Question

Please type out answers, as it is hard for me to read handwriting, Thanks!!

1. Draw a demand curve
2. Identify and state the variables on each axis of a demand curve
3. How is “a shift of the demand curve” different from “a movement along the demand curve”.
4. How is “a change in the demand” different from “a change in the quantity demanded”
5. What is (are) the factor(s) that can cause “a change in the demand” ?
6. What is (are) the factor(s) that can cause “a change in the quantity demanded” ?

Answer 1

1. The law of demand states that there is an inverse relationship between price and quantity demanded, other things remaining the same. When price increases, quantity demanded falls. When price falls, quantity demanded increases. The slope of the demand curve is negative.

3. A movement along the demand curve occurs when a change in quantity demanded is caused only by a change in price, and vice versa. A shift in a demand curve occurs when a good's quantity demanded changes even though price remains the same.
4. Change in quantity demanded is the movement along the demand curve, whereas, change in demand is the shift in the demand curve due to change in determinants of demand.

       5. Factors causing shift in the demand curve:

1. Size of the market: Demand will change or shift if the number of consumers for the product increases. The demand curve will shift to the right.
2. Income of the consumers: Changes in income shifts the demand curve. Increases in income increases the demand for normal goods and decreases in income increase the demand for inferior goods. The demand curve will shift to the right.
3. Increase in the price of related goods. If the price of substitute goods falls, then there is a shift in the demand. If price of large cars increase, then the demand for small cars will increase. Demand curve will shift to the right for small cars. In case of complements, as an example, if the price of gasoline increases demand for cars will fall. The demand curve for cars will shift to the left
4. Tastes and preferences of consumers. Demand will depend upon the tastes and preferences of consumers. If there is a preference for health foods, then the demand curve for health foods will shift to the right.
5. Expectations: If the consumers expect the prices to fall in the future, then demand curve will shift to the left.

6. Change in quantity demanded is due to change in price of the good. If price increases, quantity demanded decreases. If price decreases, quantity demanded increases. There is an inverse relationship between quantity demanded and price of the good.