12 Most VSAQ’s of Demand Analysis Chapter in Inter 1st Year Economics (TS/AP)

2 Marks

VSAQ-1 : What is price demand (OR) Law of demand

The law of demand states that as the price of a good increases, the quantity demanded for that good decreases, assuming all other factors remain constant. Conversely, as the price of a good decreases, the quantity demanded for it increases. This inverse relationship between price and quantity demanded is a fundamental concept in economics.

VSAQ-2 : Prepare individual demand schedule. (OR) Individual demand schedule.

An individual demand schedule is a table that shows the quantity of a good or service that an individual is willing and able to purchase at different prices, holding all other factors constant. Here’s an example of an individual demand schedule for a hypothetical product:

Price (in Dollars)Quantity Demanded
$510
$415
$320
$225
$130

In this example, as the price of the product decreases, the quantity demanded by the individual increases, following the law of demand.

VSAQ-3 : What is demand function? (OR) Write a note on demand function. (OR) What is ‘demand function’? (OR) Demand function

A demand function is a mathematical equation that illustrates how the quantity demanded of a good or service is influenced by factors like price, income, and consumer preferences. It provides a quantitative representation of how changes in these variables affect consumer demand in the market. The demand function is a crucial tool in microeconomics and market analysis, aiding in predicting and understanding consumer behavior.

VSAQ-4 : Explain Giffen’s paradox. (OR) What is ‘Giffen’s paradox’?

Giffen’s Paradox is an exception to the law of demand. It occurs when the price of a basic necessity, such as bread, rises, and people with low incomes start buying more of that necessity despite its higher price. This phenomenon was observed by Sir Robert Giffen in 19th-century Britain, where an increase in bread prices led to increased consumption by low-wage earners, who reduced their consumption of more expensive foods like meat. Giffen goods are usually inferior goods and defy the typical law of demand when their prices increase.

VSAQ-5 : Explain Veblen goods (prestigious goods).

Veblen Goods, also referred to as prestigious goods, are a unique category of products where the demand increases as their price rises, which is contrary to the typical law of demand. These goods are associated with prestige, luxury, or social status and are often purchased not just for their utility but also to display wealth or social standing. Examples include designer clothing, luxury watches, high-end cars, and exclusive jewelry. As their price goes up, their desirability as symbols of affluence and social prestige also increases, leading to a higher demand for them.

VSAQ-6 : What is cross demand?

Cross demand, also known as cross-price elasticity of demand, is a measure of how the quantity demanded of one good changes in response to a price change in another related good. This concept is important in understanding the relationship between goods and helps determine whether they are substitutes (positive cross demand) or complements (negative cross demand). Analyzing cross demand is crucial for pricing and marketing strategies.

VSAQ-7 : Explain complementary goods. (OR) Complementary goods

Complementary goods are pairs of products that are typically consumed together, and their demand is interrelated. When the price of one complementary good rises, the demand for the other complementary good tends to fall, and vice versa. For example, if the price of cars increases, the demand for petrol (gasoline) may decrease, as people buy fewer cars and drive less. This relationship helps businesses understand consumer behavior and make pricing and marketing decisions.

VSAQ-8 : Explain income elasticity of demand.

Income elasticity of demand (Ey) measures how the quantity demanded of a good changes with shifts in consumers’ income. It is calculated as the percentage change in quantity demanded divided by the percentage change in income. Depending on its sign:

  1. Positive Ey (> 0) indicates a normal good, where demand increases with higher income.
  2. Negative Ey (< 0) signifies an inferior good, where demand decreases as income rises.
  3. Ey close to zero (Ey ≈ 0) suggests a necessity, with demand remaining relatively constant regardless of income changes.

VSAQ-9 : Explain cross elasticity of demand.

Cross elasticity of demand (Exy) measures how the quantity demanded of one good changes in response to a change in the price of another related good. It is calculated as the proportional change in the quantity demanded of good X divided by the proportional change in the price of good Y. Depending on its sign:

  1. Positive Exy (> 0) indicates that the goods are substitutes, as an increase in the price of one leads to an increase in the demand for the other.
  2. Negative Exy (< 0) suggests that the goods are complements, as an increase in the price of one results in a decrease in the demand for the other.
  3. Exy close to zero (Exy ≈ 0) implies that the goods are unrelated, with changes in the price of one having little impact on the demand for the other.

VSAQ-10 : Explain substitute goods.

Substitute goods are products that can be used as alternatives to each other. When the price of one substitute rises, the demand for the other substitute tends to increase. This is because consumers may switch from the more expensive substitute to the cheaper one to maintain their level of satisfaction. Examples of substitute goods include tea and coffee, butter and margarine, or bus and subway transportation. The cross elasticity of demand for substitutes is positive, indicating that an increase in the price of one substitute leads to an increase in the quantity demanded for the other substitute.

VSAQ-11 : What are the types of price elasticity of demand? (OR) Write the types of ‘price elasticity of demand’. (OR) Types of price elasticity of demand

There are five types of price elasticity of demand:

  1. Perfectly elastic demand (Ed = ∞): Consumers buy only at a specific price.
  2. Perfectly inelastic demand (Ed = 0): Consumers buy the same quantity regardless of price.
  3. Unitary elastic demand (Ed = 1): Percentage change in quantity matches percentage change in price.
  4. Relatively elastic demand (Ed > 1): Consumers are responsive to price changes.
  5. Relatively inelastic demand (Ed < 1): Consumers are less responsive to price changes.

VSAQ-12 : What is perfectly inelastic demand?

Perfectly inelastic demand occurs when the quantity demanded remains constant regardless of changes in price. This results in a vertical demand curve, and the price elasticity of demand (Ed) is equal to zero.