Question

1.When looking at the law of demand, you will find that this is an inverse relationship between price and quantity demanded. How do you relate the law of demand to a recent purchase that you have had to make?

2.When looking at prices, you will find that they are always changing in our economy. Why do you think this is important to evaluate for our economy?

Answer 1

1. The law of demand states that there in an inverse relationship between price and quantity demanded. This means that when the price of a product increased the quantity purchased/demanded of the commodity decreases and vice-versa.

We can relate the law of demand from our daily purchases that whenever there is a sale and the prices are low, we generally purchase more goods. For example If I went to shopping mall to buy me a Jeans, but when I entered there, I saw a board saying "Buy one get one free" this normally means that the price of that particular jeans is halved. So I bought that. This means that only because the price was less, I bought more goods.

2. The prices of goods and services always keeps on changing in our economy. This changing of prices is very important because as we know the changes in the prices of goods and services are due to change in the demand and supply of goods, and these changes in demand and supply of goods are very important for the evaluation and development of the economy. If the prices and hence demand and supply of goods and services are constant in an ecinomy, it means that there is no development work in economy. If an economy want to develop and evolve than it has to work for the increase of the income of people, which in turn will increase the demand and hence production and supply will increase and hence it will lead to further increase in income. This process is known as multiplier and it is very important for an economy to grow and evolve.