MICROECONOMIC

S
3/31/2021

ASSIGNMENT NO 1

ZEESHAN RAO
02-112211-032
BS (A & F) 1 A
 MICROECONOMICS

QUESTION NO 1
What is demand and what is the difference between a "change in demand" and a change in "quantity
demanded."

DEMAND
It refers to the various quantities of goods and services that consumers willing and able to purchase at
various prices during a given periods of time, other thing remains constant.

CHANGE IN DEMAND CHANGE IN QUANTITY DEMAND

 Also known as shift in demand.
 It refers to increase or decrease in
demand.
 It causes due to change in other factors
 Also known as movement along the
demand curve.
 It refers to extension or contraction in
demands.
 It causes due to change in price.

QUESTION NO 2
Explain “Law of Demand”. What does ceteris paribus mean in law of demand? How does this relate to
demand analysis?

LAW OF DEMAND
The law of demand state that the demand increase price decrease and demand decrease price
increase other things remains constant.

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CETERIS PARIBUS MEAN IN LAW OF DEMAND

The term "ceteris paribus" is used in economics to describe a situation where one determinant
of supply or demand changes while all other factors affecting supply and demand remain unchanged.

DEMAND ANALYSIS 
Demand analysis is the process of understanding the customer demand for a product or service
in a target market.

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QUESTION NO 03
Holding demand constant, what is the only thing that can cause a change in quantity demanded? What
are the things that cause a change in demand?

THING THAT CAN CAUSE A CHANGE IN QUANTITY DEMANDED

The only factor that can cause a change in quantity demanded is price. This change in quantity
demanded is caused by a change in the demand price.

THINGS THAT CAUSE A CHANGE IN DEMAND

1 EXPECTED FUTURE PRICES
If the price of a good is expected to rise in the future, current demand increases, and the demand curve
shifts rightward.

Buyers' expectations about future prices can affect the demand curve. If consumers expect prices to
increase, they buy more of a product now, and the demand curve moves to the right.

On the other hand, if consumers expect a product to go on sale soon, they delay their purchases, and the
demand curve shifts to the right.

2 POPULATION
The larger the population, the greater is the demand for all goods.

3 PREFERENCES
People with the same income have different demands if they have different preferences. Changes in
fashion are good examples of changes in consumer tastes. Styles of clothes are constantly changing.

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QUESTION NO 04
How do changes in income affect the demand for a good?

Impact of a change in income on the demand of a commodity depends on the nature of

the commodity.

There are two kinds of goods:

NORMAL GOODS
The goods for which demand rises due to rise in income. E.g., Restaurant meals, air travel etc.

If the Income of the buyers increases, you are more likely to buy more of both steak and chicken, even if
their prices do not change. That shifts the demand curves for both to the right.

INFERIOR GOODS
The goods for which demand falls due to rise in income. E.g., cheap bus tickets, low grade grains
etc.
So, normally there exists a positive or direct relation between income of consumer and demand of a good.

If the income of the buyers increases the demand of bike decrease because he moves towards car.

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QUESTION NO 05
How do substitute and complementary goods affect the demand for a good?

SUBSTITUTE

A substitute is a good that can be used in place of another. substitutes are goods that a consumer
perceived as similar or comparable.

SUBSTITUTE GOODS
160
140
140 130
PRICE OF TEA IN RUPEES

120
120 110
100
100
80
60
40
20
0
0.5 1 1.5 2 2.5 3 3.5 4 4.5 5 5.5
DEMAND OF COFFEE

For example, If the price of tea increases the people will move towards coffee instead of tea.

COMPLEMENT

A Complementary goods are those goods which are used together to satisfy a particular want. Demand for
a given commodity varies inversely with the price of a complementary good.

For example, if price of a complementary good (say, sugar) increases, then demand for given commodity
(say, tea) will fall as it will be relatively costlier to use both the goods together.

For example the price of petrol is increases the demand of cars decreases.

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