case study on theory of demand class 11

Theory of Demand Class 11 | Change in Demand | Chapter 5 | Class 11 |

Table of Contents

THEORY OF DEMAND CLASS 11, CHAPTER 5 | ECONOMICS

Demand refers to different possible quantities of a commodity that the consumer is ready to buy at different possible price of that commodity.

Quantity demanded – Specific quantity to be purchased against a specific price of the commodity.

Demand schedule  – It is a table showing all the quantities of a commodity that buyer is ready to buy at different prices at a point of time. It is of two types: Individual demand schedule and Market demand schedule.

• Individual demand  – It is a table showing all the quantities of a commodity and single buyer is ready to buy at different price at a point of time.

• Market demand   – It is a table showing all the quantities of a commodity that all buyers are ready to buy at different price at a point of time.

Demand Curve  – It is a diagrammatic representation showing all the quantities of a commodity that buyer is ready to buy at different price at a point of time. It is of two types: Individual demand curve and Market demand curve.

• Individual demand – It is a diagrammatic representation showing all the quantities of a commodity that a single buyer is ready to buy at different price at a point of time.

Market demand   – It is diagrammatic representation showing all the quantities of a commodity that all buyers are ready to buy at different price at a point of time.

Demand function – It shows functional relationship between demand and its determinants. It is of two types: Individual demand function and Market demand function.

• Individual demand – It shows relationship between demand by a single consumer and its various determinants.

Dx = f(Px, Pr, Y, T, E)

Px – Price of the commodity

Pr – Price of related goods

Y – Income of consumer

T – Taste and preference of consumer

E – Expectation of consumer.

• Market demand  – It shows relationship between demand by all consumer and its various determinants.

Dx = f(Px, Pr, Y, T, E, N, Yd, G)

N – Population’s size

Yd – Distribution of income

G – Government’s policy

Various Determinants

1) Price of the commodity (Px) – It is also known as law of demand. It states that other things being constant, when price of the commodity rises, the demand contracts (falls) and when price of the commodity falls, the demand extends (rises). Price of the commodity and its demand has inverse relationship.

2) Price of related goods (Pr) – It is also known as cross price effects. Goods are said to be related when change in price of one good X brings change in the demand of good Y. For example, increase in the price of tea, demand for coffee increases. Related goods are of two types:

• Substitute goods – These are the goods which can be substituted for each other. For example, Tea and coffee, increase in price of one will cause increase in demand of other.
• Complimentary goods – These are those goods which complete the demand for each other and demanded together. For example, car and petrol.

3) Income of consumer – Demand for a commodity also depends upon income of the consumer, other things being constant.

• Normal goods – These are those goods in case of which there is positive relation between income and quantity demanded. Quantity demanded increases in response to increase in consumer’s income and vice versa, other things remaining constant.

In case of normal goods, income effect is positive. When income increases, demand curve shifts rightwards and when income decreases, demand curve shifts leftwards.

• Inferior goods – There is negative or inverse relationship between income and quantity demanded. Other things remaining constant, quantity demanded decreases in response to increase in consumer’s income and vice versa. When income increases, demand curve shifts leftwards and when income decreases, demand curve shifts rightwards.

4) Taste and preference – Individual taste and preference affects demand of goods and services. Taste and preference of the consumer are influenced by advertisement, climate, change in fashion etc. Demand increases due to favourable change in taste and preference. On the other hand, demand decreases due to unfavourable change in taste and preference.

5) Expectations – If the consumer expects that the price in the future will rise then he will buy more quantity in present at the existing price and vice versa. Similarly, if the consumer expects an increase in income in the future then he will buy more quantity in present at the existing price and vice versa

6) Population size – Increase in population means increase in the number of buyers, so demand increases and demand curve shifts forward. Decrease in population means decrease in number of buyers, so demand falls and demand curve shifts backward.

7) Distribution of income – If income and wealth of the nation is equally distributed then there will be more demand for goods and unequal distribution of income causes a fall in the quantity demanded.If redistribution of income increases unequally, the demand for luxury goods is expected to rise. A fall in income of poor people may compel them to shift from normal to inferior goods.

8) Government policies – If government policies are favourable then demand of goods and services rises and demand curve shifts forward. If government policies are unfavourable then demand falls and demand curve shifts backwards.

The Law Of Demand 

The law of demand states that other things being constant, there is an inverse relationship between quantity demanded and own price of the commodity. With a rise in own price of commodity, its demand contracts and with a fall in own price of commodity, its demand extends.

Law of demand holds good when other things remain constant.

Assumptions of the law of Demand 

• The price of related goods does not change.
• No change in expectation of consumer
• No change in income of consumer
• Taste and preference of consumer remain constant.

Exception of Law of Demand 

• Giffen goods – Giffen goods are special type of inferior gods, where price effect is positive and income effect is negative, the law of demand does not apply with giffen goods,
• Veblen / conspicuous goods – The exception relates to certain prestige goods used as status symbol like luxury goods, diamonds, antiques etc. These goods are demanded by rich section of society.
• Necessity goods – The law of demand does not apply in case of necessity goods like salt, milk, food grains etc.
• Illusion of buyers – When a consumer judges irrationally that if price rises, then quality of goods will be better, he buys more. The law of demand in such case fails.
• Emergencies – The law of demand fails in case of emergencies like war, natural calamity etc.

Why does law of demand operate?

Why is slope of demand curve id downwards?

Why is there inverse relationship between price and demand?

The following factors are responsible for the operation of the law of demand:

• Law of diminishing marginal utility – As consumption of a commodity increases, marginal utility of each successive unit goes on diminishing. Accordingly, for every additional utility consumer is willing to pay less and less price.
• Income effect – It refers to change in demand when there is change in income of the consumer due to fall in price. When price of commodity falls, consumer’s real income increases, so he demands more.
• Substitution effect – It refers to substitution of one commodity foe the other when it becomes relatively cheaper.
• Change in   number of  buyers – When price falls, new consumers are attracted who can now afford to buy it and thus demand expands.
• Different uses – Goods like milk, steel, electricity etc can be put to several uses. When prices of such goods falls, its uses increases, so demand rises.

Change in Demand   

It refers to increase or decrease in demand in response to change in determinants of demand other than price of the commodity. It is basically shift in demand curve. It is classified in two types: Increase in demand and decrease in demand. It is caused due to change in determinants other than price of commodity.

Change in Quantity Demanded

It refers to extension or contraction in quantity demanded in response to rise or fall in its price, other things remain constant. It is also known as movement along a demand curve. It is classified in two types: Extension of demand and Contraction of demand. It is caused due to price factor only.

Do share this post if you liked the notes of Theory of Demand Class 11 Economics. For more updates, keep logging on BrainyLads

How useful was this post?

Click on a star to rate it!

Average rating 4.2 / 5. Vote count: 101

No votes so far! Be the first to rate this post.

Related Posts

Consumer’s Equilibrium Indifference Curve Analysis Class 11 | Ch 4 |

Consumer Equilibrium Utility Analysis Class 11 | Chapter 3 | Economics |

Theory of Supply Class 11 | Chapter 11 | Economics | Notes |

Amazing notes by brainylads thanks for providing everyone……

Your email address will not be published. Required fields are marked *

Email Address: *

Save my name, email, and website in this browser for the next time I comment.

For Regular Updates

Join Us on Telegram

Click Here to Join

• IBPS SO LAW
• UGC NET LAW
• Civil Judge (Pre+Mains)
• Hotel Management
• IIM Bangalore BBA DBE
• CAT & OMETs
• Udaan Programs
• Udaan Webinar
• Jaipur [Bapu Nagar]
• Jaipur [Vaishali Nagar]
• Jaipur [JLN Marg]
• Delhi (South Extension)
• Delhi (Pitampura)
• Delhi (CP Center)
• Delhi (Dwarka)
• Gurugram (Sector 27)
• Gurugram (Sector 50)
• Gurugram(Sector 14)
• Mumbai (Andheri)
• Mumbai (Navi Mumbai)
• Mumbai (Thane)
• Chandigarh Sector 8C
• Lucknow Hazratganj
• Lucknow Aliganj
• Jaipur (Bapu Nagar)
• Jaipur (Vaishali Nagar)
• Gurugram (Sector 14)
• Chandigarh 8C Sector
• Jaipur[Vaishali Nagar]
• Navi Mumbai
• Lucknow [Aliganj]
• Lucknow [Hazratganj]
• LE GK Sureshot
• LE CR Grand Master Series
• 3 Years LLB
• IPMAT Indore
• IPMAT Rohtak
• Christ University
• St. Xaviers
• Judiciary Study Material
• Chhattisgarh (CGPSC)
• Haryana (HJS)
• Uttar Pradesh (UP PCSJ)
• Rajasthan (RJS)
• Madhya Pradesh [MP]
• Delhi [DJS]
• Bihar [BPSC]
• Uttarakhand [UKPSC]
• Jharkhand [JKPSC]
• Himachal Pradesh [HPPSC]
• LegalEdge AISAT
• LegalEdge Super 30
• Judiciary Gold AIJSAT
• Judiciary Gold IST
• SuperGrads IPM AISAT
• SuperGrads IPM IST
• Supergrads Sureshot
• Supergrads CUET AISAT
• SuperGrads CUET IST
• SuperGrads CAT
• Creative Edge
• LegalEdge AIOM
• SuperGrads AICUET
• Judiciary AIOMC
• Supergrads IPM AIOM
• CreativEdge AIOM

Free Videos

• CLAT Free Videos
• LLM + LAW Officer
• RBI Grade B
• Uttarakhand
• Judiciary Notes
• Judiciary Videos
• KAUN BANEGA JUDGE
• Daily Current Affairs
• Weekly Current Affairs
• Monthly Current Affairs
• LegalEdge UG
• SuperGrads Webinar
• SuperGrads CUET Webinar
• Creative Edge Webinar
• Judiciary (Beginners)
• UDAAN Webinar
• LAW Entrances
• Management Entrances
• CUET Exam [UG & PG]
• Design & Architecture
• LAW Officer Exams
• LAW & Judiciary
• Franchise Enquiry [Join Us]

Class 11 CBSE Economics Important Questions With Answers

Author : Aparna

August 17, 2024

Overview:  Uncover the essential questions for Class 11 Economics that are vital for acing your exams. This article pinpoints key topics and questions to help streamline your study efforts.

Understanding the CBSE Class 11 Economics Syllabus for 2022 is essential for effective exam preparation.

• The syllabus is divided into two parts: Part A (Statistics for Economics) and Part B (Introductory Microeconomics).
• The theoretical portion of the exam is worth 80 marks, while the project work is worth 20 marks.

You can also download free study notes for Economics below.

Download Free Study Materials for CBSE Class 12th by SuperGrads

Economics Class 11 Important Questions with Answers

Economics is one of the optional subjects chosen for the  11th Commerce Subjects .  

• Practising important questions for Class 11 Economics can help you concentrate on the most valuable topics in the syllabus.
• To score well in this subject, focus on areas like statistics for economics, data collection, organization and presentation, consumer equilibrium, and demand.
• Using important questions can improve your efficiency and accuracy in your exam preparation.

Chapter Wise NCERT Class 11 Economics Important Questions

Solving Class 11 Economics Sample Papers will help you know the paper's difficulty level and the type of questions asked in the exam. Let us have a look at the chapter-wise important questions for class 11 economics and help improve your speed and accuracy in the exam.

Important Questions from Introduction to Micro Economics

Check the list of some important questions for class 11 economics chapter 1 provided here and enhance your preparation.

Q. Explain Diamond Water Paradox?

Ans. It is based on the principle of scarcity. Like water is useful, yet it is cheap due to its abundance in the economy. Diamonds are very expensive because they are scarce so,  people are ready to pay a high price.

Q. Only scarce goods attract price.” Comment.

Ans. The given statement is correct. All resources are not scarce in the economy. For example, the air we breathe is abundant in relation to wants. Such goods are available free of cost. These goods are known as Non-Economic Goods. On the other hand, some goods are scarce in relation to their wants. For example, petrol, electricity, etc. are scarce in relation to wants. These goods command price and are known as Economic Goods. So, it is rightly said that only scarce goods attract price.

Q. What does the slope of PPF indicate?

Ans. PPF is a downward sloping concave shaped curve.

•       (i)       Its downward slope indicates that in order to increase production of one good, another good need to be sacrificed
•       (ii)      Its concave shape indicates that More and More unit of one good sacrificed in order to produce one unit of another good.

Q.  “Scarcity and Choice go together”. Comment.

Ans. All of us want better food, clothing, housing, schooling, entertainment, etc. But resources are not enough to meet all our wants. Even the developed economies cannot satisfy all the needs of people. It means, scarcity of resources is a common feature of every economy and it gives rise to the problem of choice, i. e. how to make the best possible use of available resources. If resources were available in plenty, there would not have been any problem of choice. Hence, economics is concerned with the problem of choice under the conditions of scarcity.

Check:   Career In Commerce

Q. “An economy always produces on, but not inside, a PPC”, Defend or refute the statement.

Ans. The given statement is refuted. An economy operates on PPF, only when resources are fully and efficiently utilized, it means, if there is unemployment or inefficient use of resources, then the economy may operate inside the PPC.

Important Questions from Consumer’s Behaviour

Go through all the important questions for the class 11 economics state board for the consumer's behaviour chapter.

Download and Practise with CBSE Class 12 Humanities Question Papers

Q. Law of DMU operates only with continuous consumption.

Ans.  The law of diminishing marginal utility will operate only when consumption is a continuous process. For example, if one burger is consumed in the morning and another in the afternoon, then the second burger may provide equal or higher satisfaction as compared to the first one.

Q. “Define a budget line. When can it shift to the right?

Ans. Budget line is a graphical representation of all possible combinations of two goods which can be purchased with given income and prices, such that the cost of each of these combinations is equal to the money income of the consumer.

Budget Line shifts to the right when:

• (i) When there is an increase in income, assuming no change in prices of the two goods;
• (ii) When there is a decrease in prices of both goods, the consumer's income is assumed to be unchanged.

Q. What changes will take place in TU, when: (i) MU curve remains positive; (ii) MU becomes ‘0’ ; (iii) MU is negative.

Ans. (i) TU will increase, but a diminishing rate; (ii) TU will be maximum; (iii) TU starts falling.

Q. State the conditions of consumer’s equilibrium in the Indifference Curve Analysis and explain the rationale behind these conditions.

Ans. Let the only two goods the consumer consumes are X and Y. The two conditions of equilibrium are:

• (1) MRS XY =  
• (2) MRS falls as more of X is consumed in place of Y

The rationale behind these conditions:

• (1) Suppose MRS XY >  it means that to obtain one more unit of X , the consumer's willing to sacrifice more units of Y as compared to what is required in the market. It induces the consumer to buy more of X. As a result, MRS falls and continue to fall till it becomes equal to the ratio of prices and the equilibrium is established.
• Suppose MRS XY <  it means that to obtain one more unit of X , the consumer's willing to sacrifice less units of Y as compared to what is required in the market. It induces the consumer to buy less of X. As a result, MRS increases and continue to rise till it becomes equal to the ratio of prices and the equilibrium is established.
• (2) Unless MRS falls as consumer consumes more of X, the consumer will not reach equilibrium again.

Q. A consumer consumes only two goods X and Y whose prices are Rs.4 and Rs.5 per unit respectively. If the consumer chooses a combination of the two goods with marginal utility of X equal to 5 and that of Y equal to 4, is the consumer in equilibriumRs.Give reasons. What will a rational consumer do in this situation? Rs. Use utility analysis.

Ans. Given P X = 10, P Y = 15 and MU X = 50, MU Y = 45. A consumer will be in equilibrium when Substituting values, we find that: Or

Since per rupee MU X is higher than per rupee MU Y , the consumer is not in equilibrium.

The consumer will buy more of x and less of y. As a result MU X will fall and MU Y will rise. The reaction will continue till  are equal and consumer is in equilibrium.

Important Questions from Theory of Demand

Here, we have provided economics class 11 important questions chapter wise for the theory of demand.

Q. “Law of Demand is a Qualitative statement”. Comment.

Ans. Law of demand is only an indicative, and not a quantitative statement. It indicates only the direction, in which the demand will change with a change in price. It says nothing about the magnitude of such a change. For example, price of Pepsi rises from  Rs.10 to  Rs.12 per bottle, then, as per law of demand, wecan say that the demand for Pepsi will fall. But the law does not give the actual amount by which the demand for Pepsi will decline.

Q. Distinguish between an inferior good and a normal good. Is a good which is inferior for one consumer also inferior for all the consumers? Explain.

Ans. When with the rise in income of the consumer demand fora good increases, that good is a normal good for that consumer. If with rise in income demand for the good decreases than that good is inferior for that consumer. A good is not necessarily inferior for all the consumers. A good which is inferior for a higher income consumer may be a normal good for the lower income consumer. It is not the consumer but the income level of the consumer which determines whether a good is normal or inferior.

Attend FREE Demo Class by SuperGrads

Q. Derive the law of demand from the single commodity equilibrium condition “Marginal utility = Price”.

Ans. According to single commodity equilibrium condition, consumer purchases that much quantity of a good at which marginal utility (MU) is equal to price. Given, MU = price. Now suppose, price falls. It will make MU greater than the price and will encourage the consumer to buy more. It shows that when price falls demand rises.

Q. Distinguish between demand by an individual consumer and market demand of a good. Also state the factors leading to fall in demand by an individual consumer.

Ans. Demand by an individual refers to the quantity of a good the consumer is willing to buy at a price during a period of time. While market demand refers to the quantity of a good the consumers of that good are willing to buy at a price during a period of time.

The factors leading to fall in demand by an individual consumers are:

(I) Rise in own price of the normal good.

(ii) Fall in the price of substitute good.

Check:   Short tricks to prepare for Class 11 Commerce

Q. Suppose there are two consumers in the market for good and their demand functions are as follows:

• d 1 (p) = 20 – p for any price less than or equal to 15, and d 1 (p) = 0 at any price greater than 15.
• D 2 (p) = 30 – 2p for any price less than or equal to 15, and d 1 (p) = 0 at any price greater than 15.

Find out the market demand function.

Ans. From the given demand functions, it can be seen that both the consumers do not want to demand the good for any price above Rs. 15. Both of them demand only at a price less than or equal to Rs. 15. Hence, the market demand will be: 

d market (p) = d 1 (p) + d 2 (p)

d market (p) = 20 – p + 30 – 2p

d market (p) = 50 – 3p for any price less than or equal to 15 and d market (p) = 0 at any price greater than 15.

Important Questions from Elasticity of Demand

Candidates can go through the economics class 11 important questions with answers for the elasticity of demand chapter.

Check:   Class 12 Commerce Books for Optional Subjects

Q. Price elasticity of demand for Milk and Wheat are respectively (-) 0.9 and (-) 0.5. Demand for which one is more elastic and Why?

Ans. Demand for Milk is more elastic as with 1% fall in price of milk, its demand rises by 0.9%. However, in case of wheat, 1 % fall in price raises the demand by just 0.5%.

Q. Differentiate between law of demand and price elasticity of demand.

Ans. (i) Law of demand states the inverse relation between price of a commodity and its quantity demanded, assuming no change in other factors. On the other hand, price elasticity of demand indicates the rate of change in quantity demanded of the commodity due to change in its price.

(ii) Law of Demand reflects the direction of change in demand, whereas, price elasticity of demand measures the magnitude of change in demand.

Q. What is the price elasticity of demand for following demand curves: (i) Straight line demand curve parallel to X-axis; (ii) Straight line demand curve parallel to Y-axis.

Ans. The price elasticity of demand in the following cases will be: (i) Perfectly Elastic Demand; (ii) Perfectly Inelastic Demand.

Q. State with reasons, whether the following items will have elastic or inelastic demand: (i) Matchbox;

(ii) Cold Drink; (iii) Medicines; (iv) Salt; (v) Electricity; (vi) Cigarettes; (vii) Butter for a poor person.

(i) Matchbox has inelastic demand as consumer has to spend a very small proportion of his income.

(ii) Coke has elastic demand as it has number of substitutes.

(iii) Medicines have inelastic demand as their consumption cannot be postponed.

(iv) NCERT Textbook has inelastic demand as it is a necessity item.

(v) Electricity has elastic demand as it can be put to several uses.

(vi) Cigarettes have inelastic demand as its consumers are habituated.

(vii) Butter for a poor person has elastic demand as it is a luxury item for the poor person.

Check:   Short tricks to prepare for Class 11 Business Studies

Q.The price elasticity of demand for good × is known to be twice that of good Y. Price of X falls by 5% while that of good Y rises by 5%. What is the percentage change in the quantities demanded of X and  Y?

Percentage fall in price of X = 5%; Percentage rise in price of Y = 5%

Also, price elasticity (E d ) of X is twice of good Y Suppose, ed of Y is 1, then ed of X will be 2.

Therefore, a 5% fall in the price of good × will lead to a 10% rise in the demand for X and  a 5% rise in the price of good Y will lead to a 5% fall in the demand for Y.

Ans. Quantity of X will rise by 10%; Quantity of Y will fall by 5%

Important Questions from Theory of Production

Check the class 11 economics chapter 5 important questions from below.

Q. Why MP curve cuts AP curve at its maximum point?

Ans. It happens because when AP rises, MP is more than AP. When AP falls, MP is less than AP So, it is only when AP is constant and at its maximum point, that MP is equal to AP. Therefore, MP curve cuts AP curve at its maximum point.

Q. Can AP rise when MP starts declining?

Ans. Yes, AP can rise when MP starts declining. It can happen as long as falling MP is more than AP. However, when MP becomes equal to AP, then further decline in MP will also reduce the AP.

Attempt SuperGrads CUET Scholarship Test

Q. What are the different phases in the Law of Variable Proportions in terms of Total Product? Give reasons behind each phase. Use diagram.

Ans. The Phases are:

• Phase I: TP rises at increasing rate, i.e. upto A.
• Phase II: TP rises at decreasing rate, i.e. between A and B.
• Phase III: TP falls i.e. after B.
• Phase 1: Initially variable input is too small as compared to the fixed input, As production starts, there is efficient use of the fixed input, leading to rise in productivity of the variable input on account of division of labour. As a result, TP rises at increasing rate.
• Phase II: After a level of output, pressure on fixed input leads to fall in productivity of the variable input. As a result, TP continues to rise but at a decreasing rate.
• Phase III: The amount of variable input becomes too large in comparison to the fixed input causing decline in TP.

Check:   Class 12 Accountancy Syllabus

Q4. Let the production function of a firm be: Q = 2L 2 K 2 . Find out the maximum possible output that the firm can produce with 5 units of L and 2 units of K. What is the maximum possible output that the firm can produce with zero unit of L and 10 units of K?

Hint: Maximum possible output with 5 units of L and 2 units of K

Given: Q = 2L 2 K 2 and L = 5 units; K-2 units

Putting the values of L and K in the given production function, we get:

Q = 2(5) 2 (2) 2 = 200 units

Maximum possible output with 0 unit of L and 10 units of K

Given: Q = 2L 2 K 2 and L = 0 unit; K = 10 units

Putting the values of Land K in the given production function, we get:

Q = 2(5) 2 (10) 2 = 0 unit.

Q. Find out the maximum possible output for a firm with zero unit of L and 10 units of K when its production function is: Q = 5L + 2K.

Hint: Given: Q = 5L + 2K. and L = 0 units; K- 10 units

Q = 5(0)+2(10)

Q or Maximum output = 20 units.

Important Questions from Theory of Cost

Let us have a look at Class 11 Economics important questions for theory of cost chapter.

Q.“The gap between AC and AVC keeps on decreasing with rise in output, but they never meet each other”. Comment.

Ans. The given statement is correct. The gap between AC and AVC keeps on decreasing because the difference between them is AFC, which falls with increase in output. However, AFC can never be zero. Therefore, AC and AVC can never meet each other.

Q. Why does the minimum point of AC curve fall towards right of AVC curve?

Ans. The minimum point of AC curve fall towards right of AVC curve because AC continues to fall due to decreasing AFC even after AVC starts rising.

Q.“MC can be calculated both from total cost and total variable cost and is not affected by total fixed cost”. Discuss

Ans. The given statement is correct. MC is not at all affected by total fixed cost (TFC). MC is addition to TC or TVC when one more unit of output is produced. As TFC remains same with increase in output, MC is independent of fixed cost and is affected just by change in variable costs.

Q. Calculate TFC, if AC and AVC are Rs. 22 and Rs. 18 respectively, at output of 10 units.

Ans. AFC = AC - AVC = Rs.22- Rs. 78 = Rs.4

TFC - AFC × units produced = Rs. 4×10 units

TFC = Rs. 40

Q. Classify the following as fixed cost and variable cost:

(i) Salary to manager of the company.

(ii) Wages to casual labour.

(iii) Payment of insurance premium for insurance of factory.

(iv) Payment for raw material.

(v) Payment of rent of Postpaid connection of Mobile Phone.

(vi) Interest on loan taken from ICICI.

(vii) Electricity charges beyond the minimum rent.

(viii) Payment of rent of the factory building to the landlord.

(ix) Commission to production manager on the basis of number of units produced.

(x) Payment of fuel used in machines.

Check:   Short tricks to prepare for Class 11 Applied Mathematical Reasoning

Ans. Fixed Cost: (i), (iii), (v), (vi), (viii); Variable Cost: (ii), (iv), (vii), (ix). (x).

Important Questions from Theory of Revenue

Check the Class 11 Economics important questions for the chapter theory of revenue from the post below.

Q.Why AR curve under monopolistic competition is more elastic than AR curve under monopoly?

Ans . AR curve under both the markets slope downwards. However, AR curve under monopolistic competition is more elastic as compared to AR curve under monopoly because of presence of close substitutes. AR curve is less elastic in monopoly because of no close substitutes.

Q. Under what market condition does Average Revenue always equal Marginal Revenue? Explain?

Ans. It is under the market condition when a firm can sell more at the given price that AR = MR throughout as production is increased by the firm. It is because the firm is a price taker. It means that price, which is same as AR, remains unchanged throughout. By the average - marginal relationship, AR remains unchanged only when AR = MR throughout.

Q. What is the relation between market price and marginal revenue of a price-taking firm?

Ans . Market price is equal to marginal revenue (MR). It happens because the price-taking firm can sell more quantity of output at the same price. It means, revenue from every additional unit (MR) is equal to price or average revenue (AR) as Price = AR.

Q. Compute the total revenue, marginal revenue and average revenue schedules in the following table. Market price of each unit of the good is Rs. 10.

Check:   CBSE 12th Commerce Subjects

Q. What would be shape of demand curve, so that TR curve is: (a) a positively sloped straight line passing through the origin; (b) a horizontal line?

• (a) Demand curve or AR curve will be a horizontal straight line parallel to the X-axis because positively sloped straight line TR curve passing through the origin indicates that price (orAR) remains constant at all levels of output.
• (b) Demand curve or AR curve will slope downwards from left to right because horizontal TR indicates that TR remains same at levels of output. It is possible only when price (or AR) falls with rise in output.

Download CBSE Class 12 English Syllabus

Important Questions from Producer’s Equilibrium

 Go through the Class 11 Economics Important Questions of the producer's equilibrium provided in this post.

Q. Why should MC curve cut MR curve from below to achieve producer’s equilibrium?

Ans. One of the two conditions of the establishment of stable equilibrium of a firm is that its MC curve should cut the MR curve from below, not from above. If the MC curve cuts the MR curve from above, the equilibrium so established shall not be stable as it will be possible to add to profits by producing more. The idea is that beyond the point of equilibrium, the MC should be greater than MR so that further production becomes uneconomical.

Q. A table showing TC and TR of a firm is given. Calculate MC and MR and find out the equilibrium level of output.

The producer achieves equilibrium at 6 units of output. It is because this level of output satisfies both the conditions of producer’s equilibrium:

(i) MC is equal to MR; and

(ii) MC becomes greater than MR after this level of output.

Check:   Top 5 Career Options For a Commerce Student

Q. The equality of marginal cost and marginal revenue is a condition necessary for equilibrium, but it is not by itself sufficient to assure the attainment of producer’s equilibrium. Comment.

Ans. The given statement is correct. Equality of marginal revenue (MR) and marginal cost (MC) is only one condition for the equilibrium of the firm. Another condition also needs to be fulfilled for the establishment of the firm’s equilibrium and that is: ‘MC must be greater than MR after MC = MR output level’.

Q. Why is the equality between marginal cost and marginal revenue necessary for a firm to be in equilibrium? Is it sufficient to ensure equilibrium? Explain.

Ans. The producer’s equilibrium conditions are: (i) MC = MR; and (ii) MC > MR after equilibrium.

Suppose MC > MR: In this situation, it will be profitable for the firm to produce more or less depending upon relative changes in MC and MR till MC = MR.

Suppose MC < MR: It will be profitable for the producer to produce more till MC = MR.

MC= MR is not a sufficient condition to ensure equilibrium. Given MC = MR, suppose the behaviour of MC and MR is such that if one more unit is produced, MC becomes less than MR.

Then in this case it will be profitable for the firm to produce more. Therefore, in this case though MC = MR, the producer is not in equilibrium. However, if after MC = MR output, MC becomes greater than MR, it will be most advantageous for the firm to produce only upto MC = MR.

Q. Explain why will a producer not be in equilibrium if the conditions of equilibrium are not met.

Ans. The equilibrium conditions are: (i) MC = MR; and (ii) MC > MR after equilibrium.

Suppose MC = MR condition is not met. Let MC > MR. In this, it will be profitable for the firm to produce more or less depending upon the relative changes in MC and MR till MC = MR. Similarly, if MC < MR, it will also be profitable to produce more till MC = MR.

Now Suppose ‘MC > MR after equilibrium condition is not met’ and MC < MR after equilibrium. In this case, the firm will not be in equilibrium because it can increase its profits by producing more.

Important Questions from Supply

Here, we have provided Class 11 Economics important questions for the supply chapter. These questions will help candidates enhance their preparation for the exam.

Check:   CBSE Class 11 Commerce Syllabus

Q. What is the price elasticity of supply, when: (a) Supply curve passes through the origin; (b) Supply curve is a vertical straight line; (c) Supply curve is a horizontal straight line.

Ans. The price elasticity of supply in the following cases will be:

(i) Unitary elastic Supply

(ii) Perfectly Inelastic Supply

(iii) Perfectly Elastic Supply

Q. There are three different supply curves passing through the origin. Curve A makes an angle of 60°. Curve B makes an angle of 45° and curve C makes an angle of 30°. What will be the price elasticity of curves A, B and C?

Ans. All the three curves: A, B and C will have unitary elastic supply as they all are passing through the origin.

Q. Give one point of difference between individual supply and market supply.

Ans. Individual supply may not strictly follow Law of supply i. e. it is not necessary that supply for an individual always varies directly with price. However, market supply always follows law of supply, i.e. market supply always varies directly with price.

Q. ‘Supply curve is the rising portion of marginal cost curve over and above the minimum of Average Variable cost curve’. Do you agree? Support your answer with valid reason.

Ans. Yes, we do agree with the given statement. No rational producer would like to supply his output to the market if he is unable to recover his per unit variable cost as it would lead to losses between the range of minimum of marginal cost and minimum of average variable cost.

Check:   Class 11 Commerce Booklist

Q. A firm earns a revenue of Rs. 50 when the market price of a good is Rs. 10. The market price increases to Rs. 15 and the firm now earns a revenue of Rs. 150. What is the price elasticity of the firm’s supply curve?

Price Elasticity of Supply (E s ) =  ×  =  ×  = 2

Important Questions from Main Market Forms

Go through the Class 11 Economics Important Questions here and prepare well for the upcoming exam.

Q. How does a firm under monopolistic competition exercise partial control over price?

Ans. A monopolistic competitive firm enjoys partial control over price. It happens because by incurring heavy selling cost, the firm is able to create a differentiated image of its product in the minds of consumers. Products are differentiated on the basis of brand, size, colour, shape, etc. Buyers are attracted to buy a particular product even at a relatively higher price.

Q. “Monopolistic Competition is competition with differentiated products.” Elucidate.

Ans. An important characteristic of monopolistic competition is product differentiation. The competing firms produce products which are close but not perfect substitutes of each other. The products are differentiated on the basis of brand, size, colour, shape, etc. It is on account of this product differentiation, firms have to incur huge selling costs to compete with other firms. So, it is rightly said that ‘Monopolistic Competition is competition with differentiated products’.

Check:   Class 11 Commerce Study Plan

Q. Why is the number of firms small in an oligopoly market? Explain.

Ans . The main reason for small number of firms under oligopoly is the ‘Barriers to Entry’, which prevent entry of new firms into the industry. Patents, requirement of large capital, control over crucial raw materials, etc, are some of the other reasons, which prevent new firms from entering into industry. As a result, there are few firms in an oligopoly market.

Q. What happens to profits in the long run if firms are free to enter in the industry?

Ans. When existing firms are earning profit, freedom of entry induces new firms to enter the industry. This raises market supply which in turn leads to fall in market price. Profits fall and continue to fall, till each firm is earning zero economic profit or normal profit.

Q. Explain the ‘Implications’ of the following:

(i) ‘Large Number of Buyers’ under Perfect Competition

(ii) ‘Freedom of Entry and Exit’ to firms under Perfect Competition

(iii) ‘Inter-dependence between Firms’ under Oligopoly

(iv) ‘Non-price Competition’ under Oligopoly

(v) ‘Large number of Sellers’ under Perfect Competition

(vi) ‘Homogeneous Products’ under Perfect Competition

(vii) ‘Barriers to Entry of New Firms’ under Oligopoly

(viii) ‘Few Big Sellers’ under Oligopoly

(ix) ‘Product Differentiation’ under Monopolistic Competition

(x) ‘Perfect Knowledge’ under Perfect Competition

(i) Implication is that no individual buyer is in a position to influence the market price on its own by changing his individual demand.

(ii) Implication is that when existing firms are making profits, new firms enter, raise the output of industry, bring down the market price enough for the firm to earn just only normal profit in the long run. The opposite happens if the existing firms are facing losses.

(iii) Implication is that an individual firm takes into consideration the likely reaction of its rival firms before making a move to change price or output. It is possible because it is assumed that rival firms may react.

(iv) Non-price competition means competition between firms by means other than changing price, like free gift, home service, customer care etc. Implication is that firms in oligopoly prefer non-price competition to avoid price-war because the firm who starts the price-war may be the ultimate loser.

(v) Implication is that no single firm is in a position to influence the market price on its own by changing its own output. Thus, price remains unchanged.

(vi) Implication is that no firm can charge a higher price because no buyer is willing to pay the same. Thus, market price remains the same for all the firms.

(vii) Implication is that such barriers allow only a limited number of firms into oligopoly industries. Such barriers may be in the form of huge capital requirements, patent rights, availability of crucial raw materials etc.

(viii) Implication is that each big seller contributes a fairly large share of total output. This gives an individual seller the power of influencing the market price by changing its own output.

(ix) Implication is that buyers differentiate products of firms various as different. So, they are willing to pay different prices for the products of different firms. This product differentiation gives the power to an individual firm to influence the market price on their own.

(x) Implication is that buyers are fully aware of price in market and sellers of technique of production. Knowledge by buyers further implies that no buyer is willing to pay a higher price for the product of any firm. Knowledge by sellers implies that cost of production is same for all producers.

Download CBSE Class 12 Political Science Syllabus

Important Questions from Price Determination

Here is the list of Class 11 Economics Important questions for the price determination chapter.

Q. Explain the effect of increase in income of buyers of a ‘normal’ commodity on its equilibrium price.

Ans. An increase in income of buyers will increase the demand for normal goods at the given price. It will lead to excess demand. This leads to competition among buyers, which raises the price. Increase in price leads to rise in supply and fall in demand. These changes continue till supply and demand become equal at a new equilibrium price. As there is an increase in demand only, equilibrium price rises.

Q. What will be the effect on equilibrium price and equilibrium quantity, when price of complementary goods increases?

Ans. When price of complementary goods increases, keeping other factors constant, then demand for the given commodity decreases since it becomes relatively expensive to consume the two commodities (the given commodity and its complement) together. It will lead to excess supply. This leads to competition among sellers, which reduces the price. Fall in price leads to decrease in supply and rise in demand. These changes continue till supply and demand become equal at a new equilibrium price. As there is a decrease in demand only, both equilibrium price and equilibrium quantity will fall.

Q. If market demand function is given as: Q MD = 25 - 2P and market supply as: Q MS = 3P, then what will be the equilibrium price and equilibrium

Ans. At equilibrium, Q MD = Q MS It means, 25 -2P = 3P Or, 5P = 25

P or Equilibrium Price = Rs. 5.

Putting the value of equilibrium price in the equation of market demand function:

Equilibrium Quantity= 25-2×5=15 units.

Q. Explain the effects of ‘Maximum Price Ceiling’ on the market of a good. Use diagram.

Ans.  Maximum Price Ceiling refers to imposition of upper limit on the price of a good by the government. For example, in the diagram, OP is Price Ceiling, while equilibrium price is OPv At this price, the producers are willing to supply only PA (Or OQ 1 ), while consumers demand PB (Or OQ 1 ). The effect of the ceiling is that shortage, equal to A B (Q 1 Q 2 ), is created, which may further lead to black marketing,

Q. What are the effects of ‘price-floor’ (Minimum Price Ceiling) on the market of a good? Use diagram.

Ans. When government imposes lower limit on a price that may be charged for a particular good or service, it is called Minimum Price Ceiling, e.g. price OP 1 . At this price, the producers are willing to supply P 1 B or (OQ 2 ), while consumers demand only P 1 A (= OQ 1 ). Unable to sell, all they want to sell, the producers may try to illegally sell below the minimum price.

Class 11 Economics is a vital subject that lays the groundwork for understanding complex economic concepts and principles. Focusing on important questions allows you to streamline your preparation, ensuring a solid grasp of key topics and enhancing your performance in exams. By practising these questions, you can build a strong foundation for future studies in economics and related fields.

Key Takeaways

• Targeted Study: Focusing on important questions helps you concentrate on the most critical topics in Economics.
• Concept Mastery: Regular practice ensures a deeper understanding of fundamental economic principles.
• Better Exam Performance: By concentrating on key questions, you improve your chances of scoring well in exams.
• Enhanced Analytical Skills: Working through these questions develops your ability to analyze and interpret economic data.
• Foundation for Future Studies: Mastering these important questions prepares you for more advanced studies in Economics and related disciplines.

Check:   CBSE Class 11 Numerical applications

Download Your Free CBSE Prep Material

Fill your details

Recently Published

CUET University of Allahabad Exam Pattern 2025

Updated On : September 14, 2024

Examining the CUET Total Marks: Section Wise Marks Distribution

CUET Tezpur University Exam Pattern 2025: Course Wise Details

CUET Tezpur University Eligibility Criteria 2025

CUET 2025 Syllabus for B.Sc. Examination

Frequently Asked Questions

How can I better prepare for Class 11 Economics syllabus?

How to learn Economics class 11 easily?

Why should we solve Economics Sample Papers for Class 11 ?

 Where can I get Economics Sample papers Class 11 PDF?

What are the system requirements for taking CBSE Class 11 Economics Mock Test?

Theory of Demand Class 11 Notes Economics

Demand is the quantity of a commodity that a consumer is willing and able to buy at each possible price during a given period. Here are the theory of demand class 11 notes.

Topics Discussed

Types of Demand

There are two types of demand:

• Individual Demand: It is the quantity of a commodity that a consumer is willing and able to buy at each possible price during a given period.
• Market Demand: It is the quantity of a commodity that all the consumers are willing and able to buy at each possible price during a given period.

Determinants of Demand

1) price of the given commodity.

The most important factor affecting demand is the price of the given commodity. Generally, there exists an inverse relationship between price and quantity demand. It means as price increases quantity demanded falls and vice-versa.

2) Price of the Related Goods

Demand for a given commodity is also affected by changes in the price of related goods. Related goods are of 2 types:

• Substitute Goods: Those goods which can be used in place of each other for the satisfaction of a particular want. Demand for a given good is directly affected by a change in the price of substitutes. For example: Coke and Pepsi, Tea and Coffee, etc.
• Complementary Goods: Those goods which are used together to satisfy a particular want. Demand for a given good is inversely affected by a change in the price of complementary goods. For example: Tea and Sugar, Ink and Pen, etc.

3) Income of the Consumer

Demand for a commodity is also affected by the income of the consumer however the effect of a change in income on demand depends on the nature of the commodity.

• If the given commodity is a normal good then an increase in income leads to a rise in its demand whereas a decrease in income reduces its demand.
• If the given commodity is an inferior good then an increase in income reduces the demand while a decrease in income leads to a rise in demand.

4) Taste & Preferences

The taste and preferences of the consumer directly influence the demand for a commodity. They include changes in fashion, habits, etc.

If a commodity is in fashion or is preferred by the consumer, then demand for such a commodity rises whereas demand for a commodity falls if the consumers have no taste for that commodity.

5) Season and Weather

The season & weather conditions also affected the market demand for a commodity. For example: during winter demand for woolen clothes increases whereas the market demand for raincoats and umbrellas increases during the rainy season.

6) Expectations of Change in Price in the Future

If the prices of a certain commodity are expected to increase shortly then people will buy more of that commodity than what they normally buy.

There exists a direct relationship between the expectation of change in price in the future and change in demand in the current period.

Note: Determinants of market demand are the same as above.

Demand Schedule

A demand schedule is a tabular representation showing various quantities of the commodity being demanded at various levels of price during a given period.

Demand Curve

It is a graphical representation of the demand schedule. It shows the inverse relationship between the quantity demanded of a commodity with its price keeping other factors constant.

Note: The market demand curve is a flatter curve as compared to the individual demand curve. It happens because as price changes, proportionate change in market demand is more than proportionate change in individual demand.

Law of Demand

The law of Demand states the inverse relationship between price and quantity demanded, keeping other factors constant. (Ceterus Paribus)

Assumptions of Law of Demand

• The price of substitute goods does not change.
• The price of complementary goods remains constant.
• Income from the consumers remains the same.
• The taste and preferences of the consumer remain the same.
• There is no expectation of a change in price in the future.

Reasons of Law of Demand

1) law of dmu (diminishing marginal utility).

The Law of DMU states that as we consume more and more units of commodity, the utility derived from each successive unit goes on decreasing.

So, the demand for a commodity depends on its utility. If a consumer gets more satisfaction, he will pay more as a result the consumer will not be prepared to pay the same price for additional units.

The consumer will buy more units of the commodity only if the price falls.

2) Substitution Effect

The substitution effect refers to substituting one commodity in place of the other when it becomes relatively cheaper. When the price of the given commodity falls, it becomes relatively cheaper as compared to its substitutes.

As a result, Demand for the given commodity rises.

3) Income Effect

The income effect refers to the effect on demand when the real income of a consumer changes due to a change in the price of a given commodity.

When the price of a given commodity falls it increases the purchasing power of the consumer. As a result, the consumer can purchase more of the given commodity with the same money income.

4) Additional Customers

When the price of a commodity falls, many new consumers who were not in a position to buy it earlier due to its high price start purchasing it.

In addition to new customers, old consumers of the commodity started demanding more due to its reduced price.

5) Different Uses

Some commodities like milk, electricity, etc have several uses, some of which are more important than others. When the price of such a good increases, its use gets restricted to the most important purpose, and demand for less important uses gets reduced.

However, when the price of such a commodity decreases, the commodity is put to all its uses whether important or not.

Exceptions to the Law of Demand

• Giffen Goods: These are special kinds of inferior goods on which a consumer spends a large part of his income and their demand rises with an increase in price whereas demand falls with a price decrease. For example: In our country, it is often seen that when the price of coarse cereal like bajra, jowar falls then consumers have a tendency to spend less on them and shift over to superior cereals like wheat and rice.
• Status Symbol Goods: Certain prestige goods are used as status symbols. For Example Diamonds, gold, etc. These goods are wanted by rich persons for prestige and distinction. The higher the price, the higher will be the demand for such goods.
• Fear of Shortage: If a consumer aspects scarcity of a particular commodity shortly then they would start buying more of that commodity even if the prices are rising. The consumer demands more due to fear of further rise in prices.
• Fashion-related Goods: Goods related to fashion do not follow the law of demand and their demand increases even with the rise in their prices. For example: If a particular type of dress is in fashion, then demand for such dress will increase even if its prices are rising.
• Necessities of Life: Another exception occurs in the use of such commodities which become necessities of life due to their constant use. For example: Commodities like rice, wheat, medicines, etc. are purchased even at high prices.
• Change in Weather: With change in weather, demand for certain commodities also changes, irrespective of any change in their prices. For example: Demand for umbrellas increases in the rainy season even with the rise in prices.

Change in Quantity Demanded (Movement)

When the quantity demanded of a commodity changes due to a change in its price keeping other factors constant, it is known as a change in quantity demanded.

It is graphically expressed as movement along the same demand curve. There can be either: 1) Downward Movement (Expansion) 2) Upward Movement (Contraction)

Upward Movement (Contraction)

Contraction in demand refers to a fall in quantity demanded due to a rise in the price of the commodity, other factors remaining constant.

It leads to an upward movement along the same demand curve.

Downward Movement (Expansion)

Expansion in demand refers to a rise in quantity demanded due to a fall in the price of the commodity, other factors remaining constant.

It leads to downward movement along the same demand curve. It is also known as expansion in demand.

Elasticity of Demand Class 11 Notes

Change in Demand Curve (Shift)

When the demand for a commodity changes due to a change in any factor other than its price, it is known as a change in demand.

It is graphically expressed as a shift in the demand curve. The shift can be rightward or leftward.

Rightward Shift (Increase in Demand)

When the demand for a commodity rises due to any factor other than its price it is known as an increase in demand.

An increase in demand will lead to a rightward shift in the demand curve.

Leftward Shift (Decrease in Demand)

When the demand for a commodity falls due to any factor other than its price, it is known as the decrease in demand. A decrease in demand leads to a leftward shift in the demand curve.

Difference Between Movement and Shift

[…] Demand Class 11 Notes Microeconomics […]

CBSE NCERT Solutions

NCERT and CBSE Solutions for free

Case Study Questions Class 11 Economics

Students should refer to the following Case Study Questions Class 11 Economics which have been provided below as per the latest syllabus and examination pattern issued by CBSE, NCERT, and KVS. As per the new examination guidelines issued for the current academic year, case study-based questions will be asked in the Grade 11 Economics exams. Students should understand the case studies provided below and then practice these questions and answers provided by our teachers.

Class 11 Economics Case Study Questions

Please click on the links below to access free solved Case Study Questions for Class 11 Economics. We have provided chapter-wise case studies with solved questions. Please carefully understand each case and related questions before attempting the questions. Our teachers have provided answers to all questions so that you can compare your answers.

We have also provided MCQ Question for Class 11 Economics which will be asked in the upcoming exams in Grade 11. As this year many questions will be MCQ-based and there will also be a few case studies in the question papers. Students should go through all chapter-wise Case Study Questions for Class 11 Economics. We have provided many other useful links and study material for Standard 11th Economics for the benefit of students. All content has been provided for free so that the students can take full benefit and get better marks in examinations. Incase any student faces any doubts, please provide your comments in the section below so that our faculty is able to respond to your questions.

Related Posts

Neural control and coordination class 11 biology important questions.

Important Questions for Class 11 Computer Science with Answers

Permutations and combinations class 11 mathematics important questions.

about founders

2 friends, 1 dream, millions of supporters march 2020, covid times: while everyone focused on pockets, pranay & atharva focused on how student's can be helped in these tough times. from anxiety, to quality study material, everything was taken care of by padhle. more than academics, students needed guidance and moral support. that's why from 1 subscriber to 1 million, we have served "the bhaiya vibe" rather than a teacher's vibe.

Contact Info

Papergist innovations private limited, 66, ramnagar extension, dewas (madhya pradesh) – 455001 india, [email protected], demand class 11 economics best handwritten notes for cbse, not that ordinary classroom vibe, literally..

the most interesting learning p̷l̷a̷t̷f̷o̷r̷m̷, family on the internet.

Presenting to you Class 11 CBSE Best Handwritten Notes of Economics of Chapter 3 – Demand .

With the increasing amount of typed material on the internet, handwritten notes and material are still closest to our heart. Therefore, after Class 10, we present to all Class 11 Students, Free Handwritten Notes.

We at Padhle have made sure this legacy continues. Listed below are handwritten notes for Class 11 covering all the points and concepts.

[adinserter block=”3″]

You can access these notes on the website itself, as well as download them for your use.

Other Links: Download other Notes for Class 10 –  Click Here Download One Page Notes for Class 10 –  Click Here Join Our Telegram Channel for latest updates –  Click Here

Before you download the notes, here is a quick walkthrough of what happens behind the web.

How do we make these Notes?

• First of all, we go through all the content that is available. Then we list down all the concepts and topics, that are important from question’s point of view. IITians are also involved in the procedure of content creation.
• Then, our dedicated Content Team does a Quality Check on it.
• Then, these notes are compiled and sent to the writing team, where the content is hand-written on an iPad, to give you a home-like feeling.
• Then these notes are sent to the design team, where we add certain highlights and images in the notes.
• Then, finally these notes are exported and sent for adding front pages and combining all of it.
• Then, at the end, the website team receives the notes, uploads them and shares with you!

Click Here to Download the Notes of Demand

Related posts.

Learn With Memes? How 2 Friends Use YouTube to Make Complicated Lessons ‘Not Boring’

Do you really need to study 8-10 hours straight for your board exams?

How to deal with academic pressure in class 10

Ed-tech platform Padhle aims to double its net revenue in FY24; targets students in grades 9th-10th

Ledger class 11 accountancy best handwritten notes for cbse, journal class 11 accountancy best handwritten notes for cbse, origin of transactions class 11 accountancy best handwritten notes for cbse, food security in india class 9 economics social science best handwritten notes.

Get Access to our new batches now

Talk to our experts

1800-120-456-456

• Theory of Demand

What is the Theory of Demand?

Demand is defined as the quantity of a commodity that a Consumer is capable of buying and is willing to pay the given price for it at the given time. The Theory of Demand is a Law that states the relationship between the quantity Demanded of a product and its price, assuming that all the other factors affecting the Demand are constant. According to the Law of Demand Theory, the quantity Demanded of a commodity is inversely related to its price in the market. Through this article, we will try to comprehend the Theory of derived Demand, the factors affecting Demand, the Demand curve and the application of Demand Theory.

Theory of Derived Demand

We have got an idea about “what is the Theory of Demand”. So now let us try to understand the Theory of derived Demand with the help of an example: a Consumer Demands a piece of clothing, let’s say a shirt, which is a finished product that came into existence after undergoing various processes. First, the land for building the plant was acquired by the manufacturing Company and then the labour was employed by the entrepreneur using the Company’s Capital. The Demand for all these resources (factors of production) was indirectly created when the Consumer posed a Demand for the shirt. This is called the Theory of derived Demand.

Factors Affecting Demand

After having discussed the Theory of Demand economics and the Theory of derived Demand, we will now talk about the various factors affecting the quantity Demanded of a product.

Price of the Commodity: As stated in the Law of Demand Theory, the price of a commodity shows an inverse relationship with its quantity Demanded. As the price of the product falls, its Demand increases.

The Number of Consumers: It is directly related to the quantity Demanded of a commodity. The more the number of Consumers, the more is the Demand for that product.

Price of Related Goods: There are two types of related goods: Substitutes and Complementary goods. For example, for milk, the juice is a substitute whereas biscuits are complementary products. If the prices of milk fall, the Demand for juice (substitute) will increase and that for biscuits (complementary goods) will lessen.

Income: With the increment in a Consumer’s income, he will become capable of buying more of a particular commodity, and thereby, his Demand will also rise.

Consumer Expectation: If a Consumer expects that the price of a certain commodity will go up in the future, he will buy more of that product at present, which will lead to a hike in its Demand.

Tastes and Preferences: It has a direct relation with the quantity Demanded.

Solved Example

Q. Explain the Demand Curve.

Ans: We now know “what is the Theory of Demand” and the factors that determine the quantity Demanded. Let us move on to the characteristics of a Demand curve. On the x-axis, we have taken the price of the commodity, and on the y-axis, the quantity Demanded.

(Image will be uploaded soon)

The first graph here shows the movement along the same Demand curve. This downward-sloping curve is in accordance with the Law of Demand Theory as when the price falls from P1 to P2, the quantity Demanded increases from Q1 to Q2.

In this graph, we can see that there is a shift in the Demand curve from D to D1 at the same price P. For the curve D, the quantity Demanded is Q which is lesser than Q1 (for D1 curve). This right-shift in the Demand curve is due to all the factors affecting the Demand except the price of the commodity (which is responsible for movement along the curve). These are the same factors that are kept constant while explaining “what is the Theory of Demand”.

Application of Demand Theory

After having learned about “what is the Theory of Demand” and how a Demand curve looks like, we will now become familiar with the application of Demand Theory in real life. The Theory of Demand is useful in determining the force of various determinants or factors that affect the quantity Demanded. The application of Demand Theory for estimating the ups and downs in the equilibrium prices of various commodities is important for investors and entrepreneurs.

Named after Sir Robert Giffen, Giffen goods are considered inferior goods that do not obey the Law of Demand Theory. According to the Theory of Demand, the Demand for a particular commodity diminishes with an increase in its price, but for Giffen goods, it increases with the rise in price. A historical example of the Giffen goods concept is the Irish Potato Famine of the 19th century. When the price of potatoes (Giffen goods) inflated, people cut their expenses by buying fewer luxury goods like meat and bought more potatoes.

FAQs on Theory of Demand

1. How is demand different from desire and want?

A desire is a mere wish to have something which may or may not be fulfilled. A person who desires to buy a car may not necessarily have the money to purchase it. A desire backed by sufficient resources becomes a want. However, a person who wants to buy a car may not be willing to pay for it at the given time or price. A demand, as discussed under the theory of demand, is defined as the quantity of a commodity that a consumer wants, with both the ability and willingness to purchase it at the given cost and time.

2. What is meant by the law of diminishing marginal utility under the law of demand theory?

The law of diminishing marginal utility is one of the aspects of the application of demand theory. It states that as a person continues to consume a particular product, the amount of additional utility or satisfaction received by him decreases eventually. For example, if a consumer buys a certain type of drink for a while, soon he will stop getting the desired satisfaction as gained in the beginning. As a result, he will move to some other product and hence the demand for that particular kind of drink will decrease. This is what the law of diminishing marginal utility implies.

• Exceptions to the Law of Demand

We all know that supply and demand factors influence the market conditions of an economy and determine the prices of goods and services . In a competitive market, the price conditions of a product or service will keep varying until the demand equals the supply thereby creating an equilibrium . Let us look at some exceptions to this law of demand like Giffen goods, necessary goods, etc.

Law of Demand

Now the law of demand states that all conditions being equal, as the price of a product increases, the demand for that product will decrease. Consequently, as the price of a product decreases, the demand for that product will increase. For instance, a consumer may buy two dozens of bananas if the price is Rs.50.

However, if the price increases to Rs.70, then the same consumer may restrict the purchase to one dozen. Hence, the demand for the bananas, in this case, was reduced by one dozen. Therefore, the law of demand defines an inverse relationship between the price and quantity factors of a product.

The graph shows the demand curve shifts from D1 to D2, thereby demonstrating the inverse relationship between the price of a product and the quantity demanded.

Browse more Topics under Theory Of Demand

• Meaning And Determinants Of Demand
• Law Of Demand And Elasticity Of Demand
• Elasticity of Demand
• Movement along the Demand Curve and Shift of the Demand Curve
• Price Elasticity of Demand
• Income Elasticity of Demand
• Cross Elasticity of Demand
• Demand Forecasting
• Methods of Demand Forecasting

Note that the law of demand holds true in most cases. The price keeps fluctuating until an equilibrium is created. However, there are some exceptions to the law of demand. These include the Giffen goods, Veblen goods, possible price changes, and essential goods. Let us discuss these exceptions in detail.

Giffen Goods

Giffen Goods is a concept that was introduced by Sir Robert Giffen. These goods are goods that are inferior in comparison to luxury goods. However, the unique characteristic of Giffen goods is that as its price increases, the demand also increases. And this feature is what makes it an exception to the law of demand.

The Irish Potato Famine is a classic example of the Giffen goods concept. Potato is a staple in the Irish diet. During the potato famine, when the price of potatoes increased, people spent less on luxury foods such as meat and bought more potatoes to stick to their diet. So as the price of potatoes increased, so did the demand, which is a complete reversal of the law of demand.

Veblen Goods

The second exception to the law of demand is the concept of Veblen goods. Veblen Goods is a concept that is named after the economist Thorstein Veblen, who introduced the theory of “conspicuous consumption “. According to Veblen, there are certain goods that become more valuable as their price increases. If a product is expensive, then its value and utility are perceived to be more, and hence the demand for that product increases.

And this happens mostly with precious metals and stones such as gold and diamonds and luxury cars such as Rolls-Royce. As the price of these goods increases, their demand also increases because these products then become a status symbol.

The expectation of Price Change

In addition to Giffen and Veblen goods, another exception to the law of demand is the expectation of price change. There are times when the price of a product increases and market conditions are such that the product may get more expensive. In such cases, consumers may buy more of these products before the price increases any further. Consequently, when the price drops or may be expected to drop further, consumers might postpone the purchase to avail the benefits of a lower price.

For instance, in recent times, the price of onions had increased to quite an extent. Consumers started buying and storing more onions fearing further price rise, which resulted in increased demand.

There are also times when consumers may buy and store commodities due to a fear of shortage. Therefore, even if the price of a product increases, its associated demand may also increase as the product may be taken off the shelf or it might cease to exist in the market.

Necessary Goods and Services

Another exception to the law of demand is necessary or basic goods. People will continue to buy necessities such as medicines or basic staples such as sugar or salt even if the price increases. The prices of these products do not affect their associated demand.

Change in Income

Sometimes the demand for a product may change according to the change in income. If a household’s income increases, they may purchase more products irrespective of the increase in their price, thereby increasing the demand for the product. Similarly, they might postpone buying a product even if its price reduces if their income has reduced. Hence, change in a consumer’s income pattern may also be an exception to the law of demand.

Solved Example for You

Q: Which of the following is a Veblen Good?

• None of the above

Ans: The correct answer is C. A luxury car is a Veblen good. They are expensive products whose value increases if the price is higher. More expensive the product, the higher its value.

Customize your course in 30 seconds

Which class are you in.

Theory Of Demand

2 responses to “meaning and determinants of demand”.

B.com 1st year Bus.economic

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Download the App

myCBSEguide

•  Entrance Exam
•  Competitive Exams
•  ICSE & ISC
•  Teacher Exams
•  UP Board
•  Uttarakhand Board
•  Bihar Board
•  Chhattisgarh Board
•  Haryana Board
•  Jharkhand Board
•  MP Board
•  Rajasthan Board
•  Courses
•  Test Generator
•  Homework Help
•  News & Updates

•  Dashboard
•   Mobile App (Android)
•  Browse Courses
•  New & Updates
•  Join Us
•  Login
•  Register

No products in the cart.

Theory of Demand

Demand, market demand, determinants of demand, demand schedule, demand curve and its slope, movement along and shifts in the demand curve.

• Test Generator

Create papers online. it's FREE .

Trusted by 1 Crore+ Students

• Student Subscription
• Student Dashboard
• Install myCBSEguide App

CBSE Sample Papers

• Test Paperss

Download myCBSEguide App

All courses.

• Entrance Exams
• Competative Exams
• Teachers Exams
• Uttrakand Board
• Bihar Board
• Chhattisgarh Board
• Haryana Board
• Jharkhand Board
• Rajasthan Board

Other Websites

• Examin8.com

CBSE Courses

• CBSE Class 12
• CBSE Class 11
• CBSE Class 10
• CBSE Class 09
• CBSE Class 08
• CBSE Class 07
• CBSE Class 06
• CBSE Class 05
• CBSE Class 04
• CBSE Class 03
• CBSE Class 02
• CBSE Class 01
• CBSE Test Papers
• CBSE MCQ Tests
• CBSE 10 Year Papers
• CBSE Syllabus

NCERT Solutions

• CBSE Revision Notes
• Terms of Service
• Privacy Policy
• NCERT Solutions for Class 12
• NCERT Solutions for Class 11
• NCERT Solutions for Class 10
• NCERT Solutions for Class 09
• NCERT Solutions for Class 08
• NCERT Solutions for Class 07
• NCERT Solutions for Class 06
• NCERT Solutions for Class 05
• NCERT Solutions for Class 04
• NCERT Solutions for Class 03
• CBSE Class 12 Sample Papers
• CBSE Class 11 Sample Papers
• CBSE Class 10 Sample Papers
• CBSE Class 09 Sample Papers
• CBSE Results | CBSE Datesheet

Please Wait..

Commerce Aspirant » Economics Class 11 » Determinants of Demand in Economics Class 11 Notes

Determinants of Demand in Economics Class 11 Notes

Determinants of Demand 

Demand for a commodity increases or decreases due to a number of factors. The various factors affecting demand are :-

1. Price of the Given commodity :

It is the most important factor affecting demand for the given commodity. Generally there exists an inverse relationship between price and quantity demanded. It means as price increases, quantity demanded falls due to decrease in the satisfaction level of consumers.

For example :- If the price of the given commodity (say tea) increases its quantity falls as satisfaction derived from tea will fall due to rise in its price.

The following determinants are termed as ‘other factors’ or factors ‘other than price’

2. Price of related goods:-

Demand for the given commodity is also affected by the change in prices of the related goods. Related goods are of two types :-

(i) Substitute goods:- Substitute goods are those goods which can be used in place of one another for satisfaction of a particular want, like tea and coffee. An increase in the price of substitute leads to an increase in the demand for given commodity and vice – versa. For example : – If price of a substitute good (say, coffee) increases then demand for given commodity (say, tea) will rise as tea will become relatively cheaper in comparison to coffee. So, demand for a given commodity is directly affected by change in price of substitute goods.

(ii) Complementary goods:- Complementary goods are those goods which are used together to satisfy a particular want, like tea and sugar, An increase in the price of complementary good leads to a decrease in the demand for given commodity and vice – versa. For example : – if the price of a complementary good (say, sugar) increases, then demand for given commodity (say, tea) will fall as it will be relatively costlier to use both the goods together. So, demand for a given commodity is inversely affected by change in price of complementary goods.

Example of substitute goods:-

• Tea and coffee
• Coke and Pepsi
• Pen and Pencil
• Ink pen and ball pen
• Rice and wheat

Example of complementary goods:-

• Tea and Sugar
• Pen and ink
• Car and Petrol
• Bread and Butter
• Pen and Refill
• Brick and cement

3.  Income of the consumer:-

Demand for a commodity is also affected by income of the consumer. However, the effect of change in income on demand depends on the nature of commodity under consideration.

• If the given commodity is a normal good, then an increase in income lads to rise in its demand, while a decrease in income reduces the demand.
• If the given commodity is an inferior good, then an increase in income reduces the demand while a decrease in income leads to rise in demand.

Example :- Suppose income of a consumer increases. As a result, the consumer reduces consumption of toned milk and increases consumption of full cream milk. In this case ‘Toned milk’ is an inferior good for the consumer and ‘Full cream milk’ is a normal good.

4. Tastes and Preferences : –

Tastes and preferences of the consumer directly influence the demand for a commodity. They include changes in fashion, customs, habits etc. If a commodity is in fashion or is preferred by the consumers, then demand for such a commodity rises. On the other hand, demand for a commodity falls, if the consumers have no taste for that commodity.

5. Expectation of change in the price in future : –

If the price of a certain commodity is respected to increase in near future, then people will buy more of that commodity than what they normally buy. There exists a direct relationship between expectation of change in the prices in future and change in demand in the current period

• Change in quantity demanded : – Whenever demand for the given commodity changes due to change in its own price, then such change in demand is known as “ Change in Quantity Demand”. For example, if demand for Pepsi changes due to. Change in its own price, then such change in demand is known as “Change in Quantity Demanded”. For example, if demand for Pepsi changes due to change in its own price, then such change in demand for Pepsi is known as change in quantity demanded.
• Change in Demand : – Whenever demand for the given commodity changes due to factors other than price, then such change in demand is known as “Change in demand”. For example : – If demand for Pepsi changes due to change in price of Coke or due to change in income or due to a change in taste, then such change in demand for Pepsi is known as change in demand.

Unit 5: Consumer’s Equilibrium and Demand

• Concept of Utility in Economics
• Measurement of Utility in Economics
• Total Utility and Marginal Utility
• Law of Diminishing Marginal Utility
• Conditions of Consumer’s Equilibrium
• Theory of Demand
• What is Demand in Economics
• Demand Characteristics
• Determinants of demand
• Determinants of Market Demand
• Demand Function In Economics
• Demand Schedule | Individual demand schedule | Market demand schedule
• Economics Class 11 Notes
• Accountancy Class 11 Notes
• Economics Class 11 MCQs

Business Studies Class 11 MCQ

Unit Number 319, Vipul Trade Centre, Sohna Road, Gurgaon, Sector 49, Gurugram, Haryana-122028, India

• +91-9667714335
• [email protected]

Class 11 Notes

Class 11 MCQs

• Business Studies Class 11 MCQs

Class 12 Notes

• Economics Class 12 Notes
• Business Studies Class 12 Notes
• Accountancy Class 12 Notes

Class 12 MCQs

• Economics Class 12 MCQs
• Business Studies Class 12 MCQs
• Accountancy Class 12 MCQs

Subscribe To Our Weekly Newsletter

Get notified about new Content