Question

What is market demand? State four factors causing increase in market demand.

OR

Explain the influence of the following on price elasticity of demand of a good:

(i) Substitute goods.

(ii) Own price of the good

Answer 1

'Market demand' means the quantity of a good, which all the buyers of that good are willing to buy at a price during a period of time.

(1) Rise in income (normal good)

(2) Rise in the price of substitute good

(3) Fall in the price of complementary good

(4) Change in taste in favour of the good.

(5) Rise in the number of consumers

(6) Change in distribution of income in favour of those who demand the good.

OR

(a) More the number of substitutes of a good higher the price elasticity of demand for that good. It is because when there is a price change the buyers can conveniently shift from one substitute to another.

(b) Higher the own price of the good, higher is likely the price elasticity of demand for that good. It is because a change in price of the higher price good has substantial effect on the budget of the consumer.