Answer to Question #244256 in Macroeconomics for darshana

Question

From the following examples explain which one is expansion of demand and increase

in demanded.

i) Consumers demand more of chocolate ice-cream due to rise in the price of vanilla

ice-cream.

ii) Indian Airlines reduces its airfare by 30% to attract more passengers.

Answer 1

i) It is an expansion of demand 

Increase in demand for chocolate ice creams due to increase in price of vanila ice creams, is an increase in demand due to increase in price of substitute good.

There has been no change in price of the good itself. Changes in determinants of demand other than price of the good itself, results in change in demand curve.

ii) Increase in quantity demanded 

Demand curve shows different combinations of price and quantity demanded. Change in price causes movements al

Reduction of airfare by 30% is a decrease in price of the good itself