Question

QUESTION TWO (2) A household's decision about the quantity of a particular output to demand depends on? Using the graphs demonstrate the following. What causes the demand curve to shift out wards or inwards. a) What causes demand to move along the demand curve. b) Why does the demand curve slopes down wards? (5 Marks) (5 Marks) TOTAL= 20 Marks

Answer 1

Question 2;
A household's decision about the quantity of a particular good depends upon the following factors:

I. The price of a particular product.

ii. Income level of the consumer. The higher the income level, the higher will be the demand for this particular product.

iii. Consumer's taste and preferences.

iv. Availability of all the substitutes. The more substitutes are available for this product, the more variety of products consumers will get to choose whenever the price of this particular product increases.

v. Consumer's expectation about the future price of this particular product. If consumers expect the future price of this product will be higher, the current demand for this product will fall and vice versa.

Demand curve shifts whenever there is any change in an exogenous variable such as a change in income level, change in consumer's expectation about the future price of the product, change in the price of substitutes etc.

a. Demand will move along the demand curve whenever there is any change in the endogenous variables such as a change in price level and change in quantity demanded of the good.

b. The demand curve slopes downward because there is an inverse relationship between the price of the product and quantity demanded i.e the law of demand. Whenever the price of the product rises, demand for that product will fall and vice versa. Because of this fact, demand curve slopes downward.