Question

QUESTION 3 Answer the following question using the demand curves below: (6 Points) Price Quantity a What is the assumption for the curve? b. What would cause a movement along the curve? c. What would cause the curve to shift to D1?

Answer 1

a) Ans:  In the above figure , D0 and D1 are two different demand curve. The assumption of this curve is that other things remaining constant , the demand for the good increases with a fall in price and diminishes with a rise in price of the good. Here , other things are the other determinants of demand. A demand curve shows an inverse relationship between price and quantity demanded. Generally .it slopes downward.

b) Ans: A movement along the demand curve is happened due to the change in price of the good and other things remain constant. It means , there is a downward movement along the same demand curve due to fall in price and a upward movement along the same demand curve due to rise in price.

c) Ans: When the other determinants of demand change  except its price then the demand curve either shifts leftward or rightward. In the above case , demand curve shifts from D0 to D1. It shows a rightward shift in deamnd. It means there is an increase in demand . It is causeed by the following reasons;

• Change in income of the consumers.
• Change in taste and preferences of the consumer.
• Change in the price of related goods.
• Change in government policies.