State with reasons whether you agree or disagree with the following statements
1) Demand curve slopes downward from left to right.
Ans:- I agree with the given statement.
Yes, we agree that the demand curve slopes downward from left to right. Demand curve is the graphical representation of the relationship between the demand for a good and its price, for a given income, price of related goods, tastes, and preferences. This curve slopes downwards from left to right because of the negative relationship between the price of the commodity and its demand.
The following are the main reasons as to why demand curve is downward sloping:
a) Law of diminishing marginal utility- Due to this law, consumer tends to buy more quantity of a good when price falls.
b) Income effect- With a fall in price, the purchasing power of a person rises. As a result, he demands more of a good.
c) Substitution effect- With a rise in price, the substitutes of good become cheaper in comparison. As a result, person demands less of that good and more substitute goods.
d) Multipurpose uses- The demand for goods having multipurpose uses rise with a fall in price and vice-versa.
2) price is the only determinant of demand
I disagree with the given statement
No, we do not agree with the given statement. This is because there are various factors that determine demand other than price. The following are a few determinants:
a) Income of the consumer- Change in the income of the consumer also affects the market demand for goods. The effect of the change in income on the market demand depends on the type of the good.
b) Type of Good- The market demand for normal goods shares a positive relationship with the consumer’s income. The market demand for inferior goods (such as coarse cereals) has a negative relationship with the consumer’s income. The market demand for Giffen goods also has a negative relationship with the income.
c) Consumers tastes and preferences- Consumers’ tastes and preferences highly influence the demand for goods. Other things being constant, if all consumers prefer a commodity over another, then the market demand for that commodity increases and vice versa.
d) Population size- The market demand for a commodity is also affected by the population size. Other things being equal, an increase in the population size increases the market demand for a commodity and vice-versa. This is because with the change in population size, the number of consumers in the market changes.
3) When the price of Giffen goods fall, the demand for it increases.
Ans:- I Disagree with the statement.
When the price of Giffen goods falls, the demand for it decreases.
Inferior goods or low-quality goods are those goods whose demand does not rise even if their price falls.
At times, demand decreases when the price of such commodities fall. Sir Robert Giffen observed this behaviour in England in relation to bread declined, people did not buy more because of an increase in their real income or purchasing power. They preferred to buy superior-good like meat. This is known as Giffen’s paradox.