EXPANSION AND CONTRACTION OF DEMAND

EXPANSION AND CONTRACTION OF DEMAND

The demand schedule, demand curve and the law of demand all show that when the price of a commodity falls, its quantity demanded increases, other things being equal. When, as a result of decrease in price, the quantity demanded increases, in Economics, we say that there is an expansion of demand and when, as a result of increase in price, the quantity demanded decreases, we say that there is contraction of demand. For example, suppose the price of apples at any time is ` 100/ per kilogram and a consumer buys one kilogram at that price. Now, if other things such as income, prices of other goods and tastes of the consumers remain the same but the price of apples falls to ` 80 per kilogram and the consumer now buys two kilograms of apples, we say that there is a change in quantity demanded or there is an expansion of demand. On the contrary, if the price of apples rises to ` 150 per kilogram and the consumer then buys only half a kilogram, we say that there is a contraction of demand.
The phenomena of expansion and contraction of demand are shown in Figure 3. The figure shows that when price is OP, the quantity demanded is OM, given other things equal. If, as a result of increase in price (OP”), the quantity demanded falls to OL, we say that there is ‘a fall in quantity demanded’ or ‘contraction of demand’ or ‘an upward movement along the same demand curve’. Similarly, as a result of fall in price to OP’, the quantity demanded rises to ON, we say that there is ‘expansion of demand’ or ‘a rise in quantity demanded’ or ‘a downward movement on the same demand curve.’ 

                                           Fig. 3 : Expansion and Contraction of Demand 

Goods and Service Tax Book (Updated upto 20th January 2018)

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GST (Goods and Services Tax) Book -A student friendly Book. - Bharat Gurukul

GST Student friendly Book most relevant/Useful for CA Intermediate/IPCC, CS executive , CWA Intermediate and CA final. ALSO useful for B.Com / M.Com / MBA/ BBA/UPSC/ SSC and Various Govt Exams.!! This book is approved by Ministry of HRD Govt.of India as Students friendly book. Author Name- CA Harshita Raichandani and CA Dhananjay Ojha Book […]