Name: Hooria Amer Roll no: 10691

DEPARTMENT OF MANAGEMENT SCIENCES

QUESTION PAPER
Class/Semester: BS Applied Psychology 4th Term: Mid Exams (Spring 2020)
Credit Hours: 3(3-0) Time: 60 Minutes
Course Title: Economics Total Marks: 30
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NOTE: Attempt all questions

Q.1: Explain the law of Demand. Why does a demand curve slop downward? What are the
determinants of demand? What happen to demand curve when any of these determinants
change?

Q.2: Explain the law of supply. Why does a supply curve slop upward? What are the
determinants of supply? What happen to supply curve when any of these determinants change?

Q.3: Define factor of production with any example.

Q 1: Law of demand:
According to the concept of demand, it states that as the price falls the
quantity demanded rises and as the price rises the quantity demanded falls by
keeping other things constant.
Under the law of demand there are two main things which is considered;
 Law of diminishing marginal utility
 Substitution and income effect
Explanation:
Law of diminishing marginal utility:
This law states for any good or service the marginal utility for that good or
service decreases as the quantity demanded increases.
Example:
If an individual buying certain type of chocolate for while soon buy another
type of chocolate or any other item as satisfaction diminished.
Substitution effect:
How a change in price of good affects the demand.
Example:
If a price of apple rises consumer will substitute it with other goods like
banana.
Income effect:
How a change in demand affected by the change in real disposable income.
Example:
If school fee rises this reduces disposable income and demand falls.
Demand curve downward:
The demand slop curve is downward because of the relationship of price and
quantity demanded as the price falls the quantity demanded rises and vice
versa.
Determinants of demand:
 Change in consumer taste and preferences
 Change in no of sellers and buyers
 Change in income (normal and inferior goods)
 Change in price of related goods
Complementary goods
 Substitute goods
 Change in consumer expectations
Future price
Future income
Change in determinants and demand curve:
 consumer taste and preference increase demand curve shifts right vice
versa.
 if buyers increase it also shifts to right and vice versa
 if income for normal goods increases it shifts left and for inferior
goods demand curve shifts right vice versa.
 If substitute price falls, demand decreases and curve shifts to left
 If substitute price rises, demand increases and curve to right
 If complements price falls demand increases and curve to right
 If complements price rises demand decreases and curve shifts to left
 If future price or income increases demand curve shifts to left
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Q 2: law of supply:
This law states that price is directly proportional to the quantity supplied
by keeping other things equal or constant.
Explanation:
Producers are willing to produce and sell more of their product at a high
price than at a low price. There is a direct relationship between price and
quantity supplied. Given product costs, a higher price means greater
profits and thus an incentive to increase the quantity supplied. Beyond
some level of output, producers usually encounter increasing costs per
added unit of output.
Supply slop upward:
Upward slope of curve depicts that supply and price has a direct relation as
The price increases supply increases and curve shift upward.
Determinants of supply:
 Change in resource price
 Change in technology
 Change in number of sellers
  Change in taxes and subsidies
 Change in price of other goods
 Change in producer expectations
Change in determinants and supply curve:
 If resource price increases the supply curve shifts left vice versa
 If more production efficiency of technology supply curve shifts
right vice versa
 If no of sellers increases supply curve to the right vice versa
 If there is change in taxes supply curve moves vertically upward
and if subsidies change moves downward vice versa
 If price increases supply shifts left vice versa
 Producer expectations change also affect supply curve.
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Q 3: factors of production:
The four factors of production are land, labor, capital, and
entrepreneurship. They are the inputs needed for supply.
Explanation with example:
Here I’m going to define these factors of production with a production
idea of textile industry.
 Land:
Land is a natural resource that are needed to create the supply it
includes all the raw material available from the ground.
In textile industry the factory area or plant where manufacturing is
done (land)
 Labor:
Labor is the work done by people i.e., the physical and mental
effort by the workers as a man power.
In textile skilled workers are needed for the running of industry
like in managing, working with machines, taking orders etc.
 Capital:
Capital includes non-natural resources like man-made objects,
machinery, equipment.
 Different type of dying machines, colors, chemicals and other
commercial goods needed in textile industry.
 Entrepreneurship:
Entrepreneurship is the drive to develop an idea into a business.
Entrepreneurs is the innovative risk takers they combine all other
three factors for the success.
Like in textile industry enterpriser’s try to organize and develop a
unique idea for successful business, to fulfill the latest demand
and to get effective output.
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