With real-world examples, illustrate the various factors that can cause a shift in the demand curve of a commodity
What will be an ideal response?
The demand curve of a commodity can shift for the following reasons.
a) Tastes and preferences: A change in the tastes and preferences of individuals can lead to a change in demand without any change in the commodity's price. For example, if new research proves that caffeine can be very harmful to regular consumers, it is likely that the demand for coffee might decrease, even though the price of coffee may not have increased.
b) The income and wealth of consumers: Income and wealth of individuals plays an important role in determining demand. For example, a consumer who goes on vacation only once a year might start taking more vacations if his income increases. Thus, as income increases, the demand curve for a commodity, say movie tickets or vacations, shifts to the right.
c) The availability and prices of related goods: Related goods are of two types, substitutes and complements. Two goods are substitutes if an increase in the price of one good leads to an increase in the demand for the other good and vice versa. On the other hand, two goods are complements if an increase in the price of one good leads to a decrease in the demand for the other good. For example, if the price of public transport decreases, the demand for cars is likely to fall. These two goods are substitutes. On the other hand, if the price of gasoline goes up, the demand for cars is likely to fall. Gasoline and cars are complements.
d) The number and scale of buyers: The market demand for a commodity greatly depends on the number and scale of buyers. For example, if the enrollment rates in schools go up, the demand for textbooks is likely to increase, regardless of a change in price.
e) Expectations about the future: Expectations about the future also plays an important role in determining the demand for a commodity. For example, if consumers expect the price of refrigerators to increase substantially in the near future, consumers may demand more refrigerators in the present.
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Refer to the figure below. Player A can infer that Player B will:
A. Player A cannot infer anything about what Player B will do given this matrix. B. choose Right. C. choose Left when A chooses Up and choose Right when A chooses Down. D. choose Left.
Demand is price elastic if a
A) relatively large price increase leads to a relatively small decrease in the quantity demanded. B) relatively small price increase leads to a relatively large decrease in the quantity demanded. C) price increase leads to a decrease in the quantity demanded. D) price increase leads to an increase in the quantity demanded.
The transformation of a Lorenz curve into a numerical value is
a. the value of the diagonal minus the value of the two sides of the right angle triangle b. the sum of the percentages of income for all groups c. the Lorenz coefficient d. the Gini coefficient e. the value of the midpoint on the Lorenz curve
If 10 workers will be hired by a firm at a wage rate of $15 per hour, but the 11th worker will be hired only if the wage rate falls to $14 per hour, then the marginal wage of the 11th worker is
A. $14 per hour. B. -$1 per hour. C. $154 per hour. D. $4 per hour.