BBA 1st Sem Demand Theory Short Answers Questions Study Material

BBA 1st Sem Demand Theory Short Answers Questions Study Material

BBA 1st Sem Demand Theory Short Answers Questions Study Material Notes

BBA 1st Sem Demand Theory Short Answers Questions Study Material Notes

BBA 1st Sem Demand Theory Short Answers Questions Study Material

Q.1. Explain the factors affecting demand.

Ans. Factors Affecting Demand. There are number of factors which influence the commodity Important among these are:

  1. Price of a commodity.
  2. Price of other related commodity.
  3. Level of income.
  4. Taste and preference.
  5. Consumer’s expectation,
  6. Other factors

(a) Government policy

(b) Advertisements.

(c) State of an economy.

(d) Demographic pressure.

  1. Price of a Commodity: Price is the basic consideration in determining the demanded commodity. Normally a larger quantity is demanded at lower price, then at higher price.

Price and demand have inverse relationship meaning thereby that demand up on low price vice versa.

  1. Price of other Related Commodity : Consumer demand for a given commodity depended the relative price of other goods such as substitutes or complementary goods of a commodity w wants can be satisfied by alternative similar goods they are called substitutes, e.g. tea and coffee and pencil.

Similarly, the demand for a commodity is also affected by its complementary products. When in order to satisfy a given want two or more goods are used in combination. These goods are termed as complementary goods, eg, car and petrol, tea and sugar.

  1. Level of Income: Income is an equally important factor of demand. If the available commodity is of superior quality, then an increase in the income of consumer will increase the demand for this commodity on account of increased purchasing power of consumer but the price of commodity should remain constant in the market. On the other hand, if the available goods is of inferior quality, then an increase in the income of consumer will decrease the demand for this goods in the account of existing substitution law in practice.
  2. Taste and Preference: Demand for many goods depend upon fashion, taste, habit and preference. Demand for products like icecream, chocolate demands upon individual taste.
  3. Consumer’s Expectation: A consumer expectation about future changes in price of a given commodity may also affect its demands. When we expects its prices to fall in future he will try to buy less at the present prevailing price and vice versa.
  4. Other Factors: The other factors are:

(a) Government Policy : The economic policies of the government regarding consumer protection, price control, inflation, taxation, rationing, production marketing, distribution, trade etc. and their related policy measures affect the demand for commodities and services in the country. For example, if there is imposition of production levy, sales tax, strict rationing etc, on the available commodities and services, their demand will obviously fall down and vice versa.

(b) Advertisements: The advertisement create demonstrative effect on the consumers on a wide scale which lead to growing more demand for commodities and services in the market. There may be various media of these advertisements, viz. newspaper, magazine, demand for commodities and services in the market which affect the present and future demand for commodities and services significantly in the market.

(c) State of an Economy: The state of an economy can be viewed in form of either inflation or deflation. When there is inflation in an economy, there will be more money circulation. The purchasing power of the people will increase which will lead to more demand for commodities and services in the country. In the case of existing deflation in an economy there will be vice versa situation in the country.

(d) Demographic Pressure: The changes in demographic pressure or the size of population of an economy affect the demand for commodities and services in the short-run as well as in the long-run. In general when the demographic pressure or the size of population increases in an economy then there exists more demand for commodities and exists more demand for commodities and services in an economy and vice versa.

Q.2. What are the factors determining the demand for non-durable consumer goods?

Ans. Determinants of the Demand of Non-Durable Consumer Goods

Non-durable consumer goods are the goods that are consumed only once. Utility of the goods come to an end with their single use. For example sugar, milk, pulses, fruits, vegetables, gas, tea etc. are non-durable consumer goods because these goods can be consumed only far one time. Demand o such goods is determined by the following factors:

  1. Purchasing Power of Consumers: Purchasing power of consumers is the most important determinant of the demand of non-durable consumer goods. If the purchasing power of consumer increases, demand of these goods will increase. On the other hand, demand of the goods will decrease if the income of consumer decreases.
  2. Price of Substitute Goods: Price, packing, quality, availability of substitute goods is the second most important determinant of the demand of consumer goods. If the prices of substitute goods increase, demand for non-durable consumer goods will increase. If the prices of substitute goods fall, demand of these goods will also fall because the consumers would prefer to purchase the substitute goods.
  3. Price of Complementary Goods: The prices of complementary goods also affect the demand of main products. If the prices of complementary goods fall, demand of main products will increase and vice versa. For example, the change in the price of sugar also brings change in the demand of tea. If the price of sugar increases, demand of tea will decrease because of the decrease in the demand of sugar
  4. Standard of Living of Consumers: Standard of living of consumers also affects the demand of non-durable consumer goods. Consumers of high standard of living will purchase high-priced products and the consumers of low standard of living will purchase low-priced products.
  5. Demography: Population and the characteristics of population also affect the demand of non-durable consumer goods. Demand of these goods increases with an increase in population and decrease with a decrease in population.

Thus, it may be concluded that the demand of non-durable consumer goods is influenced by many factors together such as the economic condition of consumer, prices of substitutes goods, price of complementary goods, standard of living of consumers, population etc.

Q.3. What are exceptions of demand?

Or

What are claim paradox?

Ans Exceptions of law demand:  There are some exceptions to the law of demand. It means there are some commodities  whose demand extends when price rises and contracts when price falls. Demand curve of such commodities slopes upward from left to right.

  1. Article of distinction or Veblen Goods: Veblen goods (named after Ametica economist T. Veblen) are articles of distinction or luxury goods like jewellery etc.

According to Veblen Demand of Veblen goods are more when their prices are high. Diamond and gems are considered articles of distinction in the society anad so are more in demand despite high price. In case, their price goes down they no longer remain article of distinction and so have less demand

  1. Ignorance : Many a time consumers out of poor judgement or ignorance consider, a commodity to be of low quality is price is low and of high quality if its price is low and of high quality if its price is high.

e.g. A book was published in India before Ist war with Pakistan and priced at Rs 100 per copy it could not attract many buyer. Another edition of same book was published after war and this time it was priced Rs 175. The book was like hot cake. High price of the book enhanced its quality in the mind of the people and so also its demand.

  1. Giffin’s paradox : Giffin paradox is the most important criticism of this law. This exception was given by Sir Robert Giffin. He established that there are two types of goods inferior goods and superior goods and the law of demand does not apply on inferior goods

Demand of these goods increases on an increase in their price and decreases on a fall in their pries. BBA 1st Sem Demand Theory Short Answers Questions Study Material Notes

e.g. Wheat and bajra are two important grains. Wheat is a superior food grain and bajra is an interior food grain. If the price of both the wheat and bajra increases, consumer will have to increase the quantity of bajra so that they may meet their food requirements by spending the same amount

  1. Emergencies: The law does not apply in the period of emergencies like war, flood, famine curfew etc. Availability of goods becomes uncertain during such periods, therefore, the consumers like to store the goods of their daily use even at higher prices.
  2. Expectation Regarding Future Price Changes : When the prices of a commodity are expected to change in near future, the law does not apply.

e.g. If price of a commodity increases and still there is a hope of further increase in its price, its demand will increase instead of decreasing because the consumer will like to have a stock of such commodity. On the other hand, if the price of a commodity falls and there is hope of further fall in its price its demand will decrease instead of increasing,

  1. Commodity of Necessities: Law of demand does not apply on the commodities of necessities

e.g. Salt is a commodity of necessity. Demand of salt is not affected by the change in price of salt because a consumer cannot increase the consumption of salt on a fall in its price and cannot reduce its consumption on an increase in its price.

  1. Brand Loyalty: If a consumer is loyal to a particular brand of commodity, he will not like to change the brand even on a change in its price.

e.g. Mr. Vijay always uses the footwear of Liberty, he will continue to use the footwears of this brand even if their prices increases

Q.4. What are the kind of demand ?

Ans. Price Demand: Price demand shows the relationship between price of the goods and demanded. If the price of goods is higher, consumers will purchase less quantity of goods and if the price is lower, consumers will purchase more quantity of goods. It means there is inverse between price and quantity demanded.

  1. Income Demand : Other thing remaining the same income demand indicates the relationship between income of the consumer and quantity of demanded commodity. In others words, it relates to the various quantities of a commodity that will be bought by the consumer at various levels of income. Here, demand of goods depends upon the income of consumer. Generally, if income of consumer increases the demand of goods also increases and vice versa. In case of normal goods, there is positive relationship between income and quantity demanded. But in case of inferior goods there is inverse relationship between income and quantity demanded.
  2. Cross Demand: It is a situation, where change in the price of one commodity results in the change of the demand of other commodity. In this way cross demand indicates how the demand for a commodity is affected by changes in the price of related goods. Cross demand function will be as under:

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