Question

Give reasons or explain the following statements.

1. All desires are not demand.

2. Increase in demand indicates a rightward shift in the demand curve.

3. Demand curve slopes downward from left to right.

4. Demand for factors of production is derived demand.

Answer 1

1. Desires refer to those wishes that a human being cherishes such as to walk on the moon, to be a billionaire and to buy a Rolls-Royce. These wishes may not always be backed by enough finance to realise them. It is only when a desire is backed by sufficient purchasing power, along with the consumer’s readiness to spend on materialising the wish, that it becomes demand. Thus, until a consumer has sufficient money and he/she is willing to spend, a desire will remain a desire. Thus, we can say that all desires are not demand.

2. When the demand for a good increases due to a change in the factors other than the price of the good, it is called increase in demand. Graphically, it is shown by a parallel rightward shift of the demand curve.



Parallel rightward shift shows that even at constant prices the quantity demanded of the good rises.

3. Demand curve is the graphical representation of the relationship between the demand for a good and its price, for a given income, price of related goods, tastes and preferences. This curve slopes downwards from left to right because of the negative relationship between price of the commodity and its demand.



4. When goods are demanded so that they can be used in the production of some other commodities, it is called indirect or derived demand. Factors of production have an indirect or derived demand, as they are used in the production of goods meant for final consumption. For example, labour is a factor of production. However, labour would be demanded according to the demand of the commodity in the production of which it would be used. For example demand for labour in furniture producing firm would depend on the demand for furniture. The greater the demand for furniture, the production of furniture would tend to rise, thereby, the demand for labour used in the production of furniture would also increases.