All questions of Demand and Elasticity for SSC CGL Exam

Demand can be viewed from two perspectives: Willingness to Buy (customer's desire for the product) and Ability to Pay (customer's purchasing power to afford the price of the desired commodity).

Normal Good and Changes in Income

Understanding the concept of normal goods and their relationship with changes in income is crucial in economics. A normal good is a type of good for which demand increases as income increases.

Explanation

- Income and Demand: When individuals' income levels rise, they tend to have more purchasing power. As a result, they are more likely to buy more of normal goods. This is because they have the financial capability to afford these goods at higher quantities or better quality.

- Income Decreases: On the other hand, if income decreases, individuals may not have the same level of disposable income. This could lead to a decrease in the demand for normal goods as they prioritize essential items over discretionary purchases.

- Example: For example, if a person's income increases, they may choose to upgrade from a basic smartphone to a higher-end model. However, if their income decreases, they may opt to stick with their current phone or choose a lower-priced alternative.

- Graphical Representation: In a demand curve for a normal good, as income increases, the demand curve shifts to the right, indicating an increase in demand. Conversely, as income decreases, the demand curve shifts to the left, indicating a decrease in demand.

In conclusion, normal goods exhibit a positive income elasticity of demand, meaning that as income rises, demand for these goods also increases. This relationship is essential for understanding consumer behavior and market trends.

Interpreting Alice's Price Elasticity of Demand
Elasticity of demand measures the responsiveness of quantity demanded to a change in price. A price elasticity of demand of -0.8 indicates that Alice's demand is inelastic.

Explanation:

• Definition of Inelastic Demand: Inelastic demand occurs when the percentage change in quantity demanded is less than the percentage change in price. In this case, a price increase would lead to a proportionally smaller decrease in quantity demanded.
• Numerical Value: A price elasticity of demand of -0.8 falls between -1 and 0, indicating that Alice's demand is relatively inelastic. This means that Alice is not very responsive to price changes.
• Interpretation: Alice's demand for the product is not very sensitive to changes in price. This could mean that the product is a necessity for her, has few substitutes, or that she is not very price-sensitive.
• Implications: Businesses can use this information to make pricing decisions. For example, if Alice's demand is inelastic, the business may be able to increase prices without experiencing a significant decrease in quantity demanded.

The Law of Demand states that an increase in the price of a commodity results in a decrease in customer demand for that particular product, and vice versa.

Impact of Substitutes on Demand
There are several ways in which substitutes can influence the demand for a good. One of the most significant ways is through pricing.

Influence of Price of Substitutes on Demand
- When the price of substitutes increases, consumers are more likely to switch to the good in question as it becomes a more cost-effective option.
- This increase in demand for the good leads to a shift in the demand curve to the right, resulting in higher sales and potentially higher prices for the good.
- On the other hand, if the price of substitutes decreases, consumers may opt for the substitutes instead, leading to a decrease in demand for the good.

Example
For instance, if the price of tea increases, consumers may choose to purchase coffee instead. This shift in consumer behavior would lead to an increase in demand for coffee and a decrease in demand for tea.

Conclusion
In conclusion, substitutes can have a significant impact on the demand for a good, particularly when it comes to pricing. An increase in the price of substitutes can boost demand for the good, while a decrease in the price of substitutes can have the opposite effect.

Positive expectations, such as anticipating long-term job security, can shift demand curves to the right, indicating increased demand.

In the case of complements, an increase in the complementary good's price decreases demand for the good, shifting the demand curve left.

Factors influencing demand include the price of the commodity, price of related commodities, income of consumers, and consumers' tastes and preferences.

The demand curve indicates an inverse relationship between the quantity and price of the commodity.

A change in quantity demanded refers to a movement along the demand curve, and it is solely driven by a change in the price of the commodity.

According to the Law of Demand, there is an inverse relationship between the price and demand of a commodity.