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Mrs Ramgopal says that economists say inconsistent things: as price falls, demand rises but as demand rises, prices rises. Defend or refute. |
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Answer» Solution :We defend the statement of Mrs Ramgopal. As PRICE falls, demand rises. According to LAW of Demand, there is inverse relationship between demand and price. Lesser price leads to higher demand. Demand = f (price) When demand rises, prices also rises. Price is function of twin forces of demand and supply. Price = f (demand, supply) In the given FIGURE, price is measured onverticalaxis and quantity demanded and suppliedis measured on horizontal axis. Initially, the equilibrium price is OP and equilibrium quantity is OQ. But due increase in demand , the demand curve shifts RIGHTWARD from DD to `D_(1) D_(1)` . With new demand curve ` D_(1) D_(1)` there is excess demand at initial price OP because at price OP, demand is PB and supply is PA, so there is excess demand of AB at price OP. Due to this excess demand, competition among the consumer will raise the price. With the rise in price, there is upward movement along the demand curve (contraction in demand) from B to C and similarly, there is upward movement along the supply curve (expansion in supply) from A to C. So, finally equilibrium price rises from OP to `OP_(1)`. So, demand rises, price rises. ` (##FM_M_ECO_XII_P1_C12_E02_064_S01.png" width="80%"> ` (##FM_M_ECO_XII_P1_C12_E02_064_S02.png" width="80%"> |
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