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1.	Economists say inconsistent things. They say 'as price falls, demand rises but as demand rises, price rises'. Defend or Refute.
Answer» The statement is defended. It is the cause and effect relationship between two concerned variables price i.e., if price falls, its demand rises or expands. 2. Cause and effect relation between Price and Demand and supply. Price of a commodity is determined by its demand and supply. If demand of a commodity rises, the excess demand (supply remaining unchanged) will create competition among buyers and push the price up and the price rises. Hence the statement is defended.

2.	If the price of a substitute (Y) of good X increases, what impact does it have on the equilibrium price and quantity of good X ?
Answer» If the price of good Y falls, the demand of given good X will fall as now it will be cheaper to buy good Y and consumers will reduce the demand of good X as good X and good Y are substitute goods. Decrease in the demand of good X will lead to a leftward shift in its demand curve. At the old equilibrium price, there will be excess supply in the market and as a result of this there will emerge a competition among sellers as they will not be able to sell what they want at the ongoing market price. Fall in price will lead to rise in demand and fall in supply. As a result, equilibrium price and equilibrium quantity of good X falls.

3.	If the prevailing market price is above the equilibrium price, explain its chain of effects.
Answer» If the prevailing market price is above the equilibrium price, then at the prevailing market price there will be excess supply in the economy. This will lead to competition among sellers as they will not be able to sell what they want at the ongoing market price which will result in fall in the price. Fall in price will lead to rise in demand and fall in supply. This will continue till new equilibrium is established.

4.	A severe drought results in a drastic fall in the output of cotton. Analyse how it will affect the market price of cotton.
Answer» A severe drought will lead to fall in the supply of the cotton and therefore, the supply curve will shift leftwards. There will be excess demand at the existing market price as consumers will not be able to buy what they want at the existing price. This will lead to competition among buyers which will push up the price. This will continue till market demand equals market supply.

5.	Explain, in brief, the effect of decrease in demand on equilibrium price and equilibrium quantity, when the supply is perfectly elastic.
Answer» When the supply is perfectly elastic, decrease in demand will lead to leftward shift in demand curve. Equilibrium remains same as supply remains perfectly elastic. Equilibrium quantity falls as there is decrease in both demand and supply.

6.	State whether the following statements are true or false. Give reasons for your answer. (i) When equilibrium pirce is greater than market price, there will be excess supply in the market. (ii) X and Y and complementary goods. A fall in the price of Y will result in a rise in price of X.
Answer» (I) False. At any price below the equilibrium price, quantity demanded is greater than the quantity supplied and hence, there is a situation of excess demand in the market. (ii) False. If X and Y are complementary goods, that means, they are used together for satisfaction of human wants. A fall in the price of good Y will result in rise of quantity demanded of good X as it will be now be comparatively cheaper to use both the goods together.

7.	Explain the change that will take place in the market for a commodity if the prevailing market price is less than the equilibrium price.
Answer» If the prevailing market price is less than the equilibrium price, then there will be excess demand in the economy which will lead to competition among buyers as they are not able to buy what they want at the ongoing market price. This will result in rise in the price. Rise in price will further lead to decrease in demand and increase in price. This will continue till equilibrium is establishes.

8.	At a price of Rs.50 per chocolate, the demand is 700 chocolates and the supply is 900 chocolates. What is likely to be its effect on the price of chocolates?
Answer» At price of Rs. 50 per chocolate, demand is 700 units and supply is 900 units, there is excess supply of 200 units. This will lead to competition among buyers as they will be unable to sell what they want at the ongoing market price i.e. Rs. 50. Suppliers will start reducing the price. Reduction in price will lead to expansion of demand and contraction in supply till equilibrium is established which will be at a price lower than that of Rs. 50 per unit.

9.	A firm in perfect competition earns _________ in the long run.A. Normal profitsB. Super normal profitsC. Below normal profitsD. none of these
Answer» Correct Answer - A

10.	Equilibrium price remains the same whenA. increase in demand = increase in supplyB. decrease in demand = decrease in supplyC. increase in demand when supply is perfectly elasticD. all of these
Answer» Correct Answer - D

11.	Equilibrium price rises due to :A. favourable change in tastesB. increase in incomeC. increase in populationD. all of these
Answer» Correct Answer - D

12.	Define the following terms: (a) Equilibrium (b) Equilibrium price (c) Equilibrium quantity (d) Market equilibrium.
Answer» a) Equilibrium is the state in which market supply and demand balance each other, and as a result, prices become stable. b) Equilibrium price refers to the price where market demand equals market supply. c) Market equilibrium refers to the point where market demand of a commodity equals market supply of a commodity.

13.	If demand and supply curves do not intersect each other at any positive quantity, the industry is :A. making profitsB. in perfect competitionC. not economically viableD. all of these
Answer» Correct Answer - C

14.	The price determined by the intersection of demand curve and supply curve isA. controlled priceB. equilibrium priceC. fixed priceD. none of these
Answer» Correct Answer - B