Page 110 - DECO401_MICROECONOMIC_THEORY_ENGLISH

Unit-6: Theory of Demand and Elasticity of Demand

It is shown in Fig. 6.7 that demand of X-goods (which are Inferior goods)) is decreased from OQ to OQ 1 Notes
to increase in the income of consumer from OY to OY . Its reason is that consumer on increasing the
1
income started to use good quality goods in place of poor quality goods. Hence, for poor quality goods
income-demand curve sloped negatively.
(iii) Necessaries of life and Inexpensive goods: It is mandatory to study the relation between
income of consumer and necessaries and Inexpensive goods such as salt, matches, pulses
etc., there is not any effect to increase in income of consumer after a limit or can say demand
remains constant. In the starting when income is very low, then on increase in it demand
increases but after a limit demand is not affected by the increase in income. This is shown in
Fig. 6.8.

Fig. 6.8

Y D
Necessaries
Y
2
Income Y 1 E

Y D
O X
Q Q
1
Quantity

Figure 6.8 shows that income of consumer is then increased from OY to OY demand is increased by OQ
1
to OQ . It means demand has just a moderate stretch. After this situation, demand becomes unstable.
1
Income became OY or more than this value, there is not any change in demand, parallel to Y-axis,
2
vertical stretch part ED of demand curve indicates the stability of demand.
4. Taste and Preferences: Demand of anything or service depends upon the taste and preferences,
these words are used in maximum extensive senses. Fashion,
traditions etc. are included in it. Taste and preferences of Taste and preferences
consumers are affected by advertising, fashion modification, indicate (1) individual likes
climate, weather etc. Consumers' taste and preferences are and dislikes (2) fashion
increased for those things whose demand has also increased. (3) climate or weather.
Inversely, when unfavorable changes occurred in tastes and
preferences, demand came to fall.
5. Expectations: Expectations of consumer related to future changes in prices, requirements and future
income, etc. are the other determinants of demand. If consumer expects that in future prices will
increase then he will purchase more quantity of commodity in present, even if it has more price. In
this way if consumer hopes that prices will go down in future, he will postponed or less demand of
commodity in present. Present demand is also affected by the expectation of fall or rise in income
in future. There is a direct relation between expecting demand increment of income and demand of
commodity. In future demand is increased if increment expected and fears of decrement in income
increase the demand in future.
6. Size and Composition of Population: Market demand is affected by the size and composition of
population. Demand of all goods is increased to increase in population and decreased to decrease
in population. Also composition of population affects the demand. Composition of population

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