Question

ili. iv. v. Engineers develop Ip new automated machinery for the production of minivans. The price of sports utility vehicles rises. Astock-market crash lowers people's wealth. Topic 4 A. What is the main difference between the law of demand and the price elasticity of demand? B. You would think that if people's income increased over time, then all industries in the economy should benefit equally, but this is not the case. Explain why and give examples. Topics

Answer 1

Topic 4

A) Law of demand states the relationship of price of commodity and it's demand by considering all other factors Constant. Where as price elasticity of demand helps us to measure the Change in the quantity demanded when there is an increase or decrease in the price of the product with related to other factors.

Law of demand helps to understand the relationship where as elasticity of demand helps to measure the changes of price of demand.

B) If the income of person increase over a period of time than we may think that all the industries in the economy should benefit. But it is wrong because a person income will make him to do only two things one is consumption and other is saving.

In consumption he will consume good which he prefers. Hence the industry which he prefers will have a benefit rather than all industries.

Ex: If he consume only tea than he will spend his income on consumption of tea. So only tea industry benefit not coffee industry. Even in Tea there are so many brands so not the total tea Industry will benefit but only the company which he buys will get benefitted.

Even his savings can be in bank of equity or debt instruments. So even there we cannot say that it is one particular investment. Hence basing on the person preference the industry benefit which means only particular Industry but not all.