Question

Ms Stuman's real income rises as a result of a fall in the price of sugar in the market. As a result, she now purchases more quantity of sugar than before. This phenomenon will be termed as:

• A. Increase in demand
• B. Decrease in demand
• C. Expansion in demand
• D. Contraction in demand

Answer 1

The Correct Option is C

When the price of a good decreases and the quantity demanded increases, the phenomenon is termed ”expansion in demand.” In this case, Ms Stuman’s purchasing power increases as sugar becomes cheaper, leading her to buy more of it. This is distinct from an increase in demand, which typically refers to a shift of the entire demand curve due to factors other than price.

Answer 2

When the price of a good decreases and the quantity demanded increases, the phenomenon is termed "expansion in demand". This occurs because, as the price drops, consumers, such as Ms. Stuman, experience an increase in their purchasing power, which allows them to buy more of the good. In this case, as sugar becomes cheaper, Ms. Stuman can afford to purchase more of it, reflecting the direct relationship between price and quantity demanded.

This is different from an increase in demand, which refers to a shift in the entire demand curve. An increase in demand occurs due to factors other than price, such as changes in income, preferences, or the prices of related goods. For example, if there is an increase in consumer income or a change in tastes that makes sugar more desirable, the entire demand curve for sugar would shift to the right, indicating that more sugar is demanded at each price level.

In contrast, expansion in demand is a movement along the demand curve caused by a price change, while an increase in demand involves a shift of the demand curve itself, influenced by non-price factors.