The response distinguishes normal and inferior goods and notes other demand determinants.
The statement should be refuted. For a normal good, higher income generally raises demand because consumers can afford more. For an inferior good, however, demand may fall when consumers shift to a preferred alternative—for example, from a low-cost staple or basic transport option to a more expensive one. Demand may also stop rising when a want is saturated, or change because of tastes, expectations and the prices of related goods. Income is therefore one determinant, not a guarantee of higher demand for every good.
The answer applies substitute and complementary relationships to each case.
a. Demand for diesel cars is likely to rise because they are a substitute for petrol cars, although expectations about diesel prices also matter. b. Demand for electric cars is likely to rise for the same substitution reason. c. Demand for accessories used mainly with petrol cars is likely to fall because those accessories and petrol-car use are complementary; general accessories may be less affected. d. Demand for public transport is likely to rise as private petrol travel becomes more expensive. These are shifts in demand caused by the price of a related good.
The response links a productivity-improving technology to cost, individual supply and market supply.
a. After the initial installation cost, lower water and labour requirements reduce the cost per unit, while the higher yield spreads fixed costs across more output. b. With a lower marginal cost, the farmer is willing and able to supply a larger quantity at each market price. c. If many farmers adopt the technology, the market supply curve shifts to the right. Other things equal, equilibrium quantity rises and equilibrium price tends to fall.
The answer separates an equilibrium shift caused by supply from a temporary price set below equilibrium.
Sellers may cut prices to clear large inventories, attract buyers in a highly competitive period and sell a much greater quantity. The lower price causes movement down the demand curve, increasing quantity demanded; if the discount reflects greater available supply, the new equilibrium has a lower price and higher quantity. Consumers gain from lower prices, but sellers can also gain through faster stock turnover, economies of scale, platform visibility and sales of related items. A price simply fixed below equilibrium without extra supply would instead create excess demand or a shortage.
- a. Surplus
- b. Shortage
- c. No effect
- d. Fall in demand
At a binding maximum price below equilibrium, consumers demand more vaccine while producers supply less. Quantity demanded therefore exceeds quantity supplied unless government procurement, subsidies or added production closes the gap.
Shortage.
The examples illustrate price ceilings, administered prices and price floors and state their policy purposes.
Governments may cap the prices of essential medicines so that lifesaving treatment remains affordable, regulate electricity or public-transport tariffs where a service has few alternative suppliers, and sell basic food grains at subsidised issue prices to eligible households. They may also use minimum prices for selected farm produce to protect cultivators from an exceptionally low market price. Such measures seek affordability, food or health security, protection from monopoly power or income stability, though poorly designed controls can cause shortages, surpluses or fiscal costs.
The response explains harms without denying the legitimate role of regulation.
Yes. Regulation is needed for safety, competition and fairness, but excessive or unpredictable rules can raise compliance costs, delay entry, discourage investment and protect established firms from competitors. For example, a very low price ceiling on a product without support for supply can cause shortages and black markets; unnecessarily complex permits can keep small firms from entering; and a poorly set minimum price can create an unsold surplus. Good regulation addresses a clear market failure, is transparent and proportionate, and is reviewed using evidence.
Each pair is classified by whether joint use or alternative use predominates.
a. Movie ticket and popcorn—complementary. b. Eraser and pencil—complementary. c. Laptop and desktop computer—substitutes for many uses. d. Air conditioner and cooler—substitutes. e. Notebook and pen—complementary. f. Apple and banana—substitutes. g. Mobile and earphones—complementary. The classification depends on typical use: substitutes satisfy a similar want, while complementary goods are commonly used together.
The quantities and prices are read directly from Fig. 9.8, then interpreted using equilibrium adjustment.
a. E is the market equilibrium, where quantity demanded equals quantity supplied. b. The figure shows an equilibrium price of ₹30 and an equilibrium quantity of 300 kg. c. At the upper price of ₹40, A indicates demand of 200 kg and B supply of 400 kg; the 200 kg gap is excess supply or surplus. d. At the lower price of ₹20, F indicates demand of 400 kg and C supply of 200 kg; the 200 kg gap is excess demand or shortage. e. Buyers’ competition and the shortage would tend to push price upward, reducing demand and increasing supply until the market returned toward E.