Think of two (less obvious) applications of law of demand. They should NOT be about any...

Think of two (less obvious) applications of law of demand. They should NOT be about any purchase/consumption in any specific market.

For example, you can’t say “Apple price falls from $3 to $2 and quantity rises from 100 to 200”. They should be different from the examples in textbook or lecture notes.

Please specify what is the price and what is the quantity demanded.

Solutions

Expert Solution

Two applications of the law of demand are as follows:

1. Wage fixation of the workers in the labor market.

In the labor market, it is the demand of workers, supply and the presence of regulations that help in determining the actual demand required by the firm and wage is fixed. When a firm makes high demand, then it is ready to pay higher wages and vice versa. Government regulations on the minimum wages also reduce the demand, but the firms are forced to pay the minimum level of wage.

2. Pricing decisions taken up by the companies on the basis of nature of demand

Firms take pricing decisions on the basis of law of demand and it is also supported by the elasticity of demand. It changes according to the market. For example, the demand is perfectly inelastic in perfect competition, then firms will be price takers. But, in a monopoly market, demand is downward sloping with different portions representing elastic and inelastic demand, then monopoly firm sets the price that can maximize the profit.

Price is the amount of money, consumers have to pay to buy the goods and services. Quantity demanded, is the demand level at a particular price, other factors remaining constant.

Rahul Sunny answered 11 months ago

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