(a) Five characteristics of capital as a factor of production are as follows: 

1. It is a passive factor of production. This is so because it becomes ineffective without co-operation of labour. 

2. Capital is man-inade and is born out of savings done by man. Its supply is increased or diminished by the efforts of man. Thus, capital is man-made factor of production. 

3. Capital is not an indispensable factor of production. Production can be possible even without capital whereas land and labour are the original and indispensable. factors of production. 

4. Capital has the highest mobility amongst all the factors of production. The land is immobile, labour has low mobility, whereas capital has both ‘place mobility’ and ‘occupational mobility’. 

5. The supply of capital is elastic and can be adjusted easily and quickly according to demand. Capital depreciates gradually if capital is used again and again. For example, if any machine is used for a considerable period, then it may not be suitable for further use due to depreciation. Hence, capital is productive. Hence, production can be increased to a large extent if workers work with adequate capital. 

(b) The law of demand states that other things being equal, “A rise in the price of a commodity is followed by a fall in demand and a fall in price is followed by rise in demand. In other words, it states that there is an inverse relationship between the price of a commodity and its demand. The three determinants for the negative slope of the demand curve are: 

1. Income Effect: When the price of a commodity falls, a consumer has to spend less on the purchase of the same amount of the commodity. Thus, it increases his purchasing power or real income which inturn, enables him to purchase more of the commodity. Thus, the effect on demand for goods due to the change in the real income in the price of the commodity is known as the income effect. Therefore, income effect is related to change in income caused due to the change in price and not due to change in money income. 

2. Substitution Effect: Substitution effect means substitution of one commodity for other when it becomes relatively cheaper. If the price of one commodity rises, the consumer shifts to other commodity, which is a relatively cheaper. For example, tea and coffee may be termed as substitute to each other. If the price of coffee rises, the consumer may shift to tea thereby increase in demand of tea. This is called substitution effect. 

3. Law of Diminishing marginal utility: The law of diminishing marginal utility tells us that the marginal utility of the goods falls with increase in its quantity. That is why, this law is shown by a downward sloping demand curve. A consumer pays for a commodity because it possesses utility and he would purchase a commodity to the extent, where its marginal utility becomes equal to its price. From this, it follows that a consumer would purchase more of a commodity when its price falls. Thus, the diminishing marginal utility curve itself takes the form of a demand curve and that is why it is downward sloping. 

4. New Customers: It is possible that at a particular price some consumers may not be able or may not be willing to purchase the commodity. But as price falls some new customers start to purchase the commodity. Contrary to it, when price rises some old customers may stop to purchase the commodity.