Mention any four factors other than price of the commodity which affect the demand for that commodity

Answer :

Four factors other than price of the commodity that influence the demand for the commodity are as follows:

1. The price of substitute goods.

2. Income of the consumer.

3. Tastes and preferences of the consumers.

4. Consumer’s expectations with regard to future prices.

To read in detail - Factors affecting demand

State the Law of Demand

Answer:

The law of demand states that other thing remaining equal, the quantity demanded of a commodity increases when its price falls and decreases when its price rises.The law indicates an inverse relationship between the price and quantity demanded of a commodity.

The law of demand is based on the following main assumptions:

1) There should be no change in income of the consumer.

2) There should be no change in tastes and preferences of the consumers.

3) Prices of the related commodities should remain unchanged.

4) Size of the population should not change.

5) The distribution of income should not change.

6) The commodity should be a normal commodity.

Why demand curve slope downwards to the right? - to know read: Law of demand

What is substitution effect

Why demand of CNG increases as price of petrol increases?

Answer :

The change in quantity demanded of a commodity resulting from a change in its relative price is known as Substitution effect. It reflects the tendency of people to substitute in favour of cheaper commodities and away from more expensive commodities.

As the price of petrol increases with the price of CNG remaining the same, CNG will become relatively cheaper.CNG becomes more attractive to people in comparison with petrol (both satisfy the same type of demand and hence can be used in place of one another).Consumers will normally like to shift from the consumption of petrol to CNG.

What is income effect? When is income effect positive or negative

Answer :

A change in demand on account of change in real income resulting from the change in the price of a commodity is known as income effect.

For example, A consumer buys 1 kg apples at Rs.20, now if the price of apples falls to Rs.15 and still he buys 1 kg apples, he is saving Rs. 5.It means his real income (in terms of apples) has increased. The consumer may use this increased real income (i.e. Rs. 5 saved in purchasing the original quantity of apples at a lower price) in purchasing more apples.

Price - falls , real income - rises , Quantity demanded - rises

Income effect is positive when increase in income cause increase in demand.It occurs in case of normal goods.

Income effect is negative when increase in income cause decrease in demand. It occurs in case of inferior goods.

Also read : Law of demand

Why are goods demanded

Answer :

We demand goods and services because these have the capacity to satisfy our wants.The capacity to satisfy human wants is called “Utility”.Thus, we can state that goods are demanded because these possess utility.