indifference curve is convex to the origin and this is based on the principle of diminishing ‘marginal rate of substitution. Thus when two goods X and Y are imperfect substitutes; the indifference curve has its usual negatively stoping shape In case of perfect substitutes Iftwo goods X and Y are perfect substitutes, the indifference curve is a straight line with negative slope In case of perfect complements Ifthe two goods are perfect complements the indifference curve is right-angled or L. shaped, —36- Admission Going on For B.com/ Regular/Crash Course. Call/SMS for details.Bhalo Classes (9883034569): 1‘! Sem Eco complete course @ 1500 7. Indifference curves and budget lines ‘An indifference curve is a line showing all the combinations of two goods which give a consumer equal utility. In other words, the consumer would be indifferent to these different combinations. Diminishing marginal utility The indifference curve is convex because of diminishing marginal utility. Budget tine ‘A budget line shows the combination of goods that can be afforded with your current income. What is ‘income effect’? ‘The income effect is the change in the consumption of goods based on income. This means consumers will generally spend more if they experience sn increase in income, and they may spend less if their income drops, But the effect doesn't indictate what kind of goods consumers will buy. In case of normal goods, the income effect is positive, ie, demand for these goods increases with an increase in real income. However, in case of inferior goods, the income effect is fiegitive, ie., demand for such goods decline with an increase in the real income of the consumer conseaent upon a price-fall. So, income-effect is positive only in case of normal goods, 9. Substitution Effect ‘The substitution may occur when a consumer replaces cheaper enui-oderately priced items with ones that are ‘more expensive when a change in finances occurs, ‘While the substitution effect changes consumption patteras ih-fivor of the more affordable alternative, even ‘a modest reduction in price may make a more expensiv product more attractive to consumers, For instance, if private college tuition is more expensive than public Zollege tuition—and money is a concem—consumers will naturally be attracted to public colleges. Bj: shall decrease in private tuition costs may be enough to motivate more students to begin attending pxivte schools 28. What is ‘Price Effect’? Income of the consumer and ghee of one commodity remaining the same, if the price of the other commodity changes it will affect \ive quantity purchased of the two commodities. This change in the amount purchased of both the commiiitities resulting from a change in price of one commodity is called the price effect Suppose the consumer consumes to commodities X and Y. Price of Y and income of the consumer are assumed to remain unchanged. Suppose that the price of X decteases. How this change in price, affects the ‘quantity purchased of both the commodities is Price Esfect, 11. Income and substitution effect of a rise in pri ‘When the price of a good rises. People buy less for two reasons Income effect. This looks at the effect of a price increase on disposable income. If the price of a good increases, then consumers will have relatively lower disposable income. For example, if the price of petrol rises, consumers may not be able to afford to drive as much, leading to lower demand, ‘Substitution effect. This looks at the effect of a price increase compared to alternatives. Ifthe price of petrol rises, then itis relatively cheaper to go by bus, -37 Admission Going on For B.com/ Regular/Crash Course. Call/SMS for details.Bhalo Classes (9883034569): 1‘! Sem Eco complete course @ 1500 12. Income and substitution for a normal good A tise in price changes the budget line. You can now buy Less quantity of good. The budget curve shifts to left, Consumption falls from one point to another point (fall in Quantity of goods also) 13._Income consumption curve Income consumption curve is the locus of equilibrium points at various levels of consumer's income, Income consumption curve traces out the income effect ‘We are interested in knowing how the consumer will react in regard to his purchases of the goods when his ‘money income changes, prices of the goods and his tastes and preferences remaining unchanged. Income effect shows this reaction of the consumer. Thus, the income effect means the change in consumer's purchases of the goods as a result of a change in his money income. Income effect is illustrated in Fig. 8.28. ICC in case of Normal Goods Income effect for a good #2aid to be positive when with the increase in income of the consumer, his consumption of the gon! dizo increases. This is the normal good case, When the income effect of both the goods represented on Ihe two axes of the figure is positive, the income consumption curve ICQ will slope upward to the right as in Fig, 8.28, Only the upward- sloping income consumption curve can show rising consumption of the two goods as income increases ICC in case of Inferior goods: However, for some goods, income effect is negative, Income effect for a good is said to be negative when with the increases in his income, the consumer reduces his consumption of the good. Such goods for which income effect is negative are called Infetior Goods. This is because the goods whose consumption falls as income of the consumer rises are considered to be some way ‘inferior’ by the constmner and therefore he substitutes supesior goods for them when his income rises. —38- Admission Going on For B.com/ Regular/Crash Course. Call/SMS for details.Classes (9883034569): 1‘! Sem Eco complete course @ 1500 14. Derivation of Demand curve from Price-Consumption Curve (PCC) ‘The price-consumption curve (PCC) indicates the various amounts of a commodity bought by a consumer when its price changes. The Marshallian demand curve also shows the different amounts of a good demanded by the consumer at various prices, other things remaining the same. Given the consumer's money income and his indifference map, it is possible to draw his demand curve for ‘any commodity from the PCC. ‘The derivation of demand curve ftom the PCC also explains the income and substitution effects of a given fall or rise in the price of a good which the Marshallian demand curve fails to explain. Income of the consumer and price of one commodity remaining the same, if the price of the other commodity changes it will affect the quantity purchased of the two commodities, This change in the amount purchased of both the commodities resulting fiom a change in price of one commodity is called the price effect Assuimpti ‘This analysis assumes that: (a) The money to be spent by consumer is given and constant (b) The price of one commodity changes. (0) Prices of other related goods do not change (@) Consumer's tastes and preferences remain constant Derivation ‘The shape of the price consumption curve depends on (i) the nefi degree of intensity of income effect and substitution effect a8) ‘The price-demand schedule of the consumer for good X shows that given his money income OP (Rs.10) ‘when he spends his income in buying OQ quantity (2-iudty), it means that the price of X is OP/OQ (Rs.5) as per budget line PQ at which the consumer buys A (ohe unit) of good X. This is shown by point R on the curve the two commodities, and on (ii) the Oye sd er oee (Quanity Domanded efx Fig. 38 —39- Admission Going on For B.com/ Regular/Crash Course. Call/SMS for details.Bhalo Classes (9883034569): 1‘! Sem Eco complete course @ 1500 15. Giffen goods Giffen goods are described as goods that show direct price-demand relationship, ie, demand for good increases with an increase in the price, violating the Inw of demand, When the price of good falls, consumers do not purchase it more, as they seek better altematives. It is due to the reason that income effect of higher price supersedes substitution effect. It includes those goods which consumers considers infesior and which ‘occupy an essential place in conswmer’s budget such as wheat, rice, etc. Sir Robert Giffen, an economist, revealed the fact that, with the rise in the prices of bread, the British ‘workers purchased more of it, that reverses the general law of demand. The reason behind this is that when the price of bread hiked, it resulted in a huge decline in the spending power of poor people that they were bound to cut down the consumption of expensive goods. And even ater the rise in prices of bread, itis still the least costly food item, so the demand for it increased, 16. Definition of Inferior Goods Goods whose quantity demanded decreases when the income of the consumer insitases beyond a certain level and vice versa, are called inferior goods. In simple terms, the quantity demended'by consumers for such goods are indirectly related to the consumer's income, and so the income elasticity Of demand is negative. ‘The concept of inferior goods is very well known to consumers and sellers.” is known to all that millet is inferior in comparison to wheat, Kerosene is inferior to cooking, gas,Lidh is inferior to cigarette and so on. ‘Therefore, such goods have better alternatives regarding quality (called As superior goods), When the income. ofthe consumer rises, he can afford high priced article over low p2ived one. 17. Distinguish between inferior goods & Giffen goods. COMARISON GIFFEN GOODS: INFERIOR GOODS Meaning Giffen goods Tefers to those | Inferior goods are goods whose demand goods whose Yemand goes up | falls down with the rise in the consumer's with thexrise in the prices. income over a specified level. ‘Whatis it? a the law of | Determinant of demand. Close substitutes | No Yes Demand Curve Upward Sloping Downward Sloping Price Effect Negative Positive Income Effect Positive Negative Condusion Giffen goods are a type of inferior goods and so all Giffen goods come under inferior goods, but all inferior goods are not giffen goods, —40-— Admission Going on For B.com/ Regular/Crash Course. Call/SMS for details.Classes (9883034569): 1‘! Sem Eco complete course @ 1500 Bhalo 18. What Is the Marginal Rate of Substitution (MRS)? In economics, the marginal rate of substitution (MRS) is the amount of a good that a consumer is willing to consume compared to another good, as long as the new good is equally satisfying MRS is used in indifference theory to analyze consumer behaviour ‘The marginal rate of substitution is the willingness of a consumer to replace one good for another 00d, as long as the new good is equally satisfying. ‘The marginal rate of substitution is the slope of the indifference curve at any given point along the ‘curve and displays a frontier of wility for each combination of "good X" and "good Y." ‘When the law of diminishing MRS is in effect, the MRS forms a downward, negative sloping, convex curve showing more consumption of one good in place of another Eounula and Calculation of the Marginal Rate of Substitution (MRS) Marginal Rate of Substitution * MRS,, = -MU,/MU, Shakes (y) izza (x) ‘Marginal rate of substitution (MRS) measures the units of one commodity that have to be sacrificed in order to get one additional unit of the other commodity so that Total utility remains the same —41- Admission Going on For B.com/ Regular/Crash Course. Call/SMS for details.Classes (9883034569): 1‘! Sem Eco complete course @ 1500 MCQ of 1 & 2 Marks: 1. In order to draw Price Consumption Curve (PCC) in a two-good case, we [2017] a) Change the price of only one good b) Change only the income of the consumer ©) Change the prices of both goods in the same proportion 4) Change both income and the two prices in the same proportion, 2. Which of the following is not a property of indifference curve? [2018] a). Itis negatively sloped b) Tris convex to the origin ©) Indifference enzves do not intersect each other @) Itisa horizontal straight line 3. Consider a situation where the price of wheat goes up steeply all of a sudden. How do you except the demand curve for rice to behave? [2018] a) Will shift to the right b) Will shift tothe left ©) Will remain in unchanged 4) Will become vertical 4, The income consumption curve (ICC) is the locus of different equilibrium points: [2018] a) When only the price of the good X(P.) changes b) When only the price of good X (Py) changes ©) When only PX and PY change, but not in the.saime proportion @) When only the Income of the consumeéc 5. If total utility is maximum, then marginal utilicy becomes [2019] a) Equal to total utility b) Maximum ©) Zero @) Half of total utility 6. The good whose demand is negav'vely related to real income is called [2019] a) Inferior good 1b) Normal good ©) Superior good 4) Luxury goo% 7. Marginal rate of cdbstitution (MRS) measures the units of one commodity that have to be sacrificed in order to get one additional unit of the other commodity so that [2019] a) Total utility falls b) Total utility remains the same ©) Total utility rises 4) Marginal utility rises 8. The relation between Giffen goods and inferior good Is [2019] a) All Giffen goods are inferior goods b) Allinferior goods are Giffen goods ©). Giffen goods are a subset of inferior goods 4) Both (a) and (c) are true —42- Admission Going on For B.com/ Regular/Crash Course. Call/SMS for details.Bhalo Classes (9883034569): 1‘! Sem Eco complete course @ 1500 9. Suppose that there is a sharp rise in the prices of petrol and diesel. How do you expect the demand curve for cars to change (if it changes at all)? (2019] a) It will shift to the right b) Ie will shift upward ©) Iwill become horizontal d) [twill shift to the Left 10. If the price of the commodity alone increases, what will be its impact on consumer surplus? [2020] a) Consumer suxplus will increase b) Consumer surplus will decrease ©) Consumer surplus will remain nchanged 4) Cannot be determined. 11. If the metro fare in Kolkata suddenly increases by 25%, what will happen to the demand curve for riding in a bus? [2020] a) It will remain constant b) It will shift to lett © [vallshi . ) Iwill be uncertain 12. Study the following table- [2020] Units Total consumed Utility 4 35 5 45 1 “4 6 4 4 7 a ‘What will be the shape of marginal utility curve? a) Downward sloping b) Horizontal ©) *U" or ‘V" shaped: 4) Vertical 13. The convexity of the iniifference curve implies : a) Incteasing yheiginal rate of substitution (MRS) b) Constant MRS ©) ZeroMRS 4) Decreasing MRS 14, If the two commodities are perfect substitutes, the relevant indifference curve will be : [2020] a) Negatively sloped and convex to the origin b)_ Negatively sloped and concave to the origin atively sloped straight line 4) Positively sloped. — 43 — Admission Going on For B.com/ Regular/Crash Course. Call/SMS for details.Bhalo Classes (9883034569): 1‘! Sem Eco complete course @ 1500 15. In order to draw the ICC, we have to first [2019] a) Shift the budget tine parallel b) Change M, Px and Py in three different proportions ©) Keep M constant and change Px and Py in two different proportions 4) Both (a) and (c) are true Where ICC is Income-Consumption curve, M is the money income of the consumer, Px and Py are pices of good X and good Y. 16. Study the following table: [2019] Units consumed Total Uility Marginal Uility 10 136 16 n 150 2 R 162 2 13 2 10 ‘What are the values you should putin place of the question marks? a) 174,12 by 172,14 ©) 174,14 @) 172,12 47. In the context of Marshallan demand theory, the marginal utility 6° soney is: [2018] a) Diminishing, b) Increasing, ©) Zero ) A positive constant 18. In ordinal utility analysis, the marginal rate of as (The symbols have their usual meanings). [201¢) a) MUuPs b) =MUyMU, ©) MUyiP, d) PyP, 19. The marginal uti below. The prices are Px tution between two goods X and Y is defined the table jes of two.gooils X and Y for different quantity levels are given ZandPy=%10 (2017) MU; Muy 10 15 8 4 3 3 6 2 ‘What should be the equilibrium purchase oF goods X and Y under the Marshallian consumer behavior theory? 20. In a two commodity world with commodity X and Y, MUx = 2, px = 15, MUy = 6. What do you think the value of Py is if the consumer is in equilibrium? [2019] a) 10 b) 125 9 (20 —44- Admission Going on For B.com/ Regular/Crash Course. Call/SMS for details.Bhalo slope of the budget line will be Classes (9883034569): 1‘! Sem Eco complete course @ 1500 and Px ~ 12, what will be the value of Py at equilibrium? [2020] a) 30. o8 22. Which of the following expressions is a condition of consumer equilibrium in the Hicksian a) MUx=Py and MUy=Px by Mz _ze ) Noy Py Mux _Py d) MUxtMUy =PstPy 23. If two commodities are fully complementary to each other, the related indifference curve will be a) L-shaped b) Convex to the origin 4) Concave to the origin 24. If the equation of a budget line is given by 5x + 7y = 64, a) 715 ») 80 @) 64ls 25. The shift of the budget line will be parallel if =-{2020] b) Price ratios vary ©) Income and price ratios both vary 26. In case of an inferior good, thy income elasticity of demand (@) Positive (c) Negative (@) Infinite (a) Superior goods (b) Inferior goods (@ Conspicuous goods 28, Giffen Paradox is an exception of? (b) Supply (© Production 21. In an economy with two commodities X and Y and fixed money income, MU ~ 4, MUy = 10 b) 20 indifference curve approach? (MU indicates marginal utility) [2017] 2 My pe [2019] ©) A downward sloping straight line [2020] ©) 647 a) Price ratios remain the same and ther¢is a change in income @)_ Income and price of one’cbalmodity changes. (b) Zero 27. Certain goods for which quantity demanded decreases when income increases are called. (©) Prestige goods (a) Demand @ Utility —45-— Admission Going on For B.com/ Regular/Crash Course. Call/SMS for details.Bhalo Classes (9883034569): 1‘! Sem Eco complete course @ 1500 29. A fall in price of normal goods leads to? (a) Shift in demand curve (b) Fall in demand (© Arisein consumer's real income (@) A fall i consumer's real income 30. Cardinal approach to unity is associated with the name of (a) Hicks (b) Smith (c) Marshall (a) Pareto 31. Which of these economists is associated with the ordinal approach to utility? (a) Ricardo (b) Hicks {c)_ Marshall 32. Cardinal approach to utility is based on (a) Comparison (b) Numerical analysis (c) Ordering (@)_ Ranking 33. Ordinal approach to utility is based on {a) Numerical analysis (b) Comparison {c)_ Numerical analysis and comparison (4). Diminishing marginal utility 34, In Cardinal approach to utility itis assumed that (2) Marginal utility of money is constant (b) The taste and preferences of thé consumer can change (c)_ Marginal utility of any commoeity other than money increases (a) More is better 35. If the two commodities used by the consumer are perfect complements, what will be the shape of the IC? (a) Negatively sloped. (b) Negatively sloped and convex to the origin (c) “U" shape (d) Positively sloped 36. If the two commedities used by the consumer are perfect substitutes, what will be the shape of the 1c? (2) Negatively sloped and convex to the origin (b) Negatively sloped straight line (c). Positively sloped (a) “U" shaped 37. Marginal rate of substitutes (MRS) measures the units on one commodity that has to be sacrificed in order to get one extra unit of the other commodity so that (a) Total utility remains same (b) Total utility rises (c) Total utility falls (a) Marginal utility falls —46—- Admission Going on For B.com/ Regular/Crash Course. Call/SMS for details.Bhalo Classes (9883034569): 1‘! Sem Eco complete course @ 1500 38. If consumer's money income rises and prices of X and ¥ remain the same, the budget line (2) Will shift upward (b)_ Will rotate outwardly keeping the vertical intercept intact (c)_ Will rotate outwardly keeping the horizontal intercept intact, (4) Will shift upward parallely. 39. A point on the falling portion of TU curve implies (2) Total utility remains same (b) Total utility rises (c) Negative MU (a) Marginal unity falls 40, An indifference map implies (a) A collection of indifference curves (b) Differently sloped indifference curves (c)_ A particular point on the indifference curve (a) Point of consumers equilibrium 41. Which one of these properties is not true for Income Consumption Curve (I=)? (a) It starts from the origin (b) It can take any shape depending on the preference ppttérn of the consumer (c)_ Demand curve can be derived from ICC (a) Allof the points on ICC are consumers equilibrium'points 42. In case of construction of a Price Consumption Curve (PCC),-whizh of these events is true? (a) Money income changes but price ratio redjains constant (b) Money income and prices of the commodities remain constant (c)_ Money income remains constant but price ratio changes (d) Money income and price ratio cKanges 43. Which of the following can be estimated from ti12’Shape of the PCC? (a) Income elasticity of demand of the goods (b) Price elasticity of demand f the goods (c)_ Cross-price elasticity of the goods (d) Output elasticity of the factors 44. Which of the following can be‘si‘inated from the shape of the ICC? (2) Income elasticity of demand of the goods (b)_ Price elasticity of demand of the goods (c) Cross-Pric# elasticity of the goods {d) Outpdis elasticity of the factors 45. If the ICC is negatively sloped then (a) The commodities are normal (b) The commodities are inferior (c}_ One good is normal and the other one is inferior (a) One good is neutral and other one is normal 46. If PCC is backward bending then (a) Both of the goods are normal (b) Both of the goods are inferior (c)_ The. good whose price changes has to be a giffen good (d) Both are luxury Admission Going on For B.com/ Regular/Crash Course. Call/SMS for details.