GSEB Class 11 Economics Important Questions Chapter 4 Supply

   

Gujarat Board GSEB Class 11 Commerce Economics Important Questions Chapter 4 Supply Important Questions and Answers.

GSEB Class 11 Economics Important Questions Chapter 4 Supply

Short Answer Type Questions

Question 1.
Define production.
Answer:
The quantity of goods created by the available factors of production during a fixed time period is called production.

Question 2.
State one important difference between stock and supply.
Answer:
Stock depends on production whereas supply depends on stock and price.

GSEB Class 11 Economics Important Questions Chapter 4 Supply

Question 3.
Give an example to differentiate between stock and supply?
Answer:
From an available stock of 500 packets, if the trader is able and willing to sell 300 packets then the supply of oil is 300 packets whereas the stock is 500 packets.

Question 4.
How can you say that there exist positive relationship between price and supply?
Answer:
A producer sells goods for earning profit. Irt order to earn higher profit, he supplies more goods when the price of a product rises and less when the price falls.

Question 5.
How does decreased cost of factors of production expands supply?
Answer:
When cost of factors of production decrease, production becomes cheaper. If now price remains unchanged, the profit increases and so the seller wishes to sell more which in turn expands supply.

Question 6.
How few countries expand their supply using advanced technology?
Answer:
Few countries with the help of advanced technology are able to produce better quality goods at much faster rate with
same or lower costs. This way …..

Question 7.
How does future expectations about price affect the current supply of goods?
Answer:
If sellers speculate price of a product to rise in future then they contract the current supply so that they can build up stock for the future and vice-versa.

Question 8.
Define individual supply.
Answer:
The supply of a good by an individual firm/seller at a given price at a particular point of time is called individual supply.

Question 9.
What is market supply?
Answer:
The sum total of all individual supplies -of all existing sellers in the market at a given price at a particular point of time is called market supply.

Question 10.
What is supply function?
Answer:
The functiun thai specifies a functional (mathematical) relationship between supply of a good and its determinants i.e. factors affecting the supply is supply function.

Question 11.
Give the mathematical form of supply function.
Answer:
Sx = f (Px, T, Pf, Pe, U)

Question 12.
Define law of supply.
Answer:
“When all other factors affecting supply are assumed to be constant, as price increases, supply expands and as price decreases, supply contracts”.

Question 13.
State any two assumptions of law of supply.
Answer:

  1. Prices of factors of production remain constant.
  2. There is no change in the prevalent state of technology.

Question 14.
When does expansion-contraction of supply takes place?
Answer:
When factors other than price are assumed to remain constant and price varies, there occurs expansion and contraction of supply.

Question 15.
What is increase-decrease of supply?
Answer:
Assuming price as constant if the supply increase/decrease due to some other factors, it is known as increase/ decrease in supply.

Question 16.
What is rightward shift of supply curve?
Answer:
Keeping price factor as constant, if supply increases due to any other factor, the supply curve will shift towards right which is called rightward shift in supply curve.

Question 17.
State few factors that can be responsible for rightward shift of supply curve?
Answer:
The factors responsible for rightward shift could be fall in cost of production, fall in prices of factors of production, improvement in technology, rise in number of suppliers, government policies, etc.

Question 18.
What is leftward shift of supply curve?
Answer:
Keeping price factor as constant, if supply decreases due to any other factor, the. supply curve will shift towards left which is called leftward shift in supply curve.

GSEB Class 11 Economics Important Questions Chapter 4 Supply

Question 19.
What is price determination?
Answer:
The process of determining what a company will receive in exchange for its product is called price determination. Price determination explains the process of determining a stable price at which goods are actually bought and sold in the market.

Question 20.
How is an equilibrium price obtained on the demand and supply curve?
Answer:
Supply curve slopes upward whereas demand curve slopes downward. The point at which both intersect is the point of equilibrium price.

Long Answer Type Questions

Question 1.
Define production, supply and stock.
Answer:
Production:
The quantity of goods created by the available factors of production during a fixed time period is called production

Supply:
The quantity of production which a producer is able and willing to sell in the market at a given price and at a particular point of time is called supply.

Stock:
The total available quantity of goods with a producer which can be offered for sale in the market as per the ability and willingness of the seller is called stock.

Question 2.
Give a brief idea about stock and clarify important concepts necessary to understand the meaning of stock.
Answer:
Stock:

  • The total available quantity of goods with a producer which can be offered for sale in the market as per the ability and willingness of the seller is called stock.
  • For example, a trader of oil in Rajkot has 500 packets of oil. This means the trader has 500 packets as stock if he is not able and willing to sell them in the market at a given price at a given point of time then supply is zero even with stock of 500. But, if he is able and willing to sell 300 packets from the available amount then the supply of oil is 300 packets.
  • In other words, Stock = 500 packets of oil
    Supply = 300 packets at ₹ 100/packet.

Important concepts to understand meaning of stock:
(A) Willingness to sell:
The total quantity of a good available with a producer or trader is not called supply but is called stock. It will become supply only when he is able and willing to sell it at a given price at a particular point of time.

(B) Ability to sell:
Ability to sell depends upon the availability of stock. For example, if a trader of oil desires to sell 1,000 packets of oil while he has an available stock of only 500 packets then the ability to sell is only 500 packets. Thus, supply is 500 packets.

GSEB Class 11 Economics Important Questions Chapter 4 Supply

Question 3.
Clarify the difference between stock and supply.
Answer:

  • In routine terms, the concepts of stock and supply are considered and / used as one and the same by people but, technically the two are different.
  • Stock is the sum total of the available amount of a good whereas, supply is the stock which traders are able and willing to sell at a prevailing price at a particular point of time.
  • Whenever the trader is unable and not willing to sell the entire available stock at a given price and a point of time, supply will not be considered equal to the stock.

Example:

  • From an available stock of 500 packets, if the trader is able and willing to sell 300 packets then the supply of oil is 300 packets whereas the stock is 500 packets.
  • Hence the available stock which determines the ability to sell is called stock. On the other hand, the ability and willingness to sell at a given price at a particular point of time is the supply.
  • Hence, stock is the total amount of a product which is available for sale whereas supply is less than stock.
  • Stock consists of current production as well as the unsold stocks from previous lot ot production.
  • Thus, we can say that stock is different from production and supply.

Question 4.
Changes in cost of factors of production affect supply. Give reason.
Answer:

  • Land, labour, capital and entrepreneur are the four factors of production.
  • When rent paid to the owner of land or wages paid to the labourer, decrease, the cost of production decreases.
  • When cost of production decreases and if price remains unchanged, the profits increase. Hence, the seller is more willing to sell large quantity. Thus, supply expands when prices of factors of production fall.
  • On the contrary, if cost of production rises, the situation becomes opposite and the supply contracts.

Question 5.
Advancement in technology expands supply. Give reason.
Answer:
Level of technology:

  • When technology advances, time and efforts are saved. Hence, goods in large quantities and better quality can be produced that too with the same or lower costs.
  • To add to this, if market price does not fall then profits increase and sellers are willing to sell more. Thus, supply expands.

Question 6.
State and explain the law of supply and its assumptions.
Answer:
Law of supply:
“When all other factors affecting supply are assumed to be constant, as price increases, supply expands and as price decreases, supply contracts”. The definition tells that there is a direct and positive relationship between price and supply. This relationship is called law of supply.

Assumptions of law of supply:

  • Over and above time, several factors affect the supply of a good at a particular point of time. Flowever, at given point of time, the law of supply assumes the effect of all factors on supply other than the price as constant.
  • In reality, other than price there are some other factors that can influence the supply more. However, we assume these to be constant.

Some important assumptions of law of supply:

  • Prices of factors of production remain constant.
  • There is no change in technology.
  • Level of competition remains the same. In other words, number of sellers in the market remains the same.
  • Expectations regarding future prices are ignored/held constant.
  • Other factors like government policy, transport facilities, natural factors, etc. remain constant.

Question 7.
State the reason for positive relationship between price and supply.
OR
There is a direct positive relationship between price and supply. Give reason.
Answer:
There are two reasons for positive relationship between price and supply. They are:

  1. Sellers keep in mind the objective of profit maximization. So, when price rises they see the possibility of increasing profits. Thus, they supply more at a higher price.
  2. When price rises, those producers who were not willing to sell their stocks at lower price start selling the stocks.

Question 8.
Explain briefly how does change in supply takes place.
Answer:

  • The determinants of supply are classified under two major categories. They are:
    1. Price and
    2. Factors other than price.
  • When factors other than price are assumed to remain constant and price varies, there occurs expansion and contraction of supply.
  • When price is held constant and other factors vary, there occurs increase and decrease in supply.

Question 9.
Explain rightward shift and leftward shift in supply curve.
Answer:
Rightward shift:

  • Keeping price facto, ^s constant, if supply increases due to any other factor, the supply curve will shift towards right which is called rightward shift in supply curve.
  • The factors responsible for rightward shift could be fall in cost of production, fall in prices of factors of production, improvement in technology, rise in number of suppliers, government policies, etc.

Leftward shift:

  • Keeping price factor as constant, if supply decreases due to any other factor, the supply curve will shift towards left which is called leftward shift in supply curve.
  • Leftward shift takes place when one or more above mentioned factors behaves in a reversed manner.

GSEB Class 11 Economics Important Questions Chapter 4 Supply

Question 10.
Explain the exceptions to the law of supply.
Answer:

  • “When all other factors affecting supply are assumed to be constant, as price increases, supply expands and as price decreases, supply contracts”. However, for some goods there are exceptions to this law.
  • Under the exceptions to law of supply, keeping other factors constant, supply of a good rises when its price falls and supply falls when price rises.

Examples of such goods are:
1. Rare goods:

  • Certain goods are rare and hence even if there is a significant rise in their prices, their supply does not rise. For example, ancient coins, ancient idols, original manuscripts, old books, ancient handicrafts etc.
  • An important point to note is that such goods are not produced on a daily basis. Hence,-it will be incorrect to consider these goods as exceptions to the law of supply. So, such goods should be kept out of the study of supply.

2. Perishable goods:

  • Highly perishable goods like milk, milk products, green vegetables, meat, eggs, fish, ripe fruits, flowers, etc. cannot be stored for a long time.
  • Hence, even if their price falls their supply will not contract because they cannot be preserved and hence must be sold.
  • In current times with availability of storing such goods in cold storages even this exception is a matter of debate.

Question 11.
Exceptions to the law of supply are only theoretical. Give reason.
Answer:

  • There are two categories of goods namely rare goods and perishable goods which do not follow the law of supply i.e. they are exceptions to the law of supply.
  • In case of rare goods, the rare goods are not produced on a daily basis. Hence, it will be incorrect to consider these goods as exceptions to the law of supply.
  • In case of perishable goods, even if the price of perishable products falls their supply will not contract because they cannot be preserved and hence must be sold.
  • Hence, looking to situation that both these categories of goods experience it is said that exceptions to the law of supply are only theoretical.

Question 12.
What is price determination
Answer:
Price determination:

  • The process of determining what a company will receive in exchange for its product is called price determination.
  • Price determination explains the process of determining a stable price at which goods are actually bought and sold in the market.
  • Such determination of prices is done in all forms of markets and is known as determination of equilibrium price level.

Question 13.
Differentiate between expansion-contraction of supply and increase-decrease of supply.
Answer:

Expansion contraction of supply Increase decrease of supply
1. When factors other than price are assumed to remain constant and price varies, there occurs expansion and contraction of supply. 1. Assuming price as constant if the suppiy increase/decrease due to some other factors, it is known as increase/ decrease in supply.
2. Expansion contraction occurs due to price. 2. Increase decrease of supply takes place due to factors other than price.
3. Here, the supply curve remains stable, only the points on the supply curve change. 3. Here, the entire supply curve shifts.

Multiple Choice Questions

Question 1.
Which of the following is important while understanding about stock?
(A) Ability to sell
(B) Skills to sell
(C) Willingness to sell
(D) Both (A) and (C)
Answer:
(D) Both (A) and (C)

GSEB Class 11 Economics Important Questions Chapter 4 Supply

Question 2.
The total available quantity is called ________
(A) Production
(B) Supply
(C) Stock
(D) Demand
Answer:
(C) Stock

Question 3.
If a trader is not able and willing to sell the entire available stock at a given price, than ________
(A) Supply ≠ stock
(B) Supply ≠ production
(C) Production ≠ stock
(D) Can’t say
Answer:
(A) Supply ≠ stock

Question 4.
Which of the following is not a factor affecting supply?
(A) Price
(B) Technology
(C) Cost of production
(D) None of these
Answer:
(D) None of these

Question 5.
As per the law of supply, ________
(A) When price is higher, supply is more
(B) When price is lower, supply is less
(C) When price is lower, supply is more
(D) Both (A) and (B)
Answer:
(C) When price is lower, supply is more

Question 6.
Individual supply curve is ________ whereas market supply curve is
(A) Positive; Negative
(B) Negative; Negative
(C) Negative; Positive
(D) Positive; Positive
Answer:
(D) Positive; Positive

Question 7.
Which of the following is not an assumption of the law of supply?
(A) Technological changes are inevitable
(B) Level of competition remains the same
(C) Expectations regarding future prices are ignored
(D) Government policy is constant
Answer:
(A) Technological changes are inevitable

Question 8.
Which of the following varies in the law of supply?
(A) Competition
(B) Natural factors
(C) Number of sellers
(D) None of these
Answer:
(D) None of these

Question 9.
Sellers aim at profit maximization which results in ________
(A) Positive relationship between price and supply
(B) Negative relationship between price and supply
(C) Equilibrium of supply and demand
(D) Unrealistic price determination.
Answer:
(A) Positive relationship between price and supply

Question 10.
Into how many major categories can we classify determinants of supply?
(A) 2
(B) 3
(C) 4
(D) 5
Answer:
(A) 2

Question 11.
When other factors are assumed constant and price varies, of supply takes place.
(A) Increase
(B) Expansion and contraction
(C) Decrease
(D) All of these
Answer:
(B) Expansion and contraction

Question 12.
Exception to the supply means ________
(A) When price rises, supply increases
(B) When price falls, supply increases
(C) Supply falls when price rises
(D) Both (B) and (C)
Answer:
(D) Both (B) and (C)

Question 13.
Which of the following falls in the category of goods that do not follow the law of supply?
(A) Rare goods
(B) Precious goods
(C) Perishable goods
(D) Both (A) and (C)
Answer:
(D) Both (A) and (C)

Question 14.
Why rare goods are exceptions to law of supply?
(A) Because they are extremely costly
(B) Because they have very less current production
(C) Because they have very less buyers
(D) Because they are not found easily
Answer:
(B) Because they have very less current production

Question 15.
Due to exception of perishable goods from the law of supply is debatable.
(A) Availability of cold storage
(B) Faster transportation
(C) Quick disposal
(D) All of these
Answer:
(A) Availability of cold storage

Question 16.
Price determination explains process of determining a ________ price.
(A) Fluctuating
(B) Decreasing
(C) Increasing
(D) Stable
Answer:
(D) Stable

GSEB Class 11 Economics Important Questions Chapter 4 Supply

Question 17.
Prices are determined by the ________
(A) Consumers
(B) Interaction of demand and supply
(C) Producers controlling the market
(D) Suppliers holding the market and consumers
Answer:
(B) Interaction of demand and supply

Question 18.
Equilibrium price is attained when
(A) Demand curve becomes parallel
(B) Demand curve becomes perpendicular to the supply of curve
(C) Demand curve intersects with supply curve
(D) Demand curve and supply curve fall at 45°
Answer:
(C) Demand curve intersects with supply curve

Question 19.
According to ________ market demand and supply are called the invisible hands of market.
(A) Robbins
(B) Paul
(C) Marshall
(D) Smith
Answer:
(C) Marshall

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