Advertisements
Advertisements
Question
Show that demand of a commodity is inversely related to its price. Explain with the help of utility analysis.
Solution
Suppose a consumer consumes a good X and its price falls. In such a case, the consumer will get a greater marginal utility by consuming good X than the other goods. Thus, he will increase the consumption of good X and its demand will increase. However, in case of the price rises, the consumer will get lower utility from the consumption of good X and thus, he will reduce the demand for it
Consider the following demand schedule for a commodity X
| Price of Commodity X (in Rs) | Quantity Demanded of X (units) |
| 10 | 100 |
| 15 | 50 |
| 20 | 25 |
| 25 | 15 |
| 30 | 5 |
A close analysis of the above schedule reveals that quantity demanded of a commodity holds a negative relationship with the price. In other words, it shows that at a higher price the quantity demanded of X falls (as the marginal utility of the consumer declines) and vice-versa. For example, as the price increases from Rs 10 to Rs 15, the quantity demanded falls from 100 units to 50 units.
Graphically, it is represented as shown below.
APPEARS IN
RELATED QUESTIONS
What happens to the demand of a good when consumer's income changes? Explain
Explain with reason, whether you agree or disagree with the following statement.
Price is the only determinant of demand
Explain any two causes of ‘increase’ in demand of a commodity.
Explain the inverse relationship between price and quantity demanded of a commodity.
Explain in detail the determinants of demand.
Identify the correct pair of items from the following Columns I and II:
| Columns I | Columns II |
| (1) Price Floor | (a) Government imposes below the equilibrium price. |
| (2) Price Ceiling | (b) It is the maximum price, the producers of goods or services are allowed to charge. |
| (3) Price Floor | (c) Government does it in the interest of consumers. |
| (4) Price Ceiling | (d) Government imposes lower limit on the price, which is higher than the equilibrium price. |
Which of the following is the determinant of market demand?
Find the odd word out:
Determinants of decrease in demand:
