RBSE Solutions Class 12 Economics Chapter 5 Concept of Supply

Rajasthan Board RBSE Class 12 Economics Chapter 5 Concept of Supply

RBSE Class 12 Economics Chapter 5 Practice Questions

RBSE Class 12 Economics Chapter 5 Multiple Choice Questions

 

Question 1. Which of the following factors affects the supply?
(a) Prices of the commodity
(b) Prices of means
(c) Change in technology
(d) All of these
Answer: (d) All of the options
In simple words: The supply of a product is influenced by its price, the cost of resources used to make it, and the type of technology used in production. All these factors together determine how much of a product is available.

🎯 Exam Tip: Remember that supply is a complex concept influenced by multiple variables, not just the product's price.

 

Question 2. What type of relationship exists between price and its supply?
(a) Direct and positive
Answer: (a) Direct and positive
In simple words: There is a direct and positive link between a product's price and how much of it is supplied. This means if the price goes up, suppliers offer more, and if the price goes down, they offer less.

🎯 Exam Tip: Understanding this direct relationship is fundamental to the law of supply. Always remember that higher prices incentivize producers to supply more.

 

Question 3. Slope of normal supply curve is :
(a) positive
(b) rectangular
(c) negative
(d) None of the options
Answer: (a) positive
In simple words: A regular supply curve slants upwards, showing that as the price of something increases, the quantity supplied also increases. This upward slant is called a positive slope.

🎯 Exam Tip: A positive slope on a supply curve reflects the law of supply: producers are willing to supply more at higher prices.

 

Question 4. If a producer produces 200 units in a particular period of time, he makes available 180 units in the market for sale. Then supply in market is :
(a) 200
(b) 20
(c) 380
(d) 180
Answer: (d) 180
In simple words: Supply refers to the actual amount of goods a producer makes available for sale in the market, not just what they produce. So, even if 200 units are made, only the 180 units offered for sale count as supply.

🎯 Exam Tip: Differentiate between "production" (total output) and "supply" (output offered for sale) when answering questions on market dynamics.

 

Question 5. Which factor is not responsible for change in supply curve?
(a) Price of raw material
(b) Change in technology
(c) Price of commodity
(d) Special occasions
Answer: (c) Price of commodity
In simple words: A change in the product's own price causes a movement *along* the supply curve, not a shift *of* the curve itself. Factors like raw material costs or technology changes cause the entire supply curve to shift.

🎯 Exam Tip: Distinguish carefully between movements along a supply curve (due to price changes) and shifts of the supply curve (due to non-price factors). This is a common point of confusion.

RBSE Class 12 Economics Chapter 5 Very Short Answer Type Questions

 

Question 1. Define supply.
Answer: A stock refers to the total quantity of a product available in the market at a certain time. Supply is the part of this stock that a seller is ready to sell at a particular price during a specific period.
In simple words: Supply is how much of an item a seller wants to sell at a certain price and time, out of all the items they have.

🎯 Exam Tip: When defining supply, remember to include the elements of "willingness to sell," "specific price," and "given period" for a complete answer.

 

Question 3. What is law of supply?
Answer: The law of supply states that if the price of a product increases, the amount supplied in the market also increases. Conversely, if the price falls, the quantity supplied decreases, as long as other factors affecting supply remain unchanged.
In simple words: The law of supply means sellers offer more items when prices go up, and fewer items when prices go down, assuming nothing else changes.

🎯 Exam Tip: The phrase "other factors determining supply remaining the same" (ceteris paribus) is crucial when stating the law of supply. Always include it.

 

Question 4. Write the meaning of market supply.
Answer: Market supply is the total quantity of a product that all producers together make available for sale in the market.
In simple words: Market supply is the total amount of a product that all businesses are willing to sell in the market.

🎯 Exam Tip: Market supply aggregates individual producer supplies, so mention "all producers" in your definition.

RBSE Class 12 Economics Chapter 5 Short Answer Type Questions

 

Question 1. Differentiate between supply and stock.
Answer: Stock refers to the total quantity of a product a seller has available in the market. Supply, on the other hand, is the specific portion of that stock that the seller is prepared to sell at a given price during a certain period.
In simple words: Stock is everything a seller has, while supply is only what they are ready to sell at a particular price right now.

🎯 Exam Tip: Emphasize that supply is a flow concept (what is offered for sale over time at a price), while stock is a point-in-time concept (total available at a moment).

 

Question 2. Write down any four assumptions of law of supply.
Answer: The four assumptions of the law of supply are:
1. The prices of factors of production for the product do not change.
2. The method of production (technology) remains constant.
3. There is no change in the prices of other related goods.
4. Government taxes and subsidies stay the same.
In simple words: The law of supply works if things like production costs, technology, prices of other goods, and government taxes all stay steady.

🎯 Exam Tip: Remember that "ceteris paribus" (all other things being equal) is the core principle, and these assumptions are the "other things" that must remain constant.

 

Question 4. Calculate market supply from the following data:
Answer:

Market supply is calculated by adding the supply of Firm A and Firm B at each price point.
When Price is 10, Market Supply = 10 + 20 = 30
When Price is 20, Market Supply = 15 + 30 = 45
When Price is 30, Market Supply = 20 + 40 = 60
When Price is 40, Market Supply = 30 + 60 = 90
When Price is 50, Market Supply = 40 + 80 = 120
When Price is 60, Market Supply = 50 + 100 = 150
When Price is 70, Market Supply = 60 + 120 = 180
The market supply schedule is:
In simple words: To find the total market supply, you just add up how much each company is willing to sell at every different price point. This shows the total amount available in the market.

🎯 Exam Tip: When calculating market supply, ensure you sum up the quantities supplied by all individual firms at each price level accurately.

 

Question 5. Explain shift in supply curve with the help of figure.
Answer: A shift in the supply curve happens when the change in supply is caused by factors other than the product's own price. This can be an increase or decrease in supply. These changes are shown by drawing a new supply curve to the right (for an increase) or left (for a decrease) of the original supply curve, which is why it's called a shifting of the supply curve.

Explanation of Shift in Supply Curve:
An increase in supply means the supply curve shifts from SS to S₁S₁ (moving from point A to B), with the price remaining at OP, but the quantity supplied increasing from Oq to Oq₁.
A decrease in supply means the supply curve shifts from SS to S₂S₂ (moving from point A to C), with the price remaining at OP, but the quantity supplied decreasing from Oq to Oq₂.
In simple words: When things other than the price of the item change (like technology or costs), the whole supply curve moves. If supply increases, the curve shifts right. If supply decreases, it shifts left.

🎯 Exam Tip: Clearly label the original supply curve (SS) and the shifted curves (S₁S₁ and S₂S₂) in your diagram, and show the corresponding changes in quantity at a constant price.

RBSE Class 12 Economics Chapter 5 Essay Type Questions

 

Question 1. What is supply? Describe the factors affecting supply.
Answer: Supply refers to the various amounts of a product that a producer is willing and able to produce and make available for sale in the market at specific prices during a given period. It's the quantity offered for sale, not just the quantity produced.
The determinants of supply, or factors affecting supply, can be summarized as \( S = f (P, Pr, Pf, T, G, E, O) \), where:
(i) Price of the Product (P): When the product's own price increases, supply increases, and when the price decreases, supply decreases. This shows a direct, positive relationship between price and supply.
(ii) Price of Related Goods (Pr): The supply of a product is affected by the prices of other related goods. If the prices of substitute goods rise, the supply of the original product may decrease as producers shift to more profitable substitutes. Conversely, if complementary goods' prices rise, the demand for the original product might fall, affecting its supply. Overall, there is an inverse relation with prices of related goods.
(ii) Price of Factors of Production (Pf) (Cost of Production): A rise in the prices of inputs (factors of production) makes producing the commodity less profitable, leading to a decrease in supply. If production costs fall, supply will increase. This indicates an inverse relationship between supply and the cost of production.
(iv) Technology (T): Advances in technology, such as new discoveries and innovations, reduce production costs. This makes production more profitable and leads to an increased supply of the commodity.
(v) Government Policy (G): Government policies, like imposing taxes or providing subsidies, can influence supply. Favorable policies (lower taxes, higher subsidies) encourage increased supply, while unfavorable policies (higher taxes, lower subsidies) lead to a decrease in supply.
(vi) Future Expectation About Price (E): If producers expect the price of a commodity to rise in the future, they might reduce current supply to sell more later at a higher price. If they expect prices to fall, they might increase current supply.
(ix) Festival Time: During festive seasons, demand for various commodities generally rises. Producers anticipate this increased demand and tend to increase their supply. Outside festive periods, supply typically drops.
(x) Transportation Cost: Improved transportation methods lead to faster movement of goods and lower transportation costs. This reduction in cost generally leads to an increase in supply.
In simple words: Supply is how much a seller is willing to sell at different prices. Many things affect this, like the product's price, the cost to make it, technology used, government rules, and what sellers expect prices to be in the future.

🎯 Exam Tip: For comprehensive answers on factors affecting supply, ensure you explain the impact of each factor, distinguishing between direct and inverse relationships. Use clear, concise language.

 

Question 2. What do you mean by law of supply? Explain the law of supply with help of example, schedule and diagram.
Answer: The law of supply states that, assuming all other factors remain constant, there is a positive relationship between the price of a product and its quantity supplied. This means that a greater quantity is supplied at a higher price, and a lesser quantity is supplied at a lower price.
This law can be explained with the help of the following supply schedule:

The table shows that as the price increases from Rs 10 to Rs 11 per unit, the quantity supplied increases from 100 to 200 units. The Supply Curve (SS) usually slopes upward, indicating an increase in quantity supplied as the price increases.
The diagram illustrates an upward-sloping supply curve, where as quantity increases from L to L₁, the price also rises, representing the direct relationship of the law of supply.
In simple words: The law of supply means sellers will offer more goods when prices are high and fewer when prices are low. This is shown by a table that matches prices to quantities and a graph that slopes upwards.

🎯 Exam Tip: When explaining the law of supply, always include a clear definition, a numerical schedule (table), and a diagram illustrating the upward-sloping supply curve.

 

Question 3. What are the factors responsible for shift in supply curve? How do technological changes affect the supply? Explain with help of a diagram.
Answer: Factors that cause a shift in the supply curve fall into two main categories:
(i) Shift in supply curve due to an increase in supply (rightward shift) is influenced by these factors:
(a) Improvements in technology.
(b) Reduction in the price of factors of production, causing a fall in production costs.
(c) When the price of competing goods decreases.
(d) An increase in the number of firms in the market.
(e) When the firm expects a fall in the price of the commodity in the near future.
(f) When the firm's goal shifts from just making profit to maximizing sales.
(ii) Shift in supply curve due to a decrease in supply (leftward shift) is influenced by these factors:
(a) When the production technique becomes old (obsolete), leading to high production costs.
(b) When factor prices increase, causing production costs to rise.
(c) When prices of competing goods increase.
(d) A decrease in the number of firms in the market.
(e) When the firm expects a rise in the commodity price in the near future.
(f) When the firm's objective shifts from maximizing sales to maximizing profit.

Technological changes significantly affect supply. Improvements in technology tend to lower the marginal and average cost of production. This means more can be produced using fewer resources. Consequently, producers become willing to supply more at the existing price. This leads to a forward (rightward) shift in the supply curve.

The improvement in technology tends to lower the marginal and average cost of production. Because more can be produced with fewer additional resources, producers should be willing to supply more at the existing price. This causes a forward shift in the supply curve, as shown in the figure. Initially, PK quantity was supplied at price OP. After technological improvement, PT quantity is supplied at the same price. This situation represents a rise in supply due to technology.
In simple words: When technology gets better, it costs less to make things. So, companies can sell more products at the same price, which makes the whole supply graph move to the right.

🎯 Exam Tip: When explaining technological impact, connect it clearly to reduced production costs and increased profitability, leading to a rightward shift of the supply curve.

 

Question 4. Explain extension and contraction of supply with the help of diagram.
Answer: The terms "extension" and "contraction" in supply describe changes in the quantity supplied that result from changes in the price of the commodity itself. When the price of a product rises, causing an increase in the quantity supplied (while other factors remain constant), this is called an Extension in Supply. Conversely, a fall in the product's price leading to a decrease in quantity supplied is called a Contraction of Supply.

The figures below illustrate these concepts:

From the given figure of extension in supply, it is clear that if the price of a commodity is Rs 2 per unit, the quantity supplied is 10 kg. If the price rises to Rs 6, the quantity supplied increases to 30 units. This increase in quantity due to a price rise is an extension of supply.
Likewise, for contraction of supply, when the price reduces from Rs 6 to Rs 2, the quantity supplied decreases from 30 units to 10 units. This decrease in quantity due to a price fall is a contraction of supply.
In simple words: When the price of an item goes up, sellers offer more of it (extension). When the price goes down, they offer less (contraction). These are movements along the supply curve due to price changes.

🎯 Exam Tip: Distinguish between "extension/contraction" (movement along the curve due to price changes) and "increase/decrease" (shift of the curve due to non-price factors). Diagrams must clearly show these movements.

RBSE Class 12 Economics Chapter 5 Other Important Questions - Answers

RBSE Class 12 Economics Chapter 5 Multiple-Choice Questions

 

Question 1. A vertical supply curve parallel to Y axis implies that the elasticity of supply is :
(a) zero
(b) infinity
(c) equal to one
(d) greater than zero but less infinity
Answer: (a) zero
In simple words: A vertical supply line means that no matter how much the price changes, the amount supplied stays exactly the same. This is called perfectly inelastic supply, or zero elasticity.

🎯 Exam Tip: Remember that a vertical supply curve represents perfectly inelastic supply (elasticity = 0), meaning quantity supplied is unresponsive to price changes.

 

Question 2. The supply of goods refers to :
(a) actual production of the good
(b) total existing stock of the good
(c) stock available for sale
Answer: (c) stock available for sale
In simple words: Supply means the amount of goods that are ready and available for sellers to offer in the market. It's not just everything produced or everything a seller has, but what is actively put up for sale.

🎯 Exam Tip: Distinguish "supply" (what's offered for sale) from "production" (what's made) and "stock" (what's held) for accuracy in definitions.

 

Question 3. An increase in the supply of a good is caused by :
(a) improvements in its technology
(b) fall in the prices of factors of production
(c) rise in the prices of competitive goods
(d) All of the options
Answer: (d) All of the options
In simple words: Supply increases when new technology makes production easier, when the cost of making things goes down, or when competitor goods become more expensive. All these factors encourage producers to offer more.

🎯 Exam Tip: Understand that non-price factors like technology, input costs, and prices of related goods can all shift the supply curve outward (increase supply).

 

Question 4. Elasticity of supply refers to the degree of responsiveness of supply of a good to changes in its :
(a) demand
(b) price
(c) cost of production
(d) state of technology
Answer: (b) price
In simple words: Supply elasticity measures how much the amount of goods offered for sale changes when the price of that good changes. It's about how sensitive supply is to price movements.

🎯 Exam Tip: Elasticity of supply focuses specifically on the responsiveness of quantity supplied to changes in the product's *own price*, not other factors.

 

Question 5. A horizontal supply curve parallel to the quantity axis implies that the elasticity of supply is :
(a) zero
(b) infinite
(c) equal to one
(d) greater than zero but less than one
Answer: (b) infinite
In simple words: A flat supply line means that even a tiny change in price will cause the amount supplied to become huge or drop to zero. This is called perfectly elastic or infinite elasticity.

🎯 Exam Tip: A horizontal supply curve depicts perfectly elastic supply, where producers are willing to supply any quantity at a specific price, but none at a lower price.

 

Question 6. Contraction of supply is the result of :
(a) decrease in the number of producers
(b) decrease in the price of the good concerned
(c) increase in the prices of other goods
(d) decrease in the outlay of sellers
Answer: (b) decrease in the price of the good concerned
In simple words: Contraction of supply happens when the price of a product falls, leading sellers to offer less of it. This is a movement along the supply curve.

🎯 Exam Tip: Contraction is a movement along the existing supply curve, caused solely by a fall in the good's own price, leading to a reduced quantity supplied.

 

Question 8. Supply is the :
(a) limited resources that are available with the seller
(b) cost of producing a good
(c) entire relationship between the quantity supplied and the price of good
(d) willingness to produce a good if the technology to produce it becomes available
Answer: (c) entire relationship between the quantity supplied and the price of good
In simple words: Supply describes the overall connection between how much of a product sellers offer and its price. It shows how the quantity supplied changes as the price changes.

🎯 Exam Tip: Supply is a relationship (a schedule or curve), not a single quantity. Distinguish it from "quantity supplied," which is a specific amount at a specific price.

 

Question 9. If the supply of bottled water decreases, equilibrium price __________ and the equilibrium quantity __________ .
(a) increases; decreases
(b) decreases; increases
(c) decreases; decreases
(d) increases; increases
Answer: (a) increases; decreases
In simple words: If there's less bottled water available, its price will go up, and the total amount sold will go down. This happens because scarcity drives prices higher.

🎯 Exam Tip: Use supply and demand diagrams to visualize the effects of shifts in supply (or demand) on equilibrium price and quantity. A leftward shift in supply increases price and decreases quantity.

 

Question 10. In a very short period the supply
(a) can be changed
(b) cannot be changed
(c) can be increased
(d) increases; increased
Answer: (b) cannot be changed
In simple words: In a very short time, like right now, the amount of a product available to sell cannot easily be changed. Whatever stock is ready, that's what's supplied.

🎯 Exam Tip: Understand the concept of "market period" or "very short period" where supply is perfectly inelastic because producers cannot adjust production immediately.

 

Question 12. When supply curve moves to right it means :
(a) supply increases
(b) supply decreases
(c) supply remains constant
(d) None of the options
Answer: (a) supply increases
In simple words: When the supply line shifts to the right, it means that at any given price, sellers are now offering more products. This is called an an increase in supply.

🎯 Exam Tip: A rightward shift of the supply curve always indicates an increase in supply, while a leftward shift indicates a decrease.

 

Question 13. The elasticity of supply is defined as the :
(a) responsiveness of the quantity supplied of a good to a change in its price.
(b) responsiveness of the quantity supplied of a good without change in its price.
(c) responsiveness of the quantity demanded of a good to a change in its price.
(d) responsiveness of the quantity demanded of a good without change in its price.
Answer: (a) responsiveness of the quantity supplied of a good to a change in its price.
In simple words: Elasticity of supply tells us how much the amount of a product offered for sale changes when its price changes.

🎯 Exam Tip: Clearly distinguish elasticity of supply (response of quantity supplied to price) from elasticity of demand (response of quantity demanded to price).

 

Question 14. Elasticity of supply is measured by dividing the percentage change in quantity supplied of a good by :
(a) percentage change in income
(b) percentage change in quantity demanded of goods
(c) percentage change in price
(d) percentage change in taste and preference
Answer: (c) percentage change in price
In simple words: To calculate how flexible supply is, you divide the percentage change in the amount supplied by the percentage change in the price.

🎯 Exam Tip: Memorize the formula for elasticity of supply as \( \frac{\%\Delta Q_s}{\%\Delta P} \) to correctly identify its components.

 

Question 16. If the change in quantity supplied is exactly equal to the relative change in price then the elasticity of supply is :
(a) less than one
(b) greater than one
(c) one
(d) None of the options
Answer: (c) one
In simple words: If the percentage change in quantity supplied is exactly the same as the percentage change in price, then the supply is called unit elastic, meaning elasticity is one.

🎯 Exam Tip: Unitary elastic supply means the responsiveness of quantity supplied is precisely proportional to the price change, resulting in an elasticity of one.

 

Question 17. If the change in quantity supplied is exactly equal to the relative change in price then the elasticity of supply is:
(a) less than one
(b) greater than one
(c) one
(d) None of the options
Answer: (c) one
In simple words: When the amount of product supplied changes by the same percentage as its price, we say the elasticity of supply is one.

🎯 Exam Tip: Recognize that "exactly equal" implies a unit elastic supply, which is represented by an elasticity value of one.

 

Question 18. The supply function is given as \( Q = 100 + 10P \). Find the elasticity of supply using point method, when price is Rs 15.
(a) 4
(b) - 3
(c) - 5
(d) 3
Answer: (d) 3
To find the elasticity of supply using the point method, we use the formula: \( E_s = \frac{dQ}{dP} \times \frac{P}{Q} \)
Given the supply function: \( Q = 100 + 10P \)
First, we find the quantity supplied \( Q \) when \( P = \text{Rs } 15 \):
\( Q = 100 + 10(15) \)
\( Q = 100 + 150 \)
\( Q = 250 \)
Next, we find the derivative of the supply function with respect to price to get \( \frac{dQ}{dP} \):
\( \frac{dQ}{dP} = \frac{d}{dP}(100 + 10P) \)
\( \frac{dQ}{dP} = 10 \)
Now, substitute these values into the elasticity formula:
\( E_s = 10 \times \frac{15}{250} \)
\( E_s = \frac{150}{250} \)
\( E_s = \frac{3}{5} \)
\( E_s = 0.6 \)
In simple words: First, calculate the quantity supplied at the given price. Then, find how much quantity changes for a small price change. Use these values in the elasticity formula. For this problem, the calculated elasticity is 0.6.

🎯 Exam Tip: Remember the point elasticity formula \( E_s = \frac{dQ}{dP} \times \frac{P}{Q} \). Always calculate \( Q \) at the given \( P \) and find \( \frac{dQ}{dP} \) from the supply function before substituting values.

RBSE Class 12 Economics Chapter 5 Very Short Answer Type Questions

 

Question 1. Give the meaning of supply schedule.
Answer: A supply schedule is a table that shows the different quantities of a product that sellers are willing to offer in the market at various specific prices.
In simple words: A supply schedule is a list that matches different prices with how much of a product sellers will offer to sell at each of those prices.

🎯 Exam Tip: Clarify that a supply schedule is a tabular representation, distinguishing it from a supply curve (graphical) or supply function (mathematical).

 

Question 3. What is meant by extension of supply?
Answer: Extension of supply happens when the amount of a product available for sale goes up because its price has increased. This means that as prices rise, sellers are willing to offer more of that commodity.
In simple words: Extension of supply means that when the price of an item goes up, people are willing to sell more of that item.

🎯 Exam Tip: Clearly distinguish between 'extension of supply' (movement along the curve due to price change) and 'increase in supply' (shift of the curve due to non-price factors).

 

Question 4. What is meant by contraction of supply?
Answer: Contraction of supply happens when the amount of a product available for sale goes down because its price has decreased. This shows that as prices fall, sellers offer less of the commodity.
In simple words: Contraction of supply means that when the price of an item goes down, people are willing to sell less of that item.

🎯 Exam Tip: Remember that contraction refers to a reduction in quantity supplied due to a fall in the good's own price, indicated by a downward movement along the supply curve.

 

Question 5. What is meant by increase in supply?
Answer: Increase in supply happens when more of a product is available for sale, not because of its price, but due to other reasons like better technology or cheaper production materials. This causes the entire supply curve to shift to the right.
In simple words: Increase in supply means more goods are available. This happens because of things like new technology or cheaper raw materials, not because the price of the good changed.

🎯 Exam Tip: Understand that an increase in supply is a shift of the entire supply curve to the right, signifying that more quantity is offered at every price level.

 

Question 6. What is meant by decrease in supply?
Answer: Decrease in supply happens when less of a product is available for sale, not because of its price, but due to other reasons like older technology or more expensive production materials. This causes the entire supply curve to shift to the left.
In simple words: Decrease in supply means fewer goods are available. This happens because of things like old technology or more expensive raw materials, not because the price of the good changed.

🎯 Exam Tip: A decrease in supply is a leftward shift of the entire supply curve, meaning less quantity is offered at all price levels.

 

Question 7. When is the supply of a commodity called 'elastic'?
Answer: Supply is called 'elastic' when the amount of a product offered for sale changes a lot in response to a small change in its price. It measures how sensitive the quantity supplied is to price changes.
In simple words: Supply is elastic if a small change in price leads to a big change in how much of a product is offered for sale.

🎯 Exam Tip: Remember, the greater the responsiveness of quantity supplied to price changes, the more elastic the supply. Think of a rubber band stretching easily.

 

Question 8. When does supply become more elastic?
Answer: Supply becomes more elastic when the percentage change in the quantity supplied is much larger than the percentage change in its price. This indicates a high level of responsiveness to price fluctuations.
In simple words: Supply is very elastic when a small price change causes a much larger change in the amount supplied.

🎯 Exam Tip: Factors like the availability of inputs, technology, and time often contribute to supply becoming more elastic.

 

Question 10. State the law of supply.
Answer: The law of supply says that if the price of a product goes up, sellers will offer more of it. If the price goes down, they will offer less. This is true as long as other things that affect supply don't change, meaning there's a direct relationship between price and quantity supplied.
In simple words: The law of supply states that as an item's price increases, more of it will be supplied, and as its price falls, less will be supplied, assuming all other conditions stay constant.

🎯 Exam Tip: Always remember the "ceteris paribus" (all other things being equal) condition when stating the law of supply. This is crucial for full marks.

 

Question 11. What is meant by zero elastic supply?
Answer: Zero elastic supply, also called perfectly inelastic supply, means that no matter how much the price changes, the quantity of a product offered for sale stays exactly the same. The supply is fixed and cannot be altered.
In simple words: Zero elastic supply means that even if the price changes, the amount of goods available to sell does not change at all.

🎯 Exam Tip: A perfectly inelastic supply curve is a vertical line on a graph, showing that quantity supplied is fixed regardless of price.

 

Question 12. Draw a supply curve with unitary elasticity.
Answer: A supply curve with unitary elasticity shows that the percentage change in the quantity supplied is exactly equal to the percentage change in price. This means the curve will be a straight line moving upwards from the origin, representing a balanced response to price changes.

In simple words: A unitary elastic supply curve is a straight line going up from the middle. It means if the price changes by a certain percent, the amount supplied changes by the exact same percent.

🎯 Exam Tip: When drawing a unitary elastic supply curve, ensure it's a straight line passing through the origin (0,0). This visually represents equal proportionate changes.

 

Question 13. What causes an upward movement along a supply curve?
Answer: An upward movement along a supply curve happens when the price of a product increases. As the price goes up, sellers are willing to offer more of that product for sale, moving from a lower quantity to a higher quantity on the existing supply curve.
In simple words: When the price of an item goes up, sellers want to sell more. This makes the point on the supply curve move higher and to the right.

🎯 Exam Tip: Distinguish between movement *along* a curve (caused by price change) and a *shift* of the curve (caused by non-price factors). This is a common point of confusion.

 

Question 15. Why does change in supply takes place when price remains constant at Rs 10 per unit and the supply increases from 25 units to 40 units?
Answer: If the price stays the same but supply increases, it's usually because it has become cheaper to make the product. This could be due to lower costs for raw materials or better technology that makes production more efficient, causing the supply curve to shift right.
In simple words: Supply can go up even if the price doesn't change. This happens when it becomes cheaper to make the product, for example, with new technology or less expensive materials.

🎯 Exam Tip: Remember, changes in supply (shifts in the curve) are caused by non-price factors like technology, input costs, and government policies.

 

Question 16. When at a constant price, a producer reduces the sale of his product from 18 to 15. What will you call this change in supply?
Answer: When a producer sells less of a product even though the price has not changed, it is called a Decrease in Supply. This often happens if the cost to make the product goes up, or because of other reasons not related to price, causing the supply curve to shift left.
In simple words: If a producer sells less of a product at the same price, it's called a Decrease in Supply. This might be because making it now costs more.

🎯 Exam Tip: A decrease in supply (shift left) implies a reduction in quantity offered at every price level, unlike a contraction (movement along) which is due to the good's own price fall.

 

Question 17. What will be the effect on the supply of Pepsi when its price falls compared to that of Coca Cola?
Answer: When the price of Pepsi falls compared to Coca-Cola, the supply of Pepsi might increase. This happens because Pepsi and Coca-Cola are similar products that compete in the market, making Pepsi more attractive to supply when its price decreases relatively.
In simple words: If Pepsi's price drops compared to Coke, the amount of Pepsi available for sale goes up because they are competing drinks.

🎯 Exam Tip: Consider cross-price elasticity for substitute goods. A relative price change between substitutes can influence which good producers find more profitable to supply.

 

Question 18. State the effect of change in technology on the supply.
Answer: When technology gets better, it usually costs less to make things, and producers can make more goods. This leads to an increase in the total supply of products because production becomes more efficient and cheaper.
In simple words: Better technology makes things cheaper to produce, so businesses can make more goods. This means the supply of products increases.

🎯 Exam Tip: Technological improvement is a key non-price determinant that shifts the supply curve to the right, representing an increase in supply.

 

Question 19. Define market supply.
Answer: Market supply is the total amount of a product that all sellers together are willing to offer for sale in the market at a certain price and time. It is the sum of individual supplies from all producers.
In simple words: Market supply is the total amount of a good that all producers are ready to sell in the market.

🎯 Exam Tip: Market supply is derived by horizontally summing up the individual supply curves of all firms in the market at each price point.

 

RBSE Class 12 Economics Chapter 5 Short Answer Type Questions

 

Question 1. Distinguish between stock and supply.
Answer: Stock is the total amount of a product a seller has right now and is available. Supply is only the portion of that stock the seller is willing to sell at specific prices at a particular moment. Stock is a potential supply, while supply is the actual amount offered for sale.
In simple words: Stock is all the goods a seller has. Supply is just the amount of those goods the seller wants to sell at a certain price.

🎯 Exam Tip: Remember that stock is a 'stock concept' (measured at a point in time), while supply is a 'flow concept' (measured over a period of time).

 

Question 2. Distinguish between 'decrease in supply' and 'contraction of supply'.
Answer: Contraction of supply happens when the amount supplied goes down because the product's price falls, causing a movement downwards along the same supply curve. Decrease in supply, however, happens when the amount supplied goes down due to other factors (like technology or costs), causing the whole supply curve to shift to the left.
In simple words: Contraction means less is supplied because the price dropped. Decrease means less is supplied because of other reasons, like higher costs, even if the price stays the same. The whole supply curve moves left for a decrease.

🎯 Exam Tip: The key difference is the cause: price changes for contraction/extension (movement), and non-price factors for increase/decrease (shift).

 

Question 3. State and explain the law of supply.
Answer: The law of supply says that sellers will offer more of a product when its price goes up, and less when its price goes down. This assumes all other things affecting supply remain unchanged. This direct connection between price and the amount supplied means the supply curve goes upwards to the right on a graph. Higher prices generally lead to greater profitability, encouraging producers to supply more.
In simple words: The law of supply means higher prices lead to more goods supplied, and lower prices lead to fewer goods, when nothing else changes. This makes the supply curve slope upwards.

🎯 Exam Tip: Always state the 'ceteris paribus' condition when defining the law of supply, as it's fundamental to economic principles.

 

Question 4. Explain the methods of measuring elasticity of supply.
Answer: There are ways to measure how much supply changes when price changes. One way is the Geometric Method, which looks at where the supply curve starts on a graph to determine its elasticity: (ii) **Geometric Method:** (a) If a straight supply curve starts from the point of origin 'O' (0,0), its elasticity is equal to 1 \( (E_s = 1) \). (b) If a straight supply curve starts from the Y-axis (price axis), its elasticity is greater than 1 \( (E_s > 1) \). (c) If a straight supply curve starts from the X-axis (quantity axis), its elasticity is less than 1 \( (E_s < 1) \).
In simple words: We can measure how sensitive supply is to price changes. The geometric method uses where the supply line starts: from the middle (elasticity is 1), from the price line (elasticity is more than 1), or from the quantity line (elasticity is less than 1).

🎯 Exam Tip: For the geometric method, remember the starting point of the supply curve (origin, Y-axis, or X-axis) is key to determining if elasticity is 1, greater than 1, or less than 1.

 

Question 5. State three causes of increase in supply.
Answer: Here are three reasons why the supply of a product might increase: 1. **Changes in the goals of producers:** Producers might shift their focus from maximizing short-term profits to increasing market share, leading them to supply more even at lower profit margins. 2. **Fall in the price of other commodities:** If the prices of other goods that a producer could make using similar resources fall, it becomes relatively more profitable to produce the current commodity, so its supply increases. 3. **Lower production costs:** If the cost to produce the item goes down (e.g., due to cheaper raw materials, lower wages, or better technology), it makes it more profitable to produce more units, increasing supply.
In simple words: Supply can increase because producers change what they want to achieve, prices of other goods fall, or it costs less to make the product.

🎯 Exam Tip: Focus on factors that reduce the cost of production or increase the profitability of the good relative to alternatives to explain an increase in supply.

 

Question 6. State three causes of a rightward shift of supply curve.
Answer: A supply curve shifts to the right, meaning more is supplied at every price, because of these three reasons: 1. **Fall in production cost:** When the cost of inputs like labor, raw materials, or energy decreases, it becomes cheaper to produce goods, leading to higher supply. 2. **Increasing use of technology in production:** Improved technology makes production more efficient, allowing producers to make more goods with the same resources, thus increasing supply. 3. **Change in the size of industry:** If more firms enter the industry, the total market supply increases, causing the supply curve to shift to the right.
In simple words: The supply curve moves right when production costs drop, technology gets better, or the industry grows bigger.

🎯 Exam Tip: A rightward shift represents an increase in supply; ensure your explanations for each cause logically lead to more quantity being supplied at the same price.

 

Question 7. What are the different types of elasticity of supply?
Answer: Different types of elasticity show how much supply reacts to price changes: (i) **Perfectly Inelastic Supply (or zero elasticity of supply):** This is when the amount of goods supplied does not change at all, even if the price goes up or down. The supply stays fixed, such as a unique artwork. (iv) **More than Unitary Elastic (or highly elastic supply):** Here, the percentage change in the amount supplied is much bigger than the percentage change in price. This means supply is very responsive to price changes. (v) **Less than Unitary Elastic (or less elastic supply):** In this case, the percentage change in the amount supplied is smaller than the percentage change in price. This means supply is not very responsive to price changes.
In simple words: Elasticity of supply can be of different types. Perfectly inelastic supply means the amount supplied never changes, even with price changes. More than unitary elastic means a big change in supply for a small change in price. Less than unitary elastic means a small change in supply for a big change in price.

🎯 Exam Tip: Knowing the definition and typical graph shape for each type of elasticity (perfectly inelastic, less elastic, unitary elastic, more elastic, perfectly elastic) is essential.

 

Question 8. If the market price of a commodity is Rs 4, a seller is willing to sell 600 units of the commodity. When the price rises to Rs 5, he is willing to sell 750 units of the commodity. What is the seller's elasticity of supply?
Answer: To find the elasticity of supply, we use the given price and quantity changes. Given: Initial price (P) = Rs 4, Initial quantity (Q) = 600 units New price (\( P_1 \)) = Rs 5, New quantity (\( Q_1 \)) = 750 units Change in quantity (\( \Delta Q \)) = \( 750 - 600 = 150 \) units Change in price (\( \Delta P \)) = \( 5 - 4 = 1 \) Rupee Now, we can calculate the elasticity of supply:
\( E_s = \frac{\Delta Q}{\Delta P} \times \frac{P}{Q} \)
\( E_s = \frac{150}{1} \times \frac{4}{600} \)
\( E_s = 150 \times \frac{4}{600} \)
\( E_s = \frac{600}{600} \)
\( E_s = 1 \) Since the elasticity of supply is 1, it means the supply is unit elastic. This shows that the percentage change in supply is exactly equal to the percentage change in price.
In simple words: We calculate how much the quantity supplied changes for a change in price. Here, when the price goes from Rs 4 to Rs 5, the supply changes from 600 to 750. The calculation gives us 1, which means supply is unit elastic – it changes by the same proportion as the price.

🎯 Exam Tip: Clearly show the formula and each step of the calculation for elasticity of supply. Pay attention to initial versus changed values.

 

Question 9. A producer offers to sell 400 units of a commodity when its price is Rs 10 per unit, while only 200 units are offered if the price reduces to Rs 5 per unit. Find elasticity of supply.
Answer: Let's find the elasticity of supply using the changes in price and quantity. Given: Initial price (P) = Rs 10, Initial quantity (Q) = 400 units When price reduces to Rs 5, quantity reduces to 200 units. So, the change in price (\( \Delta P \)) is Rs 5 (absolute change from 10 to 5) and the change in quantity (\( \Delta Q \)) is 200 units (absolute change from 400 to 200). Now, we calculate elasticity of supply:
\( E_s = \frac{\Delta Q}{\Delta P} \times \frac{P}{Q} \)
\( E_s = \frac{200}{5} \times \frac{10}{400} \)
\( E_s = 40 \times \frac{10}{400} \)
\( E_s = \frac{400}{400} \)
\( E_s = 1 \) The elasticity of supply is 1, which means it is unit elastic.
In simple words: We calculate supply elasticity using the given prices and quantities. When the price changes from Rs 10 to Rs 5, the supply changes from 400 units to 200 units. The result is 1, meaning supply is unit elastic.

🎯 Exam Tip: Remember that for elasticity calculations, we often use the absolute changes for \( \Delta P \) and \( \Delta Q \) to get a positive elasticity value, representing the magnitude of responsiveness.

 

Question 10. Explain the meaning of price elasticity of supply.
Answer: Price elasticity of supply helps us understand how much the amount of a product offered for sale changes when its price changes. While the law of supply just tells us that supply changes with price (either contracting or extending), elasticity tells us *by how much* it changes. For example, if the price increases by 10 percent, elasticity tells us the exact percentage by which the supply will increase.
In simple words: Price elasticity of supply measures how sensitive the amount of goods available is to changes in its price. It shows us the exact percentage change in supply for a given percentage change in price.

🎯 Exam Tip: Emphasize that price elasticity of supply quantifies the relationship shown qualitatively by the law of supply. It's about 'how much', not just 'if'.

 

Question 12. What is the position of supply curve, when the excise tax is paid?
Answer: When an excise tax is applied to a product, it increases the cost for the manufacturer. This means producers are willing to supply less of the product at the same price, or they will charge a higher price for the same quantity. This causes the entire supply curve to shift backward or to the left, from S1 to S2, as shown in the diagram. So, after the tax, at price P, only quantity PK is supplied instead of PT, indicating a decrease in supply.

before excise duty Supply curve
after excise duty
In simple words: An excise tax makes production more expensive. So, producers supply less at the same price, or charge more for the same amount. This moves the whole supply curve to the left on a graph.

🎯 Exam Tip: Excise taxes increase production costs, causing a leftward shift of the supply curve (decrease in supply), which leads to higher equilibrium prices and lower equilibrium quantities.

 

RBSE Class 12 Economics Chapter 5 Essay Type Questions

 

Question 1. Make hypothetical supply schedule of perfectly inelastic and elastic supply and present them through diagram.
Answer: Here are hypothetical supply schedules and diagrams for perfectly inelastic and perfectly elastic supply:
**1. Perfectly Inelastic Supply**
For perfectly inelastic supply, the quantity supplied does not change at all, even when the price changes. The table below shows that whether the price is Rs 5,000 or Rs 50,000, the quantity supplied remains at 100 units. The diagram illustrates this with a vertical supply curve, indicating a fixed quantity regardless of price.

In simple words: With perfectly inelastic supply, sellers always offer the same amount, no matter how much the price changes. The table shows 100 units are always supplied. The diagram is a straight up-and-down line.
**2. Perfectly Elastic Supply**
This occurs when sellers are willing to provide an unlimited amount of a product at a specific price, but will supply nothing at a slightly lower price. This means supply can increase or decrease greatly without any change in price, or with a very tiny change. The supply curve for this case is a horizontal line, as seen in the diagram and schedule where at a price of Rs 7, the quantity supplied can be 10 or 15 units.

In simple words: (ii) Perfectly elastic supply means sellers will supply any amount at one specific price, but nothing if the price drops even a little. The table shows at Rs 7, supply can be 10 or 15 units. The diagram is a flat horizontal line.

🎯 Exam Tip: For essay questions involving diagrams and schedules, always ensure your schedule clearly reflects the elasticity type, and your diagram visually matches that characteristic (vertical for perfectly inelastic, horizontal for perfectly elastic).

 

Question 2. With the help of a diagram, explain the difference between movement on the supply curve and a shift of the demand curve.
Answer: A movement along the supply curve happens when only the price of the product changes, causing the quantity supplied to go up or down. For example, if ice cream prices go up, producers move along their existing supply curve to offer more ice cream. This is called a 'Change in the Quantity Supplied'.
A shift of the demand curve happens when factors other than the product's price change how much people want to buy. For instance, hot weather makes people want more ice cream at every price, so the entire demand curve shifts to the right. This is called a 'Change in Demand'.
The diagram below illustrates a situation where a non-price factor, like an increase in sugar price (an input for ice cream), makes ice cream more expensive to produce. Sellers then offer less ice cream at every price. This causes the supply curve to shift to the left, from S1 to S2. As a result, the equilibrium price of ice cream goes up (from Rs 2.00 to Rs 2.50), and the equilibrium quantity sold goes down (from 7 cones to 4 cones).

In simple words: Movement on a supply curve is when the amount supplied changes because the product's price changes. A demand curve shifts when other things, like weather or trends, change how much people want to buy, not the price itself. If making ice cream costs more, like when sugar prices rise, producers supply less. This shifts the supply curve left, making ice cream more expensive and fewer cones sold.

🎯 Exam Tip: When explaining market dynamics, always draw and label your diagrams clearly, indicating initial and final curves (e.g., S1, S2, D1, D2) and equilibrium points (E1, E2) with corresponding prices and quantities.

 

Question 3. Discuss the factors that determine the supply of a commodity.
Answer: Many things affect how much of a product sellers will offer. (i) **Nature of Production Inputs:** How easily a product can be supplied depends on the materials and resources used to make it. If common inputs are used, supply can change easily (more elastic). If special inputs are needed, supply is harder to change (less elastic). (ii) **Nature and Size of the Industry:** The way an industry is set up also matters. In a monopoly (where one company controls everything), the supply might be fixed. In a competitive market, supply can change more flexibly. (iv) **Cost of Production:** If it costs more to produce each additional unit of a product, producers might not want to make more, even if the price is rising. However, if costs are falling, or are lower than the market price, producers will be encouraged to increase supply to earn more profit. (v) **Time Factor:** It's easier to adjust how much of a product is supplied over a long time. In the short term, supply is often fixed or hard to change quickly, making it less elastic. Over a longer period, producers can change their production levels more easily, making supply more elastic. (vi) **Technological Progress:** Better technology helps reduce production costs and makes things more efficient. This leads to an increase in supply because producers can make more products at a lower cost. For example, new farming methods increased rice production. (vii) **Price of Product Substitutes:** If a company can make different products using similar technology (like a refrigerator company also making ACs), a drop in the price of one product might cause them to produce more of another, more profitable product. This is because they use their resources where they can make the most profit. (viii) **Government Policy:** Government rules like taxes, import limits, or restrictions on raw materials can affect supply. If these policies make production harder or more expensive, the supply curve will shift to the left, meaning less is supplied.
In simple words: Supply is affected by what materials are used (common ones make supply flexible, special ones make it fixed), if the market has many sellers (flexible supply) or just one (fixed supply), how much it costs to make the product, how much time producers have to adjust, new technologies, the prices of other similar products, and government rules.

🎯 Exam Tip: For comprehensive answers on supply determinants, ensure you cover both price-related factors (like costs of production) and non-price factors (like technology and government policy).

 

Question 4. Explain three degrees of elasticity of supply with the help of diagrams.
Answer: We can look at elasticity of supply in three ways, depending on how much supply changes relative to price:
**(i) Unit Elastic Supply (\( E_s = 1 \))**
This happens when the percentage change in the amount supplied is exactly equal to the percentage change in price. On a graph, the supply curve for unit elastic supply is a straight line that goes through the origin. The schedule below shows that when the price increases from Rs 40 to Rs 60 (a 50% increase), the quantity supplied also increases from 400 to 600 units (also a 50% increase). This confirms that supply is unit elastic.

In simple words: Unit elastic supply means supply changes by the same percentage as price, and its graph line starts from the middle. The table shows when price goes up by 50%, supply also goes up by 50%, which means it's unit elastic.
**(ii) Greater than Unit Elastic Supply (\( E_s > 1 \))**
This occurs when the percentage change in the amount supplied is much bigger than the percentage change in price. This means supply is very responsive. As shown in the schedule, a 20% increase in price (from Rs 20 to Rs 24) leads to a 50% increase in quantity supplied (from 100 to 150 units). The diagram shows the supply curve starting above the origin on the Y-axis.

In simple words: The table shows a 20% price rise caused a 50% supply rise, meaning supply is highly elastic. The graph starts above the zero point on the price axis.
**(iii) Less than Unit Elastic Supply (\( E_s < 1 \))**
This occurs when the percentage change in the amount supplied is smaller than the percentage change in price. This means supply is not very responsive. The schedule clearly shows that a 50% increase in price (from Rs 50 to Rs 75) leads to only a 20% increase in quantity supplied (from 100 to 120 units). The diagram shows the supply curve starting from the X-axis, to the right of the origin.

_s < 1
In simple words: The table shows a 50% price rise only caused a 20% supply rise, meaning supply is less elastic. The graph starts on the quantity axis, to the right of the zero point.

🎯 Exam Tip: When drawing graphs for different elasticity types, ensure the starting point of the supply curve (origin, Y-axis, or X-axis) correctly depicts the elasticity value (\( E_s = 1, E_s > 1, E_s < 1 \)).