InterviewSolution
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                                    (a) Why is supply directly proportional to price ?(b) Explain briefly any one determinant of an exceptional demand curve.(c) What is meant by unproductive public debt ?(d) Mention one contingent function of money.(e) Explain briefly the impact of cost of production on elasticity of supply. | 
                            
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Answer»  (a) Supply is directly proportional to price because supply is caused by the decision of sellers in the market. The most important indicator that the sellers would look for while making their sales is price. Price of a commodity serves as an incentive for producers and sellers. 1. If the price of a commodity increases, it will motivate producers to produce more and sellers to sell more of the commodity. 2. If the price of a commodity falls, producers and sellers would like to decrease the supply of that commodity because it will reduce their profit margin. Hence, the direct relation between price and supply. (b) Possibility of future rise in prices : It is one of the most important determinants of an exceptional demand curve. If a consumer anticipates that the price of a commodity will rise in future he will purchase more of that commodity now. The consumer will purchase more even if current price is high. (c) Public debt may be productive or unproductive, depending on the use of public loans. When government borrows for non-developmental uses such as war finance or extravagancy in public administration, the debt becomes unproductive. It does not create any real income in return. Such debts are dead weight debts. (d) Assisting Production Decisions : The main objective of a producer or manufacturer is to maximize his sales, revenue or profit. Therefore, he wants to employ such an amount of factors of production (land, labour and other materials) which help in achieving the goals of profit maximisation. While employing any factor, the firm has to make payments to pay wages to the workers, interest to the owners of capital etc. All such factor payments are made in terms of money. Therefore, money prices of these factors help a firm in taking important production decisions. (e) Elasticity of supply is greatly influenced by how costs of production respond to output changes. If an increase in output by the firms in an industry causes only a slight increase in their cost per unit or leads to decrease in cost per unit, supply will be fairly elastic. If, on the other hand, an increase in supply leads to a large increase in cost of production, the supply would be relatively inelastic.  | 
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