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Demand and Supply - Essay Example
Author : cullen65
Pages 6 (1506 words)
The law of demand simply states that any change (increase or decrease) in the price of a commodity will lead to a change (increase or decrease) in the quantity demanded of that commodity, while other factors remaining the same. Any change in quantity purchased by consumers due to a change in 'other factors' refers to a change in 'demand' causing a movement along the demand curve…
Stiglitz and Walsh (2002) demarcate these factors into economic and non-economic factors. Below is an elaboration of these 'other factors'.
An increase or decrease in the income of consumers may lead to a rise or fall in the demand for a product. This change by and large depends upon the nature of the commodity; i.e., inferior good or normal good. In case of an inferior good, an increase in the income of consumer will lead to a fall in the demand of that particular commodity and vice versa, because consumer will then shift to a product much better than the previous commodity in his/her perception. On the contrary, in case of a normal good, an increase in the income of the consumer will cause the demand for that commodity to rise shifting the demand curve to the right and vice versa.
This is another economic factor responsible for bringing about a shift in the demand curve. A change in demand of a particular product can be effectuated by a change in price of its close substitutes. The demand for a product will rise if the price of its substitute commodities increases, shifting the demand curve to the right and vice versa. For instance, the demand for coffee for some people will increase as the price of tea rises and vice versa. ...