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Microeconomic Theory

Notes OP to OP . It is known as extension in demand. Second is that complete demand curve DD slips to
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become D D . At the initial price OP consumer has to buy OQ quantity which is shown at point ‘A’ of
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demand curve, but besides price as a result of change in other determinants of demand, consumer buys
OQ quantity which is shown by point ‘C’ at D D curve. This change is shown as increase in demand.
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6.7 Distinction between Contraction and Decrease in Demand
Contraction in demand means to decrease in demand
due to increase in price of goods, Ceteris Paribus. It is Distinction between Contraction
expressed by the movement of same demand curve from and Decrease in Demand
lower point to upper point. On the other hand, decrease
in demand means to decrease in demand due to changes Demand of any commodity is contracted
in the other determinants of demand besides price. It is when its less quantity is bought to more
prices. Decrease in demand occurs when by
expressed by the backward slip of demand curve. stable price of commodity its less quantity
Figure 6.12 is clearing to Distinction between contraction is bought.
and decrease in demand. DD is initial demand curve. Two
different growths are possible in the demand, at point ‘A’ of DD demand curve. First is that quantity of
demand to decrease from OQ to OQ on point ‘B’ with movement to point ‘A’ of same demand curve.
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This growth in quantity demanded is due to price to be increasing from OP to OP . It is known as
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contraction in demand. Second is that complete demand curve DD slips to become D D . At the initial
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price OP consumer has to buy OQ quantity which is shown at point ‘A’ of demand curve, but besides
price as a result of change in other determinants of demand, consumer buys OQ quantity which is
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shown by point ‘C’ at D D curve. This change is shown as increase in demand. But now he buys OQ
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quantity at this rate which is shown by point ‘C’ of D D Curve. This slipping (DD to D D ) in demand
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curve has been possible not due to the change in price but rather due to other determinants of demand.
This change in demand is called decrease in demand.
Fig. 6.12
Y
D
D
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P 1 B Contraction in
Price (`) P C A
Demand

D D
O 1 X
Q Q
1
Quantity

6.8 Elasticity of Demand
Demand of a commodity, specially depends upon its price, income of consumer and price of other
related commodity. So it is known as elasticity of demand that on changing in price of a commodity

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