Question

1. Write short notes on the following. Draw graphs or give formulae where necessary.
   1. Price floor and Price ceiling.
   2. Normal Goods and inferior goods
   3. Perfect complements
   4. Income Effect and substitution effect of a price change

Answer 1

1. a.Price floor and Price ceiling:-
2. Price ceiling:-

3. A price is ceiling "an artificially imposed upper limit on the price of a good or service". No one in the economy is allowed to sell the good or service at a higher price. If the  price ceiling  is higher than the equilibrium determined by the supply and demand of the market good, the ceiling has no effect. If the cap is less than the equilibrium price, demand at that price exceeds supply, causing a shortage.
   Price floor:-

4. An initial price is the lowest legal price at which a product can be sold. The government uses minimum prices to avoid prices being too low. The most common minimum price is the minimum wage, the minimum price that can be paid for work. Minimum prices are also often used in agriculture to try to protect farmers

5. b. Inferior good:-

6. Inferior goods: - Are those goods whose demand decreases as the consumer's income increases. This category of goods and services has negative elasticity, i.e. when income increases, demand decreases.
   
   

7. Normal good:-

8. Normal goods These are goods whose demand increases as the consumer's income increases. This category of goods and services has a positive income elasticity, i.e. when income increases, demand increases.

9. c. perfect compliment:-

10. Perfect complements are goods that have value only when they are consumed together in a certain proportion, the proportion being. Any quantity of one of the commodities that exceeds the required proportion has no value.

11. Income Effect and substitution effect of a price change:-

12. The substitution effect is the change in demand for a good due to the fact that it becomes relatively expensive or cheaper than its substitute. Now, when the price changes, exactly the same thing happens. ... The income effect is the change in demand for a good due to the change in the consumer's disposable income

13. ​