MODULE-3
Section B: Short Answer Questions

1. Define demand. What are the types of demand?
Answer: Demand refers to the quantity of a good or service that consumers are willing and able to purchase at various prices during a given period of time.
Types of demand:

• Price Demand
• Income Demand
• Cross Demand
• Individual Demand
• Market Demand

 2. State the Law of Demand. Mention any two assumptions.

Answer: The Law of Demand states that, ceteris paribus (all other things being equal), the quantity demanded of a good falls when the price of the good rises and vice versa.
Assumptions:

• Consumer income remains constant
• Tastes and preferences remain unchanged

 3. Write any four factors that affect demand.

Answer:

• Price of the good
• Income of consumers
• Prices of related goods (substitutes or complements)
• Consumer tastes and preferences

 4. Explain the concept of Elasticity of Demand.

Answer: Elasticity of Demand measures how much the quantity demanded of a good responds to a change in one of its determinants, such as price or income.
Example: If a small change in price causes a large change in quantity demanded, demand is said to be elastic.

 5. Distinguish between price elasticity and income elasticity of demand.

Answer:

• Price Elasticity of Demand (PED): Measures the responsiveness of quantity demanded to a change in the price of the good.
• Income Elasticity of Demand (YED): Measures the responsiveness of quantity demanded to a change in consumers’ income.

6. State two real-life applications of elasticity of demand.
Answer:

• Helps firms in pricing decisions: If demand is elastic, lowering price can increase total revenue.
• Government uses elasticity to determine taxes: Higher taxes are levied on inelastic goods like petrol or cigarettes.

7. Define demand forecasting. Why is it important?
Answer: Demand forecasting is the process of estimating future demand for a product or service.
Importance:

• Helps in production planning
• Facilitates better inventory management
• Aids in budgeting and resource allocation

8. What is the relationship between price and quantity demanded?
Answer: There is an inverse relationship. As the price of a good increases, the quantity demanded decreases and vice versa, as per the Law of Demand.

Section C: Long Answer / Essay Questions

1. Explain the Law of Demand with the help of a demand schedule and graph. What are its exceptions?
Answer: The Law of Demand shows an inverse relationship between price and quantity demanded.
Example Demand Schedule:

Price (Rs.)	Quantity Demanded
10	100
20	80
30	60

Graph: (Plotting price on Y-axis and quantity on X-axis shows a downward-sloping demand curve.)

Exceptions:

• Giffen Goods
• Veblen Goods
• Speculative goods
• Necessities

2. Define Elasticity of Demand. Discuss different types with examples.
Answer: Elasticity of Demand refers to the degree of responsiveness of quantity demanded due to changes in price, income, or the price of related goods.
Types:

• Price Elasticity: e.g., luxury goods
• Income Elasticity: e.g., normal and inferior goods
• Cross Elasticity: e.g., substitutes (tea and coffee), complements (pen and ink)

3. What is Elasticity of Demand? How is it measured? Discuss its practical importance.
Answer: Elasticity is measured as:
PED = (% change in quantity demanded) / (% change in price)
Importance:

• Pricing strategy
• Government taxation policy
• Business decisions on production and marketing

4. What is demand forecasting? Explain its methods and importance in business decisions.
Answer: Demand forecasting is predicting future customer demand.
Methods:

• Qualitative (expert opinion, Delphi method)
• Quantitative (trend analysis, regression)
  Importance:
• Budgeting and planning
• Inventory control
• Strategic decision-making