Question

3 factors supporting the law if demand.

i. Please Thoroughly and completely den demand. ii. Please state the law of demand. III. List and thoroughly explain the 3 factors that support the law of demand. Be sure you explain how each actually supports the law of demand. 1. Don't just copy from the slides, explain what they actually mean and how they support the law of demand. iv. List and explain the determinants of demand and how each can cause an increase in demand and a decrease in demand. 1. List and explain each of the 5 determinants and how they impact demand. V. Thoroughly and completely explain the differences between a change in demand and change in quantity demanded along with the causes of those changes, and how each chang is graphically represented. Supply 1. Define supply. ii. State the law of supply.

Answer 1

I. Demand for a commodity refers to the desire to buy a commodity backed with sufficient purchasing power and the willingness to spend. When demand of a commodity changes due to change in its own price than it is known as change in quantity demanded and it leads to movement in the demand curve. While when demand of a commodity changes due to change in factors other than price than it is known as change in demand and it leads to shift of demand curve either rightward or leftward.

II. Other things remaining the same, with a rise in price of the commodity, its demand contracts and with fall in the price, its demand extends. This inverse relationship between price of commodity and its demand is called Law of Demand.

III. a) Income of the consumer: Increase in the income of consumer increases the demand of normal good and vice-versa.

b) Taste and Preference of the consumer: If consumer have favorable taste and preference for the good then demand of that good increases and vice-versa.

c) Expectation: If people expect that price of commodity will reduce in near future then people demand less goods today and as a result, demand decreases. On the other hand if people expect that price of good will rise in near future then they demand more goods today while leads to increase in demand.

IV. Determinants of demand for a good:

1. The Price of Commodity: Other things remaining the same, with a rise in the price of the commodity, its demand contracts and with fall in the price, its demand extends. This inverse relationship between the price of a commodity and its demand is called Law of Demand. It causes movement of demand curve either upward or downward.

2. Price of related goods: Demand for a commodity is also affected by the change in the price of related goods like substitute goods or complementary goods. Substitute goods are those goods which are used in place of one another. Increase in the price of one good increases the demand of other good and vice-versa. On the other hand, complementary goods are those goods which jointly satisfy a particular want of consumer. An increase in the price of one good decreases the demand of other good. It causes shift of demand curve either rightward or leftwards.

3. Income of the consumer: Increase in the income of consumer increases the demand of normal good while reduces the demand of inferior goods. It causes shift of demand curve either rightward or leftwards. Increase in the income shifts the demand curve rightwards and vice-versa.

4. Taste and Preference of the consumer: If consumers have favorable taste and preference for the good then demand of that good increases and vice-versa. If consumers have favourable taste and preference for the good then demand curve shifts rightwards and unfavorable taste for the commodity shifts it leftwards.

5. Expectation: If people expect that price of a commodity will reduce in near future then people demand less number of goods today and as a result, demand decreases and causes the demand curve to shift leftwards. When people expect that price of a commodity will increase increase in near future than present consumption increases and leads to rightward shift of demand curve.

V) When demand of a commodity changes due to change in its own price than it is known as change in quantity demanded and it leads to movement in the demand curve. While when demand of a commodity changes due to change in factors other than price than it is known as change in demand and it leads to shift of demand curve either rightward or leftward.

Change in Demand means either Increase in Demand or Decrease in Demand.

Increase in income of consumer, Favorable taste and preference of consumer, Decrease in the price of complementary good, Increase in the price of Substitute good leads to Increase in Demand. All these factors shifts demand curve rightwards as shown below:

Price 99 Quantity

Decrease in income of consumer, Unfavorable taste and preference of consumer, Increase in the price of complementary good, Decrease in the price of Substitute good leads to Decrease in Demand. All these factors shifts demand curve leftwards as shown below:

Price Q Q Quantity

Change in quantity demanded means either Expansion of demand or Contraction of demand.

When demand of a good increases due to decrease in the price of good itself then it is called expansion of demand. It causes downward movement of demand curve.

Price Expansion of Demand Demand - > Quantity

Price Contraction of Demand Demand Quantity

When demand of a good decreases due to increase in the price of good itself then it is called contraction of demand. It causes upward movement of demand curve.