IGCSE Economics Paper-2: Specimen Questions with Answers 53 - 54 of 100

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Passage

The cost of production of a firm decreases as the business expands.

Question 53 (2 of 5 Based on Passage)

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Short Answer▾

Discuss the advantages of sole proprietor

Explanation

Sole Proprietorship Offers Different Advantages to Its Owner

  • Ease of startup: Under sole proprietorship a small amount of paperwork and legal expense is required. So, anybody can start a sole proprietorship with such ease.
  • Few regulations: In case of a sole proprietorship, the firm is the least regulates business by the government or any other authority. The owner is free from any kind of legality.
  • The sole receiver of the profit: A sole proprietor is the only person who gets the share of profit after the payment of all kinds of expenses and taxes. The owner is free from distributing the profit among others.
  • Full control: Sole proprietor runs the business without any external control. A sole proprietor is the risk-taker and decision-maker in the business.
  • Easy to discontinue: Besides paying off legal obligations such as taxes and debt, no other legal obligation is required to be met to stop doing business.

Question 54 (3 of 5 Based on Passage)

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Discuss the factors that affect demand for a product

Explanation

Demand for a commodity refers to the quantity of it which will be bought per unit of time at a particular price.

Consumer demand is viewed at two levels- Individual demand and market demand.

Factors Affecting the Demand of the Consumer Are

  • Price of the product: price is the basic consideration in determining the demand for a commodity. Normally a lager quantity is demanded at lower price than at a higher price. At low price market demand tends to be high
  • Distribution of income and wealth: Income of the buyer determines his/her purchasing power. Income is an important determinant of demand. With increase in income one can buy more goods. Demand and luxuries are related to the income.
  • Standard of living: When people in general adopt a high standard of living and are ready to spend more, demand for many comforts and luxury items will tend to be higher than otherwise.
  • Many comfort preferences: Demand for many goods depend on the taste and preference of the consumer. Demand for several products like ice cream chocolates, in general, and so on depends on the taste of the consumer. The market demand, in general, is influenced by the scale of preferences of buyers.
  • Age structure and sex composition: Age structure of the population determines market demand for a product in a relative sense. If the population pyramid is a broad based with large proportion of juvenile population then, the market demand for toys, school bags etc. will be higher.

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