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Question
Figures (A), (B) and (C) given below represent different types of Demand curves.
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| (A) | (B) | (C) |
What kind of goods do each of these Demand curves represent? Give a reason for each of the curves.
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Solution
Figure (A) shows a demand curve that slopes upward with income on the Y-axis and Demand for X on the X-axis, representing normal items whose demand increases as the consumer's income rises.
Figure (B) shows a straight upward sloping demand curve with Demand for X on the X-axis and Price of Y on the Y-axis, representing substitute goods. As the price of the substitute goods increases, so does the demand for the other goods.
Figure (C) shows demand for X on the X-axis and price for Y on the Y-axis, with the demand curve representing demand for complementary items, where an increase in the price of complementary goods causes a decrease in demand for other goods and vice versa.
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