When price of a commodity increases demand curve expansion and when price decreases demand curve contraction.

Distinguishing between Expansion in Demand and Contraction in Demand

Expansion and contraction in demand are two concepts that are often discussed in the field of economics. These terms describe changes in the overall demand for a particular good or service. While expansion in demand refers to an increase in demand, contraction in demand refers to a decrease in demand. Let's explore these concepts in more detail:

Expansion in Demand:
Expansion in demand occurs when there is an increase in the overall demand for a particular good or service. This can be caused by various factors, such as an increase in consumer income, changes in consumer preferences, improvements in technology, or the introduction of new products in the market. Some key characteristics of expansion in demand include:

1. Increased Quantity Demanded: When there is an expansion in demand, consumers are willing and able to purchase a larger quantity of the good or service at a given price.

2. Shift in Demand Curve: The demand curve, which represents the relationship between price and quantity demanded, shifts to the right. This indicates that at each price level, consumers are willing to purchase a greater quantity.

3. Rise in Equilibrium Price and Quantity: As demand expands, the equilibrium price and quantity of the good or service also increase. This is because suppliers respond to the higher demand by increasing production and charging a higher price.

Contraction in Demand:
Contraction in demand, on the other hand, occurs when there is a decrease in the overall demand for a particular good or service. This can be caused by factors such as a decrease in consumer income, changes in consumer preferences, advancements in substitute goods, or a decline in the population. Some key characteristics of contraction in demand include:

1. Decreased Quantity Demanded: When there is a contraction in demand, consumers are willing and able to purchase a smaller quantity of the good or service at a given price.

2. Shift in Demand Curve: The demand curve shifts to the left, indicating that at each price level, consumers are willing to purchase a smaller quantity.

3. Decline in Equilibrium Price and Quantity: As demand contracts, the equilibrium price and quantity of the good or service also decrease. Suppliers respond to the lower demand by reducing production and offering the good or service at a lower price.

Conclusion:
In summary, expansion in demand refers to an increase in overall demand for a good or service, leading to an increase in quantity demanded and a shift in the demand curve to the right. Conversely, contraction in demand refers to a decrease in overall demand, resulting in a decrease in quantity demanded and a shift in the demand curve to the left. Understanding these concepts is crucial for businesses and policymakers to make informed decisions regarding pricing, production, and resource allocation.