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(a) A farmer in Punjab transports wheat from the farm to a flour mill. Is this activity considered as production? Why?

(b) The demand curve can slope upwards from left to right. Give one argument in support of this statement. 

(c) Improved technology affects the productivity of land. Explain this statement with the help of suitable examples. 

(d) Explain how income effect is responsible for the negative slope of a demand curve.

(e) State two important contingent functions of money.

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(a) If a farmer transports wheat from the farm to a flour mill then it will be considered as production because if anything is transported from a place, where its price is low, to another place where its price is high, then this change of place shall be called a production.

(b) Under exceptional conditions, the demand curve can slope upwards from left to right, as in case of Giffien goods. Sir Robert Giffin observed that sometimes people buy less quantity of a commodity at lower price and more quantity at a higher price and they exhibit an exception to the law of demand. 

(c) New inventions, modem and scientific method of production like using high yielding varieties of seeds, manure etc. have increased the productivity of land. Use of modem machines in mining have also increased the production of various minerals in India. 

(d) A fall in the price of goods indirectly leads to an increase in the consumer’s real income. Thus, the consumer can buy more quantity of the same commodity, that is why income effect is responsible for the negative slope of demand curve. 

(e) Two contingent functions of money: 

1. Basis of credit: The progress of business activity is fully linked with the credit system of the country. The entire strength of the credit system is based upon money. It is the changes in the quantity of money that brings about the changes in supply of credit in the country. Money supply affects the credit system of the country. 

2. Liquidity: Money is the most liquid asset which can be converted into other assets quickly. Money is also helpful to avail the opportunity of investment into business by which an investor can get good amount of profit.

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