Question

12.8. Demand curve. Find data on prices and quantities, as well as variables that shift the demand curve, from a particular market where you believe price is set exogenously. Estimate the demand curve and the value of demand elasticity. Discuss the assumptions you need to make in your estimation.

Answer 1

According to Law of demand, there is inverse relationship between price and quantity demanded, Other things remains the same. Other things being equal. If a price of commodity falls the quantity demanded of it will rise. And if the prices of commodity rises its quantity demanded will decline. Assumptions in which law of demand is valid. The Law will be applicable if below points will be fulfill these points are as below:-

1. No Change in price of related commodities.

2. No Change in income of a consumer.

3. No Change in taste and preferences.

4. No Change in size of population.

5. No expectation regarding future change in price.

Demand curve is the graph depicting the relationship between the price of centain commodity and the amount of it that cosumers are willing and able to purchase it at any given price.

Elastic demand curves indicate that the quantity demanded or supplies responds to price changes in a greater thatn proportional manner.