Question

Explain with the help of diagrams the affect of the following changes on the demand of a commodity.

(i) A fall in the price of substitute goods.

(ii) A fall in the income of its buyers.

Answer 1

(i) Demand for a commodity will decrease when there is a fail in the price of substitute goods. Implying that demand curve would shift backward: less will be purchased at the same price. Demand for commodity falls from PK to PK₁. Fig. (a) illustrates this situation.

(ii) Demand for a commodity will decrease also when there is a fall in income of the consumer (assuming that the commodity demanded is a normal good). This would imply a backward shift in demand curve: less goods will be purchased at the same price. Demand for a commodity falls from PK to PK₁. Fig. (b) illustrates this situation.