Question

Distinguish between extension and contraction of demand.

Answer 1

The demand for a commodity changes due to a change in price. It is called extension and contraction of demand. When there is decrease in price of commodity there is in increase in demand of that commodity. This is called extension of demand. When there is increase in price of a commodity there is decrease in the demand for that commodity. This called contraction of demand. Thus demand varies in opposite direction due to change in price.

Answer 2

Solution!!

→ When the demand for a commodity increase due to falling in its price, other things being equal, is known as the extension of demand. When the demand for a commodity decreases due to rising in its price, other things being equal, is known as the contraction of demand.

→ During the extension of demand, let's say that the price falls from Rs 10 to Rs 5, the quantity will rise from 4 units to 8 units. During the contraction of demand, let's say that the price increases from Rs 5 to Rs 10, the quantity of the commodity will fall from 8 units to 4 units.

→ Graphically, the movement from the upper point to the lower point represents the extension in the demand and the movement from the lower point to the upper point represents the contraction in the demand.

→ During the extension of demand, more is demanded at less price and during the contraction of demand, less is demanded at more price. Other things remain constant.