In expansion and contraction of demand slope of demand curve chages?
The demand curve has a negative slope as it charts downward from left to right to reflect the inverse relationship between the price of an item and the quantity demanded over a period of time. An expansion or contraction of demand occurs as a result of the income effect or substitution effect.
In expansion and contraction of demand slope of demand curve chages?
The slope of demand curve changes during expansion and contraction of demand due to various factors. Let's understand this concept in detail.
Factors affecting the slope of demand curve
There are two factors that affect the slope of the demand curve. They are:
1. Price Elasticity of Demand
Price elasticity of demand refers to the responsiveness of quantity demanded to a change in price. If the demand for a product is elastic, a small change in price will lead to a significant change in quantity demanded. Whereas, if the demand for a product is inelastic, a change in price will have a minor impact on the quantity demanded.
2. Income Elasticity of Demand
Income elasticity of demand refers to the responsiveness of quantity demanded to a change in income. If the demand for a product is income elastic, a rise in income will lead to a larger increase in quantity demanded. Whereas, if the demand for a product is income inelastic, an increase in income will have a minor impact on the quantity demanded.
Changes in slope during expansion of demand
When the demand for a product increases, the demand curve shifts to the right. This leads to an increase in the quantity demanded at each price level. The following changes occur in the slope of the demand curve during expansion of demand:
1. The demand curve becomes flatter: When there is an expansion in demand, the price elasticity of demand decreases. This leads to a flatter demand curve.
2. The slope of the demand curve becomes less steep: An increase in income leads to an increase in demand for normal goods. This makes the demand curve less steep.
Changes in slope during contraction of demand
When the demand for a product decreases, the demand curve shifts to the left. This leads to a decrease in the quantity demanded at each price level. The following changes occur in the slope of the demand curve during contraction of demand:
1. The demand curve becomes steeper: When there is a contraction in demand, the price elasticity of demand increases. This leads to a steeper demand curve.
2. The slope of the demand curve becomes steeper: A decrease in income leads to a decrease in demand for normal goods. This makes the demand curve steeper.
Conclusion
Thus, the slope of the demand curve changes during expansion and contraction of demand due to changes in price elasticity and income elasticity of demand. Understanding these changes is crucial for businesses to make informed decisions about pricing and production.
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