Loading....
Coupon Accepted Successfully!

 

Expansion and contraction in demand

As explained above, other things being equal, the demand curve, schedule and the law of demand, all show an inverse relationship between price and quantity demanded. If demand for a particular commodity changes as a result of changes in its price alone, we denote it as expansion and contraction of demand. Thus, we see that expansion or contraction of demand takes place as a result of changes in price, while all other factors influencing demand remain constant.
  • When the quantity demanded of a good rises due to a fall in price, it is called expansion of demand.
     
    Example- If the prices of cell phones decrease, the demand for cell phones would increase. This shows expansion of demand.
  • When the quantity demanded of good decreases due to a rise in price, it is called contraction of demand.
     
    Example- If the prices of cell phones increase, the demand for cell phones would decrease. This shows contraction of demand.
Description: 17139.png
 
P = Price of the commodity
P” = Increases in price
P’ = Decreases in price
Q = Quantity demanded
Q” = Decrease in quantity demand
Q’ = Increase in quantity demanded

 

Note: In case of expansion and contraction of demand, a change takes place along the same demand curve or there is a movement along the demand curve. When the price falls from P to P’, the quantity demanded increases from Q to Q’ on the demand curve. This downward movement on the demand curve indicates expansion of demand. Similarly, when the price increases from P to P”, the quantity demanded decreases from Q to Q” on the demand curve. This upward movement on the demand curve indicates contraction of demand. In other words, movement from one point to another point (on the same demand curve) towards horizontal axis is expansion (A to C in the diagram) and movement towards the vertical axis is contraction of demand (movement from A to B). In both expansion and contraction, price would be the only detrimental factor.





Test Your Skills Now!
Take a Quiz now
Reviewer Name