Question

Explain with the help of diagrams the effect of the following changes on the demand for a commodity:

A favourable change in the taste of the buyers of the commodity

Answer 1

An increase in the price of petrol from OP₀ to OP₁ causes not only a decrease in the demand for petrol, but it also causes a decrease in the demand for cars from OQ₀ to OQ₁ as indicated by negatively sloping curve HR.