Theory of Demand

Topics: Consumer theory, Supply and demand, Inferior good Pages: 10 (2553 words) Published: June 19, 2013
Theory of Demand
Q. Distinguish between a normal goods & an inferior goods. Give examples in each case. Ans.
Normal Goods are those in case of which a positive relationship between income & quantity demanded. Other things remains constant, quantity demanded increase in response to increase in income & vice versa. Inferior Goods are those in case of which there is negative relationship between income & quantity demanded. Other things remains constant, quantity demanded decreases in response to increase in income vice versa. Q. Explain the cause of a rightward shift in demand curve of a commodity of an individual consumer. Ans.

1). When income of the consumer increases.
2). When price of substitute goods increases.
3). When price of complementary goods falls.
4). When taste of consumer shifts.
5). When availability of commodity is expected to reduce in the near future. Q. Explain the causes of leftward shift in demand curve of commodity. Ans.
1).when income of consumer falls.
2). When prices of substitute gods falls.
3). When prices of complementary goods increases.
4).When taste of consumer shifts.
5). When availability of commodity is expected to rise in the near future Q.What is meant by inferior good in Economics?
Ans.
Inferior Goods are those in case of which there is negative relationship between income & quantity demanded. Other things remains constant, quantity demanded decreases in response to increase in income vice versa. Q, State the law of demand & show it with the help of schedule. Ans.

The Law of Demand states that other things remaining constant, there is an inverse relationship between quantities demanded & own price of the commodity. Table. Demand Schedule.
Px (Rs)| Qx(units)|
10| 100|
9| 150|
8| 200|

Q. Distinguish between demand by an individual & market demand with the help of a schedule. Ans.
Individual demand – it shows quantity of a commodity which an individual Will buy at different possible prices at a point of time. Price of ice cream| Quantity demanded|
1| 4|
2| 3|
3| 2|
4| 1|

Market demand schedule – market demand schedule represents demand for a commodity by all the consumers in the market, it shows different quantities of a commodity which a consumer intend to buy at different prices. Market demand schedule for two buyers in the market shows in table Price of icecream| Demand for A| Demand for B| Market demand| 1| 4| 5| 4+5=9|

2| 3| 4| 3+4=7|
3| 2| 3| 2+3=5|
4| 1| 2| 1+2=3|

Q. State the causes of increase in demand. Explain any two of them. Ans.
Causes of increase in demand
1. When income of consumer increases
2. When price of substitute increases.
3. When price of complementary goods fall.
4. When taste of consumer shifts.
5. When availability of commodity is expected to reduce in near future. Q. Explain the effect of the following on the market demand for a commodity 1. Change in price of related goods
2. Change in number of buyers
Ans. 1. Change in price of related goods – these are of two types Substitute goods and complementary goods.
Substitute goods :
These are two goods which can be substituted for each other. Such as tea and coffee, ball pen and ink pen. In such cases increase in price of one causes increase in demand of other and decrease in the price of one causes decrease in demand for the other. Eg. Increase in the price of coffee will increase the demand of tea. Complementary goods :

These are those goods which complete the demand for each other as pen and ink, bread and butter, car and petrol. A fall in the price of one causes increase in demand of other. For eg when the price of fountain pen rises its demand will fall as a result demand of ink also falls and vice versa.

2 Change in number of buyers –
1 Population size :
Demand increases when no. of buyers for a commodity...
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