Theory question 103
Theory of DemandSection B (answer four questions only from this section)
(a) State the laws of demand and supply
(b) With the aid of a diagram, explain the implications of a change in the quantity demanded of a commodity.
Show the model answer
(a) Law of demand: other things being equal, the lower the price, the higher the quantity demanded, and the higher the price, the lower the quantity demanded.
Law of supply: other things being equal, the higher the price, the higher the quantity supplied, and the lower the price, the lower the quantity supplied.
(b) Diagram: one downward-sloping demand curve DD, price on the vertical axis, quantity on the horizontal axis, with two points marked (e.g. price falls from P1 to P2 and quantity rises from Q1 to Q2).
A change in quantity demanded is caused only by a change in the commodity's own price, other things being constant.
It is shown as a movement along the same demand curve, not a shift of the curve.
A fall in price causes an extension (rise) in quantity demanded; a rise in price causes a contraction (fall).
The demand schedule/curve itself stays the same, since income, tastes and prices of other goods are unchanged.
Keep 'change in quantity demanded' (movement along) separate from 'change in demand' (shift).