CBSE economics

Question
CBSEENEC12013586

A consumer consumes only two goods X and Y. Marginal utilities of X and Y is 3 and 4 respectively. Prices of X and Y are Rs 4 per unit each. Is consumer in equilibrium? What will be further reaction of the consumer? Give reasons.

Solution

Consumer will attain its equilibrium (maximum satisfaction) at the point, where marginal utility of a product divided by the marginal utility of a rupee, is equal to the price.
Consumer’s equilibrium = fraction numerator Mu space of space straight a space product over denominator Mu space of space straight a space Rupee end fraction
In case of two goods, a consumer equilibrium attain where:
MU subscript straight x over straight P subscript straight x equals MU subscript straight y over straight P subscript straight y
For goods X,
MU subscript straight x over straight P subscript straight x equals space 3 over 4 space equals space 0.75
For goods Y,
MU subscript straight y over straight P subscript straight y equals 4 over 4 equals 1
Here, MU subscript straight y over straight P subscript straight y greater than MU subscript straight x over straight P subscript straight x
Hence consumer is not in equilibrium, Thus, in order to attain equilibrium consumer will increase the consumption of good Y and decrease the consumption of good X.

 

Question
CBSEENEC12013587

What will be the effect of 10 percent rise in price of a good on its demand if price elasticity of demand is (a) Zero, (b)-1, (c)-2.

Solution

(a) When Ed(Elasticity of demand) is zero
straight E subscript straight d space equals space fraction numerator Percentage space change space in space quantity space demanded over denominator Percent space change space in space price end fraction
0 space equals space fraction numerator Percentage space change space in space quanity space demanded over denominator 10 end fraction
Therefore, Percentage change in quantity demand  = 0, so it has no effect on demand
(b) Ed = -1,  Percentage change in price  = 10
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Therefore, Percentage change in quantity demand  = -10.
(c) Ed = -2,  Percentage change in price  = 10
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Therefore, Percentage change in quantity demanded= -20

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Question
CBSEENEC12013588

What is minimum price ceiling? Explain its implications.

Solution

Minimum price ceiling means the least price that could be paid for a good or service. It is the price fixed by the government for a good in the market. The government fixes the price on agricultural products and food grains in particular so that the farmers get their fair price of a commodity which otherwise actually can be sold with too low of a price.
Effects of price floor:
(i) Minimum Return:
 Farmers are ensured with the minimum returns as their products are completely sold in the market at comparatively higher price. This leads to an increase in their level of income.
(ii) Maximum Level of output: The government ensures to buy the full produce of the farmers which are not sold in the market at the price floor. Hence, they are able to produce the maximum level of output.
(iii) Burden on Government: It also puts extra burden on the government revenues. It becomes mandatory for the government to purchase the excess produce, even if it runs a sufficient volume of buffer stocks. 
(iv) Higher Taxes: The government also tries to shift the burden (associated with purchasing the excess produce at higher price) to the consumers and the traders in form of higher taxes. 

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Question
CBSEENEC12013589

If the prevailing market price is above the equilibrium price, explain its chain of effects.

Solution

When the price is above the equilibrium market price of a good (OP), the price ceiling leads to excess of supply. In the diagram, the equilibrium price and quantity are OP and OQ. As the equilibrium price is low for farmers, the government fixes the price floor, i.e. the price level increased from OP to OP1 which leads to a decline in the quantity demand, and therefore, there is excess supply in the market. Here, the competition will increase among the sellers, and hence, the price will come down to the equilibrium point where market demand is equal to market supply.
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Question
CBSEENEC12013590

Define demand. Name the factors affecting market demand.

Solution

Demand of a commodity is ability and desire to purchase a certain quantity of goods at a given price. 
(i) Income of consumers: When the income of a consumer rises, the demand of normal good also rises while the demand for inferior goods decrease with an increase in income. 
(ii) Tastes and Preferences: Other factors being constant, if any change prevails in the tastes and Preferences of a consumer, then the demand for such goods will increase leading to shift in demand curve for those goods as compared to goods have no preference. 
(iii) Substitute Goods: When there is an increase in the price of a good like - coffee, then demand curve for its substitute tea shifts to the right as people will start consuming more tea than coffee.
(iv) Complementary goods: Those goods which are together used to satisfy the demand are called complementary goods such as Pen & Refill, Petrol and Scooter, An increase in the price of petrol leads to fall in the demand of scooter.