Deficit Demand Occurs when :(A) Equilibrium level of output is less t…

Deficit Demand Occurs when :

(A) Equilibrium level of output is less than full employment level

(B) When AD < AS (Aggregate Demand less than Aggregate Supply)

(D) Demand is not enough to employ all factors of production

(E) Prices will decline in the long run

Choose the correct answer from the options given below :

Answer & explanation

Correct answer: option 1

The correct answer is Option (1) → (A), (B), (D), (E) only

Full employment is the level of output at which all factors of production are employed. Deficient demand (also called deficit demand) is the situation where the equilibrium output stays below this level, because demand is too small.

(A) Equilibrium level of output is less than full employment level — Correct. When equilibrium output stays below full employment, some factors are idle. This is the meaning of deficient demand.

(B) When AD < AS (Aggregate Demand less than Aggregate Supply) — Correct. At the full employment level, aggregate demand falls short of aggregate supply. Firms cannot sell all that full employment would produce.

(C) When output decreases — Incorrect. Output can fall for many reasons, such as a poor harvest. Deficient demand is a position below full employment, not just any fall in output.

(D) Demand is not enough to employ all factors of production — Correct. Because demand is short, some factors stay unemployed.

(E) Prices will decline in the long run — Correct. With demand short of supply, firms cannot sell all they make, so prices decline in the long run.

NCERT (2026-27): “4.4 Some More Concepts … Full employment level of income is that level of income where all the factors of production are fully employed in the production process. Recall that equilibrium attained at the point of equality of Y and AD by itself does not signify full employment of resources. Equilibrium only means that if left to itself the level of income in the economy will not change even when there is unemployment in the economy. The equilibrium level of output may be more or less than the full employment level of output. If it is less than the full employment of output, it is due to the fact that demand is not enough to employ all factors of production. This situation is called the situation of deficient demand. It leads to decline in prices in the long run.…”