Question

2. Ganga Itd. is a popular company manufacturing water coolers. Its
product is very much liked by people in the market. The traders are in a
race to become the company's distributors. The company had been earning
huge profits for many years. However, in the year 2020 there is a great
decline in company's profit. The
Top management is worried and team of specialists is appointed to solve
this problem. The specialists presented the following reasons for the
decline in the profits for the company.
A) Increase in competition and change in taste of the consumers.
B) Theft of cash and goods by the employees.
Identify and explain the two causes of decline in profits,
​

Answer 1

Answer:

I) Increase in demand (Shift to the Right)

Suppose, the income of the consumer increases. The price of the product and supply of the product remain the same. Due to an increase in income of the consumer, the purchasing power of consumption increases.

So the demand for the product in the market will also increase. Resultantly demand will change even if the price and supply of the product remain the same. This is called an increase in demand.

Since supplies are short, the price of the product will increase. Now due to the higher price, manufacturers of the product also increase their supply to cover extra demand in the market. Ultimately new equilibrium between demand and supply will be established.

Now we can conclude, due to an increase in demand, there is an increase in the equilibrium price. Resultantly quantity supplied also rises because quantity sold and purchases have increased. The Demand curve will shift rightward. Keep in mind the following points:

No change in the price of the product

No change in the supply of product

Income of Consumer is increasing

Demand is increasing

Explanation: