IGCSE Economics Paper-2: Specimen Questions with Answers 55 - 56 of 100

Passage

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

Question 55 (4 of 5 Based on Passage)

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Short Answer▾

Differentiate between internal and external economies of scale.

Explanation

Internal Economies and External Economies
S. No.Internal EconomiesExternal Economies
1.Internal economies refer to the expansion of the firm itself.External economies refer to the expansion of the industry.
2.Internal economies help in lowering the cost of production.External economies benefit most or all the companies.
3.The range of economies is such as economic, technical, financial, etc.External economies help in explaining the reason behind the growth of the economy.
4.Efficiencies from the larger scale of production in a firm.Agglomeration economies are equally important.

Question 56 (5 of 5 Based on Passage)

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Short Answer▾

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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