Chapter 7.1, Problem 2R

To determine

To analyze: The effect of given situations on quantity demanded on commodities and services.

Explanation of Solution

The quantity demanded is a phrase that is used in economics to explain the total quantity of a commodity or service requested by customers for a specified period of time. It depends on the marketplace of commodity or service whether the market is in equilibrium or not.

Increase in real income: When the real income of a people will rise, their purchasing power will also rise because they can afford more commodities and services due to which given the supply curve of the commodity, its demand curve will shift to the right. So, the price and quantity both will rise.

Decrease in real income: When the real income of a people will fall, their purchasing power will also fall because they can afford less commodities and services due to which given the supply curve of the commodity, its demand curve will shift to the left. So, the price and quantity both will fall.

Price of substitutes: Substitutes goods are those commodities which can be used in place of one another. So, the rise in the price of substitutes will lead to a rise in the quantity demanded of the commodity because people will not purchase substitute goods. Thus, the quantity demanded of the commodity will rise. Opposite will be true if the price of substitute will fall.

Utility: In economics, utility is a concept that refers to the overall happiness obtained from consuming a product or service.

When the utility of commodity rises, people will prefer to buy that goods because they will be much happier or satisfied by consuming that goods due to which the quantity demanded of the commodity will rise. Opposite will happen if the utility will fall.

Based on the above argument, the table is completed below: