# 12th Economics Chapter 4 Exercise (Supply Analysis) Maharashtra Board – Free Solution

## Chapter 4 – Supply Analysis

### Q. 1. Complete the following statements

1) When supply curve is upward sloping, it’s slope is _____.
a) positive
b) negative
c) first positive then negative
d) zero

2) An upward movement along the same supply curve shows _____.
a) contraction of supply
b) decrease in supply
c) expansion of supply
d) increase in supply

3) A rightward shift in supply curve shows _____.
a) contraction of supply
b) decrease in supply
c) expansion of supply
d) increase in supply

4) Other factors remaining constant, when less quantity is supplied only due to a fall in price, it shows _____.
a) contraction of supply
b) decrease in supply
c) expansion of supply
d) increase in supply

5) Net addition made to the total revenue by selling an extra unit of a commodity is _____.
a) total Revenue
b)marginal Revenue
c)average Revenue
d)marginal Cost

### Q. 2. Complete the correlation

1) Expansion of supply : Price rises : : Contraction of supply : Price falls

2) Total revenue : P X Q : : Average revenue : TR/TQ

3) Total cost : TFC + TVC : : Average cost : TC/TQ

4) Demand curve : Downward : : Supply curve : Upward

5) Price constant : Change in supply : : Other factors constant : Variation of Supply

### Q. 3. Give economic terms

1) Cost incurred on fixed factor.

2) Cost incurred per unit of output.

4) Revenue per unit of output sold.

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### Q.4. Distinguish between

1) Stock and Supply.

2) Expansion of Supply and Increase in Supply.

3) Contraction of Supply and Decrease in Supply.

4) Average Revenue and Average Cost.

### Q.5. Observe the following table and answer the questions

A) Supply schedule of chocolates

1) Complete the supply schedule.

2) Draw a diagram for the above supply schedule.

3) State the relationship between price and quantity supplied.

B) Observe the market supply schedule of potatoes and answer the following questions.

1) Complete the quantity of potato supplied by the firms to the market in the below table.

2) Draw the market supply curve from the schedule and explain it.

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### Q.6. Answer the following questions

1) Explain the concept of total cost and total revenue.

Answer: Elasticity of demand depends upon several factors which are discussed below:

1) Nature of commodity: By nature we can classify commodities as necessaries, comforts and luxury goods. Demand for necessaries like foodgrains, medicines, textbooks etc. is relatively inelastic and for comforts and luxury goods like cars, perfumes, furniture etc. demand is relatively elastic.

2) Availability of substitutes: Demand for a commodity will be more elastic, if its close substitutes are available in the market. For example, lemon juice, sugarcane juice etc. But commodities having no close substitutes like salt the demand will be inelastic.

3) Number of uses: Single use goods have a less elastic demand. Multi-use goods have more elastic demand, For example, coal, electricity etc.

4) Habits: Habits make demand for certain goods relatively inelastic. For example, addicted goods, drugs etc.

5) Durability: The demand for durable goods is relatively elastic. For example, furniture, washing machine etc. Demand for perishable goods is inelastic. For example, milk, vegetables etc.

6) Complementary goods: The demand for a commodity which is used in conjunction with other commodities to satisfy a single want is relatively inelastic. For example, a fall in the price of mobile handsets may lead to rise in the demand for sim cards.

7) Income of the consumer: Demand for goods is usually inelastic, if the consumer has high income. The demand pattern of a very rich and an extremely poor person is rarely affected by significant changes in the
price.

8) Urgency of needs: Goods which are urgently needed will have relatively inelastic demand. For example, medicines. Luxury goods which are less urgent have relatively elastic demand.

9) Time period: Elasticity of demand is always related to period of time. It varies with the length of time period. Generally speaking, longer the duration of period greater will be the elasticity of demand and
vice-versa.

Note: If question is asked for 8 marks write 9 to 10 points and if question is asked for 4 marks write 4 to 6 points ( Use this suggestion for all questions and chapters)

2) Explain determinants of supply.

.Answer: This method was developed by Prof. Marshall. In this method, total amount of expenditure before
and after the price change is compared.this method is also known as Total Expenditure method.

Here the total expenditure refers to the product of price and quantity demanded.
Total expenditure = Price × Quantity demanded
In this connection, Marshall has given the following propositions:

A) Relatively elastic demand (Ed >1): When with a given change in the price of a commodity total outlay increases, elasticity of demand is greater than one.

B) Unitary elastic demand (Ed = 1): When price falls or rises, total outlay does not change or remains constant, elasticity of demand is equal to one.

C) Relatively inelastic demand (Ed <1): When with a given change in price of a commodity total outlay decreases, elasticity of demand is less than one.

This can be explained with the help of the following example.

In the above table, in example ‘A’ original price is Rs 10 per unit and quantity demanded is 6 units. Therefore, total expenditure incurred is Rs 60. When price rises to Rs 20 quantity demanded falls to 5 units, the total expenditure incurred is Rs 100. In this case, total outlay is greater than original expenditure. Hence, in this example elasticity of demand is greater than one. (Ed >1) that is relatively elastic demand.

### Q.6. Answer the following questions

3) State and explain law of supply with exceptions.

The law of supply is also a fundamental
principle of economic theory like law of
demand. It was introduced by Prof. Alfred
Marshall in his book, ‘Principles of Economics’
which was published in 1890. The law explains
the functional relationship between price and
quantity supplied.

Statement of the Law :

“Other things being constant, higher the

price of a commodity, more is the quantity
supplied and lower the price of a commodity less
is the quantity supplied”

In simple words, “other factors remaining

constant, a rise in price results in a rise in the
quantity supplied and vice-versa. Thus, there is
a direct relationship between price and quantity
supplied.
Symbolically,

Sx = f (Px)
S = Supply
x = Commodity

f = Function
P = Price of commodity

Law of supply is explained with the help of the following schedule and diagram:

Exceptions to the Law of Supply:

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### Extra Questions

##### Distinguish Between:

1) Individual Demand and Market Demand

2) Direct Demand and Indirect Demand

I) State and explain the law of Demand and Explain its assumption.
Refer to QNO 6 (1) for the Law of Demand.
Following are the assumptions of the law of demand:
1) Constant level of income: If the law of demand is to find true operate then, consumers’ income should remain constant. If there is a rise in income, people may demand more at a given price.

2) No change in size of population: It is assumed that the size of population remains unchanged. Any change in the size and composition of population of a country affects the total demand for the product.

3) Prices of substitute goods remain constant: It is assumed that the prices of substitute remain unchanged. Any change in the price of the substitute will affect the demand for the commodity.

4) Prices of complementary goods remain constant: It is assumed that the prices of complementary goods remain unchanged because a change in the price of one goods will affect the demand for the other.

5) No expectations about future changes in prices: It is assumed that consumers do not expect any further change in price in the near future. If consumers expect a rise in prices in future, they may demand more in the present even at existing high price.

6) No change in tastes, habits, preferences, fashions etc.: It is assumed that consumers’ tastes, habits, preferences, fashions etc. should remain unchanged. Any change in these factors will lead to a change in demand.

7) No change in taxation policy: Taxation policy of the government has a great impact on demand for various goods and services. Therefore, it is assumed that there is no change in the policy of taxation declared
by Government.

II) Explain the Individual and Market demand. (Explain the Concept of Demand with Schedule)
According to Benham, “the demand for anything at a given price is the amount of it, which will be bought per unit of time at that price.”
Thus, the following are the features of demand :
1) Demand is a relative concept.
2) Demand is essentially expressed with reference to time and price.

Demand Schedule:
A demand schedule is a tabular representation of the functional relationship between price and quantity demanded for a particular commodity.
A demand schedule may be either an individual demand schedule or a market demand schedule.

Individual Demand Schedule:

Individual demand is the quantity of a commodity demanded by a consumer at a given price during a given period of time.

This can be explained with the help of the following individual demand schedule.

Above table shows different quantities of commodity ‘x’ purchased by an individual consumer at various prices. It can be observed that less quantity of commodity is demanded at rising prices and more quantity of commodity is demanded at falling prices. It indicates an inverse relationship between price and quantity demanded.

Individual Demand Curve :

Market Demand Schedule:

Market demand is the total demand for a commodity from all the consumers at a given price during a given period of time.

This can be explained with the help of following market demand schedule.

shows different quantities of commodity x purchased by different consumers (A, B, C) at various prices. It can be observed that less quantity of commodity is demanded at rising prices and more quantity of commodity
is demanded at falling prices. Thus, there is an inverse relationship between price and quantity
demanded.

Market Demand Curve:

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III) Explain the various types of Demand.

Types of Demand

1) Direct demand: It is the demand by the consumer for goods that satisfy their wants directly. They serve the direct consumption needs of the consumers. Thus, it is the demand for consumer goods. For example, demand for cloth, sugar, etc.

2) Indirect demand: Indirect demand is also known as derived demand. It refers to the demand for goods that are needed for further production. It is the demand for producer’s goods. Hence, all factors of production have indirect or derived demand. For example, demand for workers in a sugar factory is derived or indirect demand.

3) Complementary/Joint demand: When two or more goods are demanded jointly to satisfy a single want, it is known as joint or complementary demand. For example, car and fuel, etc.

4) Composite demand: The demand for a commodity that can be put to several uses is known as composite demand. For example, electricity is demanded for several uses such as light, fan, washing machine, etc.

5) Competitive demand: It is demand for those goods which are substitutes for each other. For example, tea or coffee, sugar or jaggery, etc.

IV) Explain variation in Demand.
When the demand for a commodity falls or rises due to a change in price alone and other factors remain constant, it is called variations in demand. It is of two types :

1) Expansion of demand: Expansion of demand refers to rise in quantity demanded due to fall in price alone while other factors like tastes, income of the consumer, size of population, etc. remain unchanged.
Demand moves in downward direction on the same demand curve.
This is explained with the help of following figure.

As shown in above fig. DD is demand curve. A downward movement on the same demand curve from point a to point b indicates an expansion of demand.

2) Contraction of Demand: Contraction of demand refers to a fall in demand due to rise in price alone. Other factors like tastes, income of the consumer, size of population etc. remain unchanged.
Demand curve moves in the upward direction on the same demand curve.
This can be explained with the help of following fig.

As shown in above fig. DD is a demand curve. An upward movement on the same demand curve from point b to point a shows contraction of demand.

V) Explain change in demand.

Changes in Demand: When demand for a commodity increases or decreases due to changes in other factors and price remains constant, it is known as changes in demand. It is of two types :

1) Increase in demand: It refers to an increase in quantity demanded due to favourable changes in other factors like tastes, income of the consumer, climatic conditions, etc. and price remains constant.
Demand curve shifts to the right hand side of the original demand curve.
This can be explained with the help of fig.

2) Decrease in demand: It refers to decrease in quantity demanded due to unfavourable changes in other factors like tastes, income of the consumer, climatic conditions etc. and price remains constant.
Demand curve shifts to left hand side of the original demand curve.
This can be explained with the help of fig.

As shown in fig., DD is the original demand curve. It shifts inward to the left from DD to D2D2 which indicates decrease in demand.

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