Questions and Answers
What effect does an increase in income have on the demand for normal goods?
What is referred to as a decrease in demand?
How does the rise in the price of a substitute good affect demand for a given commodity?
What occurs when there is an increase in the number of buyers?
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What is the impact of a fall in the price of a complement good?
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Which of the following is NOT a non-price determinant of demand?
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When income decreases, what typically happens to the demand for inferior goods?
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In what situation would a leftward shift of the demand curve occur?
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Which statement best describes the relationship between price and quantity demanded?
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An increase in tastes favoring a commodity has what effect on demand?
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Study Notes
Effects of Income on Demand for Commodity X
- A consumer's increase in income generally leads to a rise in the quantity demanded for commodity X.
- Table displays two demand schedules for commodity X based on different income levels: ₹5,000 and ₹10,000.
- Demand increases at each price level when income rises:
- At ₹4, the quantity demanded increases from 15 units (income = ₹5,000) to 20 units (income = ₹10,000).
- The demand curve for commodity X shifts rightward as income rises, indicating increased purchasing desire.
Types of Goods and Their Demand Responses
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Normal Goods:
- Demand increases with rising incomes; examples include furniture, clothing, consumer durables.
- A decrease in income (e.g., during a recession) typically reduces demand for normal goods.
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Inferior Goods:
- Demand initially rises with income but can decline beyond a certain income level.
- Essential goods like food grains and clothing tend to see less than proportional demand increases relative to income.
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Luxury and Prestige Goods:
- Demand continues to rise with increasing income beyond a specific threshold.
Demand Curve Shifts
- An increase in income leads to a rightward shift of the demand curve.
- A decrease in income shifts the demand curve leftward, reflecting reduced quantity demanded at all prices.
Summary of Non-Price Determinants Impacting Demand
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Factors Causing Increase in Demand:
- Rise in income (for normal goods).
- Increase in wealth (for normal goods).
- Higher prices of substitute goods.
- Lower prices of complementary goods.
- An increase in the number of buyers.
- Positive change in consumer tastes favoring the commodity.
- Redistribution of income favoring the commodity.
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Factors Causing Decrease in Demand:
- Fall in income (for normal goods).
- Decrease in wealth (for normal goods).
- Decrease in prices of substitute goods.
- Higher prices of complementary goods.
- A decrease in the number of buyers.
- Negative change in consumer tastes against the commodity.
- Redistribution of income away from those favoring the commodity.
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Description
This quiz explores the effects of income changes on the demand for commodity X, detailing how different income levels influence consumer behavior. Use the provided demand schedules to analyze the relationship between consumer income and quantity demanded.
