Question

3. (Chapter 3) Explain the followings and show them using graphs:

1. A Demand
2. Quantity Demanded
3. Change in Demand (and list factors)
4. Change in Quantity Demanded (and list factors)
5. Does a change in demand also change quantity demanded? How about a change in quantity demanded? Will that change the demand? Explain! 5pts.

4. (Chapter 27) Use the attached National Income and Output Worksheet, and the national income data table on page 550 of your textbook (problem # 4) to compute the followings using both the Expenditure Approach and the Income Approach (be sure to fill in the values and show the calculations): (a) GDP, (b) NDP, (c) NI, (d); Adjust NI (from part c) as required to obtain PI; (e) Adjust PI (from part d) as required to obtain DI. Explain the followings NIPA concepts:

1. GDP
2. NDP
3. NI
4. PI
5. DI
6. Net Foreign Factor Income?

Answer 1

1. Demand is the quantity of a commodity that a consumer is willing and able to buy at each possible price during a given period of time.

It is a combination of prices and quantities.

2. Quantity Demanded is the quantity of a commodity that people are able and willing to buy at a particular price at a given period of time.

Different quantities can be demanded at different prices at a particular point of time.

In the graph, Qa and Qb denote the quantity demanded at different prices at a particular point of ntime.

3. Change in Demand occurs when the price is constant and there is change in other factors. It represents a shift in consumer's willingness to purchase a particular good or service. Graphically, it is known as a shift in demand.

a. Increase in Demand: When demand shifts towards right, price being constant, it is called increase in demand.

b. Decrease in Demand: When demand shifts towards left, price being constant, it is called decrease in demand.

Factors affecting Change in Demand are

• Price of Related goods (Substitues and Complements)

( Rise in price of substitute good will increase demand and fall in price of substitute good will reduce demand.

Rise in price of complementary good will decrease demand and fall in price of complementary good will increase demand.)

• Income

( Rise in income for normal goods will increase demand and fall in income for normal goods will decrease demand.

Rise in income for inferior goods will decrease demand and fall in income for inferior goods will increase demand.)

• Taste and Preferences

(If there is a favourable change there will be an increase in demand and if there is an unfavourable change there will be a decrease in demand.)

4. Change in Quantity Demanded occurs due to change in price other factors being constant. Graphically, it is represented as a movement along the demand curve.

a. Expansion of Demand: When with fall in price, quantity demanded rises it is called as expansion in demand.

b. Contraction in Demand: When with the rise in price, quantity demanded falls it is called contraction in demand.

It occurs due to change in prices and other factors are constant. Thus, the only factor affecting change in quantity demanded is price.

5. When demand changes, it shifts the entire demand curve either right or left which results in a change in quantity demanded on the x axis . However if there is a change in quantity demanded whether quantity demanded expands or contracts it happens on the same demand curve so there is no change in demand when quantity demanded changes.

(This can be clearly understood from the graphs above)