NIOS Class 12 Economics Chapter 15 Demand

NIOS Class 12 Economics Chapter 15 Demand, Solutions to each chapter is provided in the list so that you can easily browse through different chapters NIOS Class 12 Economics Chapter 15 Demand and select need one. NIOS Class 12 Economics Chapter 15 Demand Question Answers Download PDF. NIOS Study Material of Class 12 Economics Notes Paper 318.

NIOS Class 12 Economics Chapter 15 Demand

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Also, you can read the NIOS book online in these sections Solutions by Expert Teachers as per National Institute of Open Schooling (NIOS) Book guidelines. These solutions are part of NIOS All Subject Solutions. Here we have given NIOS Class 12 Economics Chapter 15 Demand, NIOS Senior Secondary Course Economics Solutions for All Chapters, You can practice these here.

Demand

Chapter: 15

Module – VI: Consumer’s Behaviour

TEXT BOOK QUESTIONS WITH ANSWERS

INTEXT QUESTIONS 15.1.

Q.1. What is meant by demand for a commodity?

Ans. Demand for a commodity by an individual is the quantity of that commodity that the individual is willing to buy at a price over a period of time. The demand for a commodity means want a desire for it and the ability and willingness to pay for it.

Q.2. What are the three essential elements of demand?

Ans. The three essential elements of demand are:

(i) Price of the commodity.

(ii) Quantity of the commodity.

(i) Period of time: The time period may be a day, a week, a month, a year or any other period.

Q.3. How does a desire differ from demand?

Ans. Desire is a measure of the willingness to buy a good based on its intrinsic qualities. Demand is the willingness and ability to put one’s desire into effect. It is assumed that tastes and performances are relatively constant.

Q.4. Distinguish between individual demand and market demand.

Ans. Individual Demand: Individual demand is the demand of a commodity at different price level at a particular period of time by an individual.

Individual Demand Schedule

Market Demand: Market demand is the sum of individual’s demand at different price level at a particular period of time by different consumers.

Market Demand Schedule

INTEXT QUESTIONS 15.1.

Q.1. What are substitute goods? Give one example of substitute goods.

Ans. Substitute goods: Those goods which can be substituted for each other, are known as substitute goods. Examples: tea and coffee, ball pen and ink-pen, etc. In case of such a good, increase in the price of one causes increase in demand for the other and decrease in the price of one causes decrease in the demand for the other. Increase in the price of coffee, for example, will increase the demand for tea-the consumers will shift from the consumption of coffee to the consumption of tea.

Q.2. What are inferior goods? Give one example of inferior goods.

Ans. Inferior goods: Inferior goods are low quality products and their demand decreases when the income of a consumer increases and vice versa. In brief there is an inverse relationship between demand and income. The law of demand does not apply in case of inferior goods. The nature of commodity changes as the level of income changes. At one level commodity may be normal but at another level it may turn as inferior commodity. For example, a person having low income will demand more quantity of cotton textiles where his income rises. But when his income further rises, he reduces the demand for cotton textiles. Hence, cotton textile becomes an inferior commodity at a higher level of income.

Q.3. What are normal goods? Give one example of normal goods.

Ans. Normal goods are any goods for which demand increases when income increases, and falls when income decreases but price remains constant, i.e. with a positive income elasticity of demand. The term does not necessarily refer to the quality of the good, but an abnormal good would clearly not be in demand, except for possibly lower socio-economic groups.

In particular, when the price of a normal good is zero, the demand is infinite. Depending on the indifference curves, the amount of a good bought can either increase, decrease, or stay the same when income increases. In the diagram below, good Y is a normal good since the amount purchased increases from Y₁ to Y₂ as the budget constraint shifts from BC₁ to the higher income BC₂. Good X is an inferior good since the amount bought decreases from X₁ to X₂ as income increases. Examples include holidays, cars, diamonds, branded fashions, hi-tech products, etc.

INTEXT QUESTIONS 15.3.

Q.1. State the law of demand.

Ans. The law of demand states that other things remaining same, quantity demanded of a commodity is inversely related to its price. In other words, demand for a commodity rises when its price falls and its demand falls when price rises provided other factors remain unchanged.

The law of demand can better be explained with the help of given table and figure.

As you see in above table when price of the commodity rises, quantity demanded decreases.

That is why the demand curve slopes downwards from left to right as shown in fig. Downward slope of demand curve shows the inverse relationship of price and quantity demanded of a commodity. 

Q.2. State any two assumptions of law of demand.

Ans. The assumptions of the law of demand as follows:

1. Income level should remain constant: The law of demand operates only when the income level of the buyer remains constant. If the income rises while the price of the commodity does not fall, it.is quite likely that the demand may increase. Therefore, stability in income is an essential condition for the operation of the law of demand.

2. Tastes of the buyer should not alter: Any alteration that takes place in the taste of the consumers will in all probability upward the working of the law of demand. It often happens that when tastes or fashions change people revise their preferences. As a consequence, the demand for the commodity which goes down the preference scale of the consumers declines even though its price does not change.

Q.3. State any two exceptions of law of demand.

Ans. Exceptions to the law of demand: There are some situations in which the law of demand does not apply. These are called exceptions to the law of demand. The following are some of the exceptions to the law of demand:

1. Prestige goods: There are some goods which are purchased because their profession increases the social prestige of their buyers. For example diamonds are considered as prestige goods and are brought by upper state of the society. The higher the price of diamonds, the higher would be their prestige value for some. So more diamonds may be brought at higher prices. If the prices of diamonds fall, the prestige conscious people may buy less of diamonds because with fall in price their prestige value has gone down.

2. Giffen goods: These are inferior goods. The demand for inferior goods declines when their prices fall and increases when their prices increase.

All inferior goods are not an exception to law of demand, i.e. all inferior goods are not giffen goods. All those goods whose income effect is negative are inferior goods. However, law of demand does not apply only to those inferior goods whose positive substitution affect is less than negative income effect. Those inferior goods whose negative income effect is less than positive substitution affect, law of demand applies to them.

3. Expectations of further changes in price: When buyers expect a further rise in the price they purchase increased quantities of the commodity even at a higher price and vice-versa.

However, these are only exceptions to the law of demand. In most of the situations the law of demand applies.

INTEXT QUESTIONS 15.3.

Q.1. What is demand schedule?

Ans. Law of Demand: Law of demand states that the quantity demanded varies inversely with its price, other determinants remaining unchanged. This law explains the functional relationship between the quantity demanded and price. Prof. Marshall has defined it as “If other things remaining same, the amount demanded increase with a fall in price and diminishes with a rise in price”. Hence there exists inverse relationship between the price and quantity demanded. This law can be explained with the help of the following demand schedule.

Demand Schedule

This schedule shows that the demand for sugar of a household will be more at lower prices and less at higher prices.

Q.2. Complete the following table:

Ans. 

Q.3. What is meant by expansion of demand of a commodity?

Ans. When quantity demanded of a commodity increases as a result of the fall in the price, it is called expansion in demand. Extension in demand implies change in quantity demanded due to change in the price of the commodity, other things remaining the same.

Q.4. State any two factors which may lead to increase in demand for a commodity.

Ans. Factors which can lead to increase in demand of a commodity are the price of the commodity, the price of related commodities and income of the consumer, taste and preference of consumers, size of population and various other factors.

TERMINAL EXERCISE

Q.1. What is meant by the term demand?

Ans. Demand is the want or desire to possess a good or service with the necessary goods, services, or financial instruments necessary to make a legal transaction for those goods or services. Demand is not simply a quantity consumers wish to purchase such as ‘5 oranges’ or ’17 shares of Microsoft’, because demand represents the entire relationship between quantity desired of a good and all possible prices charged for that good. The specific quantity desired for a good at a given price is known as the quantity demanded. Typically, a time period is also given when describing quantity demanded.

Q.2. Distinguish between ‘desire’, want and demand with suitable example.

Ans. It is commonly observed that people alternatively use the terms desire, want and demand. In economics, they are not same. Desire means merely a wish to have a commodity. It is simply craving for a commodity. So any body can desire anything, irrespective of whether that thing is really available or not. On the other hand, want is the desire which is backed by ability and willingness to pay. So every desire is not a want. Desire becomes a want only when the person is in a position to satisfy it.

By demand for a commodity we mean the desire for the commodity backed by purchasing power and the willingness to spend. When a consumer wishes to consume a commodity and has also the necessary purchasing power i.e., income along with willingness to spend, he is said to have demand for the commodity.

Demand for a commodity refers to the quantity of a commodity that a consumer is willing to buy at a given price during a given period of time.

Q.3. Explain the factors affecting individual demand for a commodity.

Ans. The following factors affect the individual demand for a commodity:

1. Price of the Commodity: You must have observed that when price of a commodity falls, you tend to buy more of it and when its price rises, you tend to buy less of it, when all other factors remain constant (‘other things remaining the same’). In other words, other things remaining the same, there is an inverse relationship between the price of a commodity and its quantity demanded by its buyers. This statement is in accordance with law of demand which you will study in the later part of this lesson.

2. Price of a commodity and its quantity demanded by its buyers are inversely related only when ‘other things remain the same’. So, ‘other things remaining the same’ is an assumption when we study the effect of changes in the price of a commodity on its quantity demanded.

3. Income of the Buyer of Commodity: Demand for a commodity is also affected by income of its buyer. However, the effect of change in income on demand depends on the nature of the commodity under consideration.

In case of some goods like full cream milk, fine quality of rice (Basmati rice) etc, demand for these commodities increases when income of the buyer increases and demand for these commodities decreases when income of the buyer decreases. Such goods, whose demand increases with the increase in income of the buyer, are called normal goods. But there are some goods like coarse rice, toned milk etc. whose demand decreases when income of buyer increases and their demand increases when income of the buyer decreases. Such goods, whose demand decreases with the increase in income of the buyer, are called inferior goods. Suppose, a consumer buys 10 Kgs. of rice whose price is ₹ 25 per kg. He cannot afford to buy better quality of rice because the price of such rice is ₹ 50 per kg. The consumer is spending ₹ 250 per month on the purchase of rice. Now, if income of the consumer increases and he can afford ₹ 350 on purchase of 10 Kg. of rice. Now he can afford to buy some quantity of rice, say 6 Kgs. whose price is ₹ 25 per Kg. and may buy 4 Kgs. of rice whose price is ₹ 50 per Kg. Thus he will buy 10 Kgs. of rice by spending ₹ 350 per month.

Therefore, we may conclude that demand for normal goods is directly related to the income of the buyer but demand for inferior goods is inversely related to the income of the buyer.

4. Tastes and Preferences of the Buyer: The demand for a commodity is also affected by the tastes and preferences of the buyers. They include change in fashion, customs, habits etc. Those commodities are preferred by the consumers which are in fashion. So, demand for those commodities rises which are in fashion. On the other hand, if a commodity goes out of.the fashion, its demand falls because no consumer will like to buy it.

Q.4. How is demand for a commodity affected by increase in income of its buyers?

Ans. The demand for goods also depends upon the incomes of the people. The greater the incomes of the people, the greater will be their demand for goods. When the incomes of the people fall, they would demand less of a good and as a result the demand curve will shift downward. For instance, as a result of economic growth in India the incomes of the people have greatly increased owing to the large investment expenditure on the development schemes by the Government and the private sector. As a result of this increase in incomes, the demand for good grains and other consumer goods has greatly increased. Likewise, when because of drought in a year the agriculture production greatly falls, the incomes of the farmers decline. As a result of the decline in incomes of the farmers, they will demand less of the cotton cloth and other manufactured products.

Q.5. Distinguish between 

(i) Substitute goods and complementary goods.

(ii) Normal goods and inferior goods.

Ans. (i) Difference between substitute goods and complementary goods.

Substitute goods	Complementary goods
1. These are those goods which can be used in place of each other to satisfy a given want. Tea and coffee are substitute goods.	1. These are those goods which are used together to satisfy a given want. They are demanded jointly, i.e., their consumption goes together. Car and petrol are comple- mentary goods.
2. In case of substitute goods there is direct relationship between the demand for the commodity and price of its substitute, i.e., increase in price of a commodity will increase demand for its substitute and decrease in price of the tube commodity will decrease the demand for its substitutes as shown below in the diagram.	2. In case of complementary goods, there is inverse relationship between the demand for a commodity and the price of its complementary goods. For example, rise in the price of petrol will lead to fall in demand for scooter and fall in price of petrol will lead to rise in demand for scooter as shown below in the diagram.

(ii) Difference between Normal goods and Inferior goods.

Base of difference	Normal goods	Inferior goods
1. Price Effect	1. Price has negative effect on normal goods. In other words, increase in price causes decrease in demand and vice versa.	1. Price has positive effect on inferior goods. In other words, decrease in price causes decrease in demand and via versa.
2. Income Effect	2. Income has positive effect on normal goods.	2. Income has negative effect on inferior goods.
3. Income

Q.6. State and explain the law of demand.

Ans. Law of Demand: Law of demand states that the quantity demanded varies inversely with its price, other determinants remaining unchanged. This law explains the functional relationship between the quantity demanded and price. Prof. Marshall has defined it as “If other things remaining same, the amount demanded increase with a fall in price and diminishes with a rise in price”. Hence, there exists inverse relationship between the price and quantity demanded. This law can be explained with the help of the following demand schedule.

Demand Schedule

This schedule shows that the demand for sugar of a household will be more at lower prices and less at higher prices.

Q.7. How is the demand for a commodity affected by changes in the prices of other commodities?

Or

Explain how do the following influence demand for a good: Fall in the price of the related goods.

Ans. Demand for a commodity directly depends upon its price. The price of its complementaries and substitutes and the income of the consumer also affect the demand. Any change in these variables will affect the demand. Some instances are expressed hereunder:

1. Effect of fall in the prices of substitutes: Substitutes are those goods the use of which can be made in place of the origin goods. There is a direct relationship (positive between the prices and quantity demanded the substitutes. An increase in the price of on will affect the demand of its substitute, such the price of tea and demand of coffee. Any increase in the price of tea will increase the demand for coffee and vice versa.

2. The effect of increase in prices complementary goods on the demand for commodity: The increase in the price complementary goods shall reduce with (negatively) the demand for the commodity. For example, if the price of pen goes up the demand for ink (which is complementary goods to pen goes down.

Q.8. Explain any three conditions in which law of demand does not operate.

Ans. You have studied in law of demand that a buyer is willing to buy more quantity of a commodity at a lower price and less of it at a higher price. But in certain circumstances, a rise in price may lead to rise in demand. These circumstances are called Exceptions to the Law of Demand. Some important exceptions are:

1. Giffen Goods: Giffen goods are special type of inferior goods in which negative income effect is stronger than negative substitution effect. Giffen goods do not follow law of demand as their demand rises when their price rises. Examples of Giffen goods are jowar and bajra etc.

2. Status Symbol Goods: Some goods are used by rich people as status symbols, e.g., diamonds, gold jewellery etc. The higher the price, the higher will be the demand for these goods. When price of such goods falls, these goods are no longer looked at as status symbol goods and, therefore their demand falls.

3. Necessities: Commodities such as medicines, salt, wheat etc. do not follow law of demand because we have to purchase them in minimum required quantity, whatever their price may be.

Q.9. Distinguish between expansion of demand and increase in demand.

Ans.

Increase in Demand	Expansion of Demand (Increase in quantity demanded)
1. Increase in demand means rise in demand due to change in factors other than the price of the commodity.	1. Expansion of demand or increase in quantity demanded means rise in demand due to fall in price of the commodity.
2. It is represented by an upward shift of the lower demand curve.	2. It is represented by a movement from a point along the same demand curve.
3. Factors other than price change.	3. Factors other than price remain constant.

Q.10. Distinguish between contraction of demand and decrease in demand.

Ans. 

Decrease in Demand	Contraction of Demand
1. Decrease in demand means fall in demand due to change in factors other than the price of the commodity.	1. Contraction of demand means fall in demand due to rise in price of the commodity, when other things remain constant.
2. It is represented by a leftward shift of demand curve.	2. It is represented by a movement from a lower point to a higher point along the same dem and curve.
3. Factors other than price change.	3. Factors other than price remain constant.

Some Other Important Questions For Examinations

Very Short Answer Type Questions

Q.1. What is demand?

Ans. Demand for a commodity by an individual is the quantity of that commodity that the individual is willing to buy at a price over a period of time.

Q.2. What is meant by market demand?

Ans. Market demand means the total quantity of a commodity that all its buyers are willing to buy at a given price over a time period.

Q.3. What is meant by demand for a commodity?

Ans. The demand for a commodity means want or desire for it and the ability and willingness to pay for it.

Q.4. How demand is expressed?

Ans. Demand is always expressed with reference to time and period.

Q.5. When a desire for a commodity becomes demand?

Ans. Want or desire for a commodity becomes demand when it is backed by the ability and willingness to pay for it.

Q.6. Mention four factors that affect an individual demand for a commodity.

Ans. (i) Price of the commodity.

(ii) Prices of related goods.

(iii) Income of the buyer of the commodity.

(iv) Tastes and preferences of the buyer.

Q.7. What assumption is stated as ‘other things remaining the same’?

Ans. When we assume that the demand of the commodity is not affected by any of the factors included in second group, then this assumption is stated as ‘other things remaining the same’.

Q.8. What assumption is stated as ‘price remaining the same’?

Ans. While studying the effects of changes in the factors included in second group on the demand of a commodity, we assume that the price of the commodity does not change. This assumption is stated as ‘price remaining the same’.

Q.9. What is law of demand?

Ans. The effects of changes in the price of a commodity on its quantity demanded are stated in the form of a law known as the law of demand.

Q.10. What does the law of demand state?

Ans. The law of demand states that other things remaining the same, when the price of a commodity falls, its quantity demanded rises and when the price of a commodity rises, its quantity demanded falls.

Q.11. What do you mean by increase in demand?

Ans. Increase in demand means increase in demand due to change in factors other than price.

Q.12. What is decrease in demand?

Ans. Decrease in demand means decrease in the quantity demanded as a result of change in factors other than price.

Q.13. What are the other factors that affect the demand of a good?

Ans. The other factors that affect the demand of a good are income of the buyer, tastes and preferences of the buyer and prices of related goods.

Q.14. What will happen if the tastes of a buyer becomes unfavourable for a good?

Ans. It’s demand will fall.

Q.15. What will happen if the price of a complementary good falls?

Ans. The demand for the good will rise.

Q.16. What is expansion of demand?

Ans. When the quantity demanded of a commodity rises due to a fall in its price, such a rise is called expansion of demand.

Q.17. What is contraction of demand?

Ans. Contraction in demand means decrease in the quantity demanded due to increase in price other things remaining the same.

Q.18. What is elasticity of demand?

Ans. Elasticity of demand measures the degree of responsiveness of demand to change in price.

Q.19. What is cross demand?

Ans. Cross demand refers to the quantity demanded at a given price of related goods (substitute goods or complementary goods) in a given period of time.

Q.20. What are complementary goods?

Ans. Complementary goods are those goods which are used together to satisfy a given want, for example, scooter and petrol.

Q.21. What are inferior goods?

Ans. Inferior goods are those goods which have negative relationship with income.

Q.22. Define joint demand.

Ans. When two or more than two goods are demanded together to satisfy a particular want the demand is said to be a joint demand, for example demand for petrol and car.

Q.23. Define composite demand.

Ans. The demand for a commodity which can be put to many uses is a composite demand. For example, demand for sugar is a composite demand.

Q.24. What are substitute goods?

Ans. Substitute goods are those goods which can be used in place of each other like coffee and tea.

Q.25. What is a demand schedule?

Ans. Demand schedule refers to the tabular statement which shows different quantities of a commodity demanded at different prices.

Q.26. What is demand curve?

Ans. Demand curve refers to the curve which expresses graphically relationship between different quantities demanded at different prices of a commodity.