Question

1. Consider a consumer with well-behaved preferences who can spend their income on two goods, 1...

1. Consider a consumer with well-behaved preferences who can spend their income on two goods, 1 and 2. Using a diagram, show how to derive a demand curve for good one. Explain your answer. What factors are held constant when the demand curve is derived?

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Answer #1

A consumer is a person who always want to spend his money in such a way that he maximum satisfaction with given budget. consumer always chose cheap & best quality product. when consumer buys two goods with his given income, he always spent his last rupees in such a way that he get equal satisfaction from the every last unit. Demand curve is always be downward sloping, when only price of that good affects. Because price & demand have negative relation with each other. When price of good increases demand will get down ,on the other hand with decrease in price the consumer will demand more quantity of same commodity . The factors which are affecting demand are:-

1. own price of commodity.

2. Price of related goods.

3. Income of the consumer.

4. Taste & prefrence .

5. Future expectations.

Hence all these factors are the determinents of demand

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