Theory question 103
Theory of Demand(a) Distinguish between wants and demand.
(b) With the aid of diagrams, show the effect on demand when: (i) there is a reduction in the number of consumers; (ii) prices of substitutes increase; (iii) there is a decrease in the price of the commodity.
Show the model answer
(a) Wants are human desires for goods and services, which are unlimited; demand is the quantity of a good consumers are willing and able to buy at a given price at a given time (want backed by ability to pay).
(b)(i) Fewer consumers: demand curve shifts to the left (D0 to D1); less is bought at every price.
(ii) Dearer substitutes: demand for this good increases; curve shifts to the right.
(iii) Fall in the good's own price: no shift; movement down along the same curve to a larger quantity demanded (extension of demand).
Each diagram: price on the vertical axis, quantity on the horizontal, curves and quantities labelled.
Changes in other factors shift the curve; a change in the good's own price moves along it.