# Samacheer Kalvi 11th Economics Guide Chapter 3 Production Analysis

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## Tamilnadu Samacheer Kalvi 11th Economics Solutions Chapter 3 Production Analysis

### Samacheer Kalvi 11th Economics Production Analysis Text Book Back Questions and Answers

PART – A

Multiple Choice Questions:

Question 1.
The primary factors of production are ………………………..
(a) Labour and Organisation
(b) Labour and Capital
(c) Land and Capital
(d) Land and Labour
(d) Land and Labour

Question 2.
The man – made physical goods used to produce other goods and services are referred to as …………………………
(a) Land
(b) Labour
(c) Capital
(d) Organization
(c) Capital

Question 3.
Formula for calculating AP is ………………………
(a) ∆TP/N
(b) ∆TP/∆N
(c) TP/MP
(d) TP/N
(d) TP/N

Question 4.
Which factor is called the changing agent of the society?
(a) Labourer
(b) Land
(c) Organizer
(d) Capital
(c) Organizer

Question 5.
Who said, that one of the key of an entrepreneur is “uncertainty – bearing”?
(a) JB Clark
(b) Schumpeter
(c) Knight
(c) Knight

Question 6.
The functional relationship between “inputs” and “outputs” is called as ………………………..
(a) Consumption Function
(b) Production Function
(c) Savings Function
(d) Investment Funciton
(b) Production Function

Question 7.
In a firm 5 units of factors produce 24 units of the product. When the number of factor increases by one, the production increases to 30 units. Calculate the Average Product.
(a) 30
(b) 6
(c) 5
(d) 24
(c) 5

Question 8.
The short – run production is studied through ………………………
(a) The Laws of Returns to Scale
(b) The Law of Variable Proportions
(c) Iso – quants
(d) Law of Demand
(b) The Law of Variable Proportions

Question 9.
The long – run production function is explained by ………………………
(a) Law of Demand
(b) Law of Supply
(c) Returns to Scale
(d) Law of Variable Proportions
(c) Returns to Scale

Question 10.
An Iso – quant curve is also known as …………………………
(a) Inelastic Supply curve
(b) Inelastic Demand Curve
(c) Equi – marginal Utility
(d) Equal Product Curve
(d) Equal Product Curve

Question 11.
Mention the economies reaped from inside the firm.
(a) Financial
(b) Technical
(c) Managerial
(d) All of the above
(d) All of the above

Question 12.
Cobb – Douglas production function assumes ………………………….
(a) Increasing returns to scale
(b) Diminishing returns to scale
(c) Constant returns to scale
(d) All of the above
(c) Constant returns to scale

Question 13.
Name the returns to scale when the output.increases by more than 5%, for a 5% increase in the inputs.
(a) Increasing returns to scale
(b) Decreasing returns to scale
(c) Constant returns to scale
(d) All of the above
(a) Increasing returns to scale

Question 14.
Which of the following is not a characteristic of land?
(a) Its limited supply
(b) It is mobile
(c) Heterogeneous
(b) It is mobile

Question 15.
Product obtained from additional factors of production is termed as ……………………….
(a) Marginal product
(b) Total product
(c) Average product
(d) Annual product
(a) Marginal product

Question 16.
Modem economists have propounded the law of ………………………
(a) Increasing returns
(b) decreasing returns
(c) Constant returns
(d) variable proportions
(a) Increasing returns

Question 17.
Producer’s equilibrium is achieved at the point where ……………………….
(a) Marginal rate of technical substitution (MRTS) is greater the price ratio
(b) MRTS is lesser than the price ratio
(c) MRTS and price ratio are equal to each other
(d) The slopes of isoquant and isocost lines are different.
(c) MRTS and price ratio are equal to each other

Question 18.
The relationship between the price of a commodity and the supply of commodity is ……………………….
(a) Negative
(b) Positive
(c) Zero
(d) Increase
(b) Positive

Question 19.
If average product is decreasing, then marginal product ……………………….
(a) Must be greater the average product
(b) Must be less than average product
(c) Must be increasing
(d) Both a and c
(b) Must be less than average product

Question 20.
A production function measures the relation between ……………………….
(a) Input prices and output prices
(b) Input prices and the quantity of output
(c) The quantity of inputs and the quantity of output
(d) The quantity of inputs and input prices.
(c) The quantity of inputs and the quantity of output

PART – B

Answer the following questions in one or two sentences.

Question 21.
Classify the factors of production?

1. Land: In Economics, land means all gifts of Nature owned and controlled by human beings which yield an income.
2. Labour: Labour means manual labour or unskilled work.
3. Capital: “Capital consists of all kinds of wealth other than free gifts of nature, which yield income”. Bohm – Bawerk defines it as ‘a produced means of production’.
4. Organisation: The man behind organizing the business is called as ‘Organizer’ or ‘Entrepreneur’.

Question 22.
Detine labour?

1. Labour is the active factor of production.
2. In common parlance, labour means manual labour or unskilled work. But in Economics the term ‘labour’ has a wider meaning.
3. It refers to any work undertaken for securing an income or reward. Such work may be manual or intellectual. For example, the work done by an agricultural worker or a cook or rickshaw puller or a mason is manual.
4. The work of a doctor or teacher or an engineer is intellectual.
5. In short, labour in economics refers to any type of work performed by a labourer for earning an income.

Question 23.
State the production function?

1. Production function refers to the relationship among units of the factors of production [inputs] and the resultant quantity of a good produced [out put].
2. According to George J. Stigler, “ Production function is the relationship between inputs of productive services per unit of time and outputs of product per unit of time.

Question 24.
Define Marginal Product of a factor?
It is the addition or the increment made to the total product when one more unit of the variable input is employed . In other words, it is the ratio of the change in the total product to the change in the units of the input. It is expressed as
MP = ∆TP/∆N
Where, MP = Marginal Product
∆TP = Change in total product
∆N = Change in units of input
It is also expressed as MP = TP [n] – TP [n-1]
MP = Marginal product
TP [n] = Total product of employing nth unit of a factor.
TP [n – 1] = Total product of employing the previous unit of a factor, that is, [n – 1]th unit of a factor.

Question 25.
What is Iso – cost line?

1. The iso – cost line is an important component in analysing producer’s behaviour.
2. The iso – cost line illustrates all the possible combinations of two factors that can be used at given costs and for a given producer’s budget.
3. Simply stated, an iso – cost line represents different combinations of inputs which shows the same amount of cost.
4. The iso – cost line gives information on factor prices and financial resources of the firm.
5. It is otherwise called as “iso – price line” or “iso – income line” or “iso – expenditure line” or “total outlay curve”.

Question 26.
What are the conditions for producer’s equilibrium?
The two conditions that are to be fulfilled for the attainment of producer equilibrium are:

1. The iso – cost line must be tangent to iso – quant curve.
2. At point of tangency, the iso – quant curve must be convex to the origin or MRTSLk must be declining.

Question 27.
What are the reasons for upward sloping supply curve?

1. A supply curve represents the data given in the supply schedule. As the price of the commodity increases, the quantum supplied of the commodity also increases. Thus the supply curve has a positive slope from left to right.
2. The quantum supplied of commodity x is represented on X axis. And the price of the commodity is represented on the Y axis. The points such as a, b, c, d and e on the supply curve SS’, represent various quantities at different prices.

PART – C

Answer the following questions in one paragraph.

Question 28.
What are the characteristics of land?

1. Land is a primary factor of production
2. Land is a passive factor of production
3. Land is the free gift of nature
4. Land has no cost of production
5. Land is fixed in supply. It is inelastic in supply
6. Land is permanent
7. Land is immovable
8. Land is heterogeneous as it differs in fertility
9. Land has alternative uses
10. Land is subject to Law of Diminishing Returns.

Question 29.
What are the factors governing elasticity of supply?
1. Nature of the commodity:
Durable goods can be stored for a long time. So, the producers can wait until they get a high price. Once they get higher price, larger supply is possible. The elasticity of supply of durable goods is high. But perishables are to be sold immediately. So perishables have low elasticity of supply.

2. Cost of production:
When production is subject to either constant or increasing returns, additional production and therefore increased supply is possible. So elasticity of supply is greater. Under . diminishing returns, increase in output leads to high cost. So elasticity of supply is less.

3. Technical condition:
In large scale production with huge capital investment, supply cannot be adjusted easily. So elasticity of supply is lesser. Where capital equipment is less and technology simple, the supply is more elastic.

4. Time factor:
During very short period when supply cannot be adjusted, elasticity of demand is very low. In short period, variable factors can be added and so supply can be adjusted to some extent. So elasticity of supply is more. In long period, even the fixed factors can be added and hence supply is highly elastic.

Question 30.
What are the functions of Entrepreneur ?
Functions of an Entrepreneur:

• Initiation:
An organizer is the initiator of the business, by considering the situation and availability of resources and planning the entire process of business of production.
• Innovation:
A successful entrepreneur is always an innovator. He introduces new methods in the production process.
• Co – ordination:
An organizer applies a particular combination of the factor of production to start and run the business or production.
• Control, Direction and Supervision : An organiser controls so that nothing prevents the organisation from achieving its goal. He directs the factors to get better results and supervises for the efficient functioning of all the factors involved in the process of production.
• Risk-taking and uncertainty-bearing: There are risk-taking and uncertainty-bearing obstacles. Risks may be insured but uncertainties cannot be insured. They reduce the profit.

Question 31.
State and explain the elasticity of supply?

1. Elasticity of supply may be defined as the degree of responsiveness of change in supply to change in price on the part of sellers.
2. It is Mathematically expressed as,

Elasticity of supply = Proportionate change in supply / Proportionate change in price
es = $$\frac { \Delta Q_{ S } }{ Q_{ S } }$$ / $$\frac { \Delta P }{ P }$$
es = $$\frac { \Delta Q_{ S } }{ \Delta P }$$ × $$\frac{P}{Qs}$$
Where Qs represents the supply, P represents price, ∆denotes a change.

Question 32.
Bring out the Relationship among Total, Average and Marginal Products?

Question 33.
Illustrate the concept of producer’s Equilibrium?
Producer equilibrium implies the situation where producer maximizes his output. It is also known as optimum combination of the factors of production. In short, the producer manufactures a given amount of output with ‘least cost combination of factors’, with his given budget.

Optimum Combination of Factors implies either there is output maximisation for given inputs or there is cost minimisation for the given output.

Conditions for Producer Equilibrium
The two conditions that are to be fulfilled for the attainment of producer equilibrium are:

1. The iso – cost line must be tangent to iso-quant curve.
2. At point of tangency, the iso-quant curve must be convex to the origin or MRTSLk must be declining.

Question 34.
State the Cobb – Douglas Production Function?
The Cobb – Douglas Production Function was developed by Charles W. Cobb and Paul H. Douglas, based on their empirical study of American manufacturing industry. It is a linear homogeneous production function which implies that the factors of production can be substituted for one another up to a certain extent only.

The Cobb – Douglas production function can be expressed as follows.
Q = AL2K2
Where, Q = output; A = positive constant;
K = capital;
L = Labor α and β are positive fractions showing, the elasticity coefficients of outputs for the inputs labor and capital, respectively.
P = (1 – a) since a + p = 1. denoting constant returns to scale.
Factor intensity can be measured by the ratio β / α.

The sum of α + β shows the returns to scale.

1. (α + β) = 1, constant returns to scale.
2. (α + β) < 1, diminishing returns to scale.
3. (α + β) >1, increasing returns to scale.
• The production function explains that with the proportionate increase in the factors, the output also increases in the same proportion.
• Cobb – Douglas production function implies constant returns to scale.
Cobb – Douglas Production Function is a specific standard equation applied to describe how much output can be made with capital and labour inputs.

PART – D

Question 35.
Examine the Law of Variable Proportions with the help of a diagram?
The law states that if all other factors are fixed and one input is varied in the short run, the total output will increase at an increasing rate at first instance, be constant at a point and then eventually decrease. Marginal product will become negative at last.

According to G.Stigler, “As equal increments of one input are added, the inputs of other productive services being held constant, beyond a certain point, the resulting increments of product will decrease, i.e., the marginal product will diminish”.

Assumptions:
The Law of Variable Proportions is based on the following assumptions.

1. Only one factor is variable while others are held constant.
2. All units of the variable factor are homogeneous.
3. The product is measured in physical units.
4. There is no change in the state of technology.
5. There is no change in the price of the product.

Total Product (TP):
Total product refers to the total amount of commodity produced by the combination of all inputs in a given period of time. Summation of marginal products, i.e. TP = LMP where, TP = Total Product, MP = Marginal Product

Average Product (TP):
Average Product is the result of the total product divided by the total units of the input employed. In other words, it refers to the output per unit of the input. Mathematically, AP = TP/N Where, AP = Average Product TP = Total Product N = Total units of inputs employed Marginal Product (MP)

Marginal Product is the addition or the increment made to the total product when one more unit of the variable input is employed. In other words, it is the ratio of the change in the total product to the change in the units of the input. It is expressed as MP = ∆TP/∆N

where, MP = Marginal Product
TP(n) = Change in total product
∆N = Change in units of input

It is also expressed as
MP = TP (n) – TP (n – 1)
Where, MP = Marginal Product
TP(n – 1) = Total product of employing nA unit of a factor
TP(n – 1) = Total product of employing the previous unit of a factor, that is, (n – 1)th unit of a factor.
The Law of Variable Proportions is explained with the help of the following schedule and diagram:

In above table, units of variable factor (labour) are employed along with other fixed factors of production. The table illustrates that there are three stages of production. Though total product increases steadily at first instant, constant at the maximum point and then diminishes, it is always positive forever.

While total product increases, marginal product increases up to a point and then decreases. Total product increases up to the point where the marginal product is zero. When total product tends to diminish marginal product becomes negative.

In diagram, the number of workers is measured on X axis while TPL, APL and MPL are denoted on Y axis. The diagram explains the three stages of production as given in the above table.

Stage – I
In the first stage MPL increases up to third labourer and it is higher than the average product, so that total product is increasing at an increasing rate. The tendency of total product to increase at an increasing rate stops at the point A and it begins to increase at a decreasing rate. This point is known as ‘Point of Inflexion’.

Stage – II
In the second stage, MPL decreases up to sixth unit of labour where MPL curve intersects the X – axis. At fourth unit of labor MPL = APL. After this, MPL curve is lower than the APL. TPL increases at a decreasing rate.

Stage – III
Third stage of production shows that the sixth unit of labour is marked by negative MPL, the APL continues to fall but remains positive. After the sixth unit, TPL declines with the employment of more units of variable factor, labour.

Question 36.
List out the properties of iso – quants with the help of diagrams?
Properties of Iso – quant Curve:

1. The iso – quant curve has negative slope:
It slopes downwards from left to right indicating that the factors are substitutable. If more of one factor is used, less of the other factor is needed for producing the same level of output.

In the diagram combination A refers to more of capital K5 and less of labour L2 As the producer moves to B, C, and D, more labour and less capital are used.

2. Convex to the origin.
This explains the concept of diminishing Marginal Rate of Technical Substitution (MRTSLK). For example, the capital substituted by 1 unit of labour goes on decreasing when moved from top to bottom. If so, it is called diminishing MRTS. Constant MRTS (straight line) and increasing MRTS (concave) are also possible. It depends on the nature of iso – quant curve.

This means that factors of production are substitutable to each other. The capital substituted per unit of labour goes on decreasing when the iso – quant is convex to the origin.

3. Non inter – section of Iso – quant curves:
For instance, point A lie on the isoquants IQ1 and IQ2. But the point C shows a higher output and the point B shows a lower level of output IQ1
If C = A, B = A, then C = B. But C > B which is illogical.

4. An upper iso – quant curve represents a higher level of output:
Higher IQS show higher outputs and lower IQS show lower outputs, for upper iso – quant curve implies the use of more factors than the lower isoquant curve.
The arrow in the figure shows an increase in the output with a right and upward shift of an iso – quant curve.

5. Iso – quant curve does not touch either X axis or Y axis:
No iso – quant curve touches the X axis or Y axis because in IQ1 only capital is used, and in IQ2 only labour is used.

Question 37.
Elucidate the Laws of Returns to scale. Illustrate?
Laws of Returns To Scale: In the long – run, there is no fixed factor; all factors are variable.
The laws of returns to scale explain the relationship between output and the scale of inputs in the long – run when all the inputs are increased in the same proportion.

Assumptions:
Laws of Returns to Scale are based on the following assumptions.

1. All the factors of production, [such as land, labour and capital] are variable but organization is fixed.
2. There is no change in technology.
3. There is perfect competition in the market.
4. Outputs or returns are measured in physical quantities.

Three Phases of Returns to Scale:

1. Increasing Returns to Scale: In this case if all inputs are increased by one percent, output increase by more than one percent.
2. Constant Returns to Scale: In this case if all inputs are increased by one percent, output increases exactly by one percent.
3. Diminishing Returns to Scale: In this case if all inputs are increased by one percent, output increases by less than one percent.

The three laws of returns to scale can be explained with the help of the diagram below.

In the figure, the movement from point a to point b represents increasing returns to scale. Because, between these two points output has doubled, but output has tripled. The law of constant returns to scale is implied by the movement from the point b to point c.

Because, between these two points inputs have doubled and output also has doubled. Decreasing returns to scale are denoted by the movement from the point c to point d since doubling the factors from 4 units to 8 units product less than the increase in inputs, that is by 33.33%.

Question 38.
Explain the internal and external economies of scale?
Internal Economies of Scale:

1. Internal Economies of scale refers to the advantages enjoyed by the production unit which causes a reduction in the cost of production of the commodity.
2. For example, a firm enjoying the advantage of an application of most modem machinery, generation of internal capital, an improvement in managerial skill etc. are sure to reduce the cost of production. They are of various types:

1. Technical Economies:

• When the size of the firm is large, large amount of capital can be used.
• There is a possibility to introduce up-to-date technologies; this improves productivity of the firm.
• Research and development strategies can be applied easily.

2. Financial Economies:

• Big firms can float shares in the market for capital expansion, while small firms cannot easily float shares in the market.

3. Managerial Economies:

• Large scale production facilitates specialization and delegation.

4. Labour Economies:

• Large scale production implies greater and minute division of labour.
• This leads to specialization which enhances the quality.
• This increases the productivity of the firm.

5. Marketing Economies:

• In the context of large scale production, the producers can both buy raw-materials in bulk at cheaper cost and can take the products to distant markets.
• They enjoy a huge bargaining power.

6. Economies of survival:

• Product diversification is possible when there is large scale production.
• This reduces the risk in production.
• Even if the market for one product collapses, market for other commodities offsets it.

External Economies of Scale:

1. External Economies of Scale refer to changes in any factor outside the firm causing an improvement in the production process.
2. This can take place in the case of industry also.
3. These are the advantages enjoyed by all the firms in industry due to the structural growth.
4. Important external economies of scale are listed below:
• Increased transport facilities
• Banking facilities
• Development of townships
• Development of information and communication.

### Samacheer Kalvi 11th Economics Production Analysis Additional Important Questions and Answers

PART – A

Multiple Choice Questions:

Question 1.
Production refers to …………………….
(a) Destruction of utility
(b) Creation of utilities
(c) Exchange value
(d) None
(b) Creation of utilities

Question 2.
Land and Labour are called ……………………. factors.
(a) Primary
(b) Secondary
(c) Territory
(d) Service
(a) Primary

Question 3.
Division of labour is introduced by ………………………
(b) Marshall
(c) Schumpeter
(d) Hawley

Question 4.
Reward Paid to capital is ……………………….
(a) Interest
(b) Profit
(c) Wages
(d) Rent
(a) Interest

Question 5.
The Initial supply price of land is ……………………..
(a) Zero
(b) Greater than one
(c) Less than one
(d) Equal to one
(a) Zero

Question 6.
What does a successful entrepreneur will always be make?
(a) Organisation
(b) Investment
(c) Capital
(d) Innovation
(d) Innovation

Question 7.
Who is the primary factor of production?
(a) Organiser
(b) Capital
(c) Machine
(d) Man
(a) Organiser

Question 8.
Gifts of Nature is called ………………………
(a) Land
(b) Labour
(c) Capital
(d) Production
(a) Land

Question 9.
Technological relationship between inputs and output is called ……………………….
(a) Production function
(b) Technical function
(c) Capital function
(d) Organiser function
(a) Production function

Question 10.
Labour cannot be separated from ……………………….
(a) Capital
(b) Labourer
(c) Profit
(d) Organisation
(b) Labourer

PART – B

Answer the following questions in one or two sentences.

Question 1.
What are the characteristics of capital?

1. Capital is a man-made factor
2. Capital is mobile between places and persons
3. Capital is a passive factor of production
4. Capital’s supply is elastic
5. Capital’s demand is a derived demand
6. Capital is durable

Question 2.
Classify the factors determining supply?

1. Price of the commodity
2. Price of other commodities
3. Price of factors
4. Price expectations
5. Technology
6. Natural factors
7. Discovery of new raw materials
8. Taxes and subsidies
9. Objective of the firm

Question 3.
Explain the law of variable proportions assumptions?

1. The Law of Variable Proportions is based on the following assumptions.
2. Only one factor is variable while others are held constant.
3. All units of the variable factor are homogeneous.
4. The product is measured in physical units.
5. There is no change in the state of technology.
6. There is no change in the price of the product.

PART – C

Answer the following questions in one paragraph.

Question 1.
Explain the difference between internal and external economies?

 Internal Economies of Scale External Economies of Scale 1. Expansion of the firm itself. Expansion of the industry. 2. Lower long run average cost. Benefits most all firms. 3. Efficiencies from larger scale production. Agglomeration economies are important. 4. Range of economies (e.g) Technical and Financial. Helps to explain the rapid growth of many cities.

Question 2.
Define Iso – quant and Iso – quants Assumptions?
Definition of Iso – quant:
According to Ferguson, “An Iso – quant is a curve showing all possible combinations of inputs physically capable of producing a given level of output”.

Assumptions:

1. It is assumed that only two factors are used to produce a commodity.
2. Factors of production can be divided into small parts.
3. Technique of production is constant.
4. The substitution between the two factors is technically possible. That is, production function is of “variable proportion” type rather than fixed proportion.
5. Under the given technique, factors of production can be used with maximum efficiency.

Question 3.
What is Supply Function and its assumptions?
The supply of a commodity depends on the factors such as price of commodity, price of labour, price of capital, the state of technology, number of firms, prices of related goods, and future price expectations and so on. Mathematically the supply function is QS = f(Px, Pr, Pf, T, O, E)

Where QS = Quantity supplied of x commodity
Px = Price of x Commodity
Pr = Price of related goods
Pf = Price of factors of production
T = Technology
O = Objective of the producer
E = Expected Price of the commodity.

Assumptions:
Law of Supply is based on the following assumptions.

1. There is no change in the prices of factors of production
2. There is no change in price of capital goods
3. Natural resources and their availability remain the same
4. Prices of substitutes are constant
5. There is no change in technology
6. Climate remains unchanged
7. Political situations remain unchanged
8. There is no change in tax policy

PART – D

Question 1.
What are the characteristics of labour?

1. Labour is the animate factor of production.
2. Labour is an active factor of production.
3. Labour implies several types: It may be manual [farmer] or intellectual [teacher, lawyer etc]
4. Labour is perishable.
5. Labour is inseparable from the labourer.
6. Labour is less mobile between places and occupations.
7. Labour is a means as well as an end. It is both the cause of production and consumer of the product.
8. Labour units are heterogeneous.
9. Labour differs in ability.
10. Labour – supply determines its reward [wage]
11. Labour has weak bargaining power.

Question 2.
What are the types of elasticity of supply?
There are five types of elasticity of supply

1. Relatively Elastic Supply:
The co – efficient of elastic supply is greater than 1 [ES >1]. One percent change in the price of a commodity causes more than one percent change in the quantity supplied of the commodity.

2. Unitary Elastic Supply.
The co – efficient of elastic supply is equal to 1 [ES = 1]. One percent change in the price of a commodity causes an equal [one percent ] change in the quantity supplied of the commodity.

3. Relatively Inelastic Supply:
The co – efficient of elasticity is less than one [ES < 1], One percent change in the price of a commodity causes a less than one percent change in the quantity supplied of the commodity.

4. Perfectly Inelastic Supply:
The co – efficient of elasticity is equal to zero [ES = 0], One percent change in the price of a commodity causes no change in the quantity supplied of the commodity.

5. Perfectly Elastic Supply:
The co – efficient of elasticity of supply is infinity [ES – α]. One percent change in the price of a commodity causes an infinite change in the quantity supplied of the commodity.

ACTIVITY

Question 1.
Visit a market and write a report on the factors that influence the quantity of supply of a commodity of your locality?
Things that cause changes in supply are also called influences of supply.
The influences on supply are:

1. Inputs
2. Productivity
3. Technology
4. Taxes
5. Subsidises
6. Government regulation
7. Number of sellers
8. Political conflict

Supply and Demand Balance:

1. It supply is more price goes down. Demand is more price goes up.
2. Commodity movement get these number [PIS]

P = Production
I = Import
S = Stock

These three represent supply of any commodity = [E × C]
E = Export;
C = Consumption

1. These two represent demand.
2. PIS is more than E × C., then that commodity price goes down.
3. E × C is more than PIS that commodity price goes up.
4. Prediction of any commodity price, you will predict it before that supply demand imbalance.
5. That means today’s wheat or rice prices are reflection of what will happen to its supply demand in next few months rather than its current balance.
6. India’s largest commodity exchange currently working as trader in Agricultural commodities.
7. The supply is interfered with by legal or illegal cartels.
8. The price is also inflated by opportunistic government charges.
9. A price ceiling prevents a price from rising above the ceiling.
10. Wheat has a price ceiling of 2400 per metric tonne, \$400 is the highest amount supplier can charge.

Question 2.
Visit a factory and show how the four factors of production are effectively employed to produce the product in your locality?

1. A Factory is considered capital in the factor of production.
2. Capital is any good that was used to create other goods.
3. A natural resource it can’t be land, since it’s not the actual workers within the factory it can’t be labour, so it has to be capital.

Factors affecting the location of Industries are as follows:

1. Raw Materials
2. Capital
3. Transport
4. Market
5. Water
6. Power
7. Land
8. Labour
9. Communication

Main factors affecting the location of Industries are as follows:

1. Land
2. Labour
3. Capital
4. Entrepreneurship
• Factors of production refers to the inputs of the production process.
• Factors of productions are resources that produce goods and services.

These are four categories of factors of production:

Land:
Natural resources that we use to produce goods and services.

Example:
Oil, gas and goal, water etc.

Labour:
The work time and work effort that people devote to producing goods and services. This includes human capital which is the quality of the labour forming from knowledge and skills of the person obtained from education, on the job training and work experience.

Capital:

1. The tools, instruments, machine, buildings and other items that are used to produce goods and services.
2. This includes machinery, hammers, etc.

Entrepreneurship:
The human resource that organizes labour, land and capital. This includes the idea, plan etc. about how and what to produce.

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