Ademand curve is defined as the graphical representation of the relationship between the quantities of a commodity that the buyer is willing to buy at a given price(O’Sullivan & Steven, 2003). There are two types of demand curves that is the individual demand curve which shows the relationship between the quantity demanded by an individual and the price of the commodity. The second one is the market demand curve which elaborates the relationship between the price of a commodity and the quantity that the market is willing to consume. This paper describes on the assumptions that lead to the development of the market demand curve. In the process of deriving a demand curve, several assumptions are taken in to place as discussed below.
The demand curve assumes that the income of the consumers does not change. However, change in the consumers’ income may shift the demand curve either to the right or to the left. The more the consumers’ income, the more the commodities one would one to purchase. This would lead to the shift in the demand curve to the right.
The demand curve also assumes that the preference of the consumers is always the same. However, from time to time, the preference of the consumers may change either in favor of the demand of the commodity or may disfavor. When the consumers grow to like or prefer a commodity, then the demand for the commodity increases and the demand curve shifts to the right.
On another dimension, demand curve assumes that there are no changes in the population structure. If the population of a particular region increases then the demand for the product increases and therefore the demand curve shifts to the right.
Additionally, the demand curve avoids changes in the legal government policies. It may include factors that affect the price of a commodity such as taxation. If the government reduces the rate of taxation on goods, then the price of the commodity is lowered and the demand increases and hence the demand curve shifts to the right.
Lastly, demand curve also assumes that the market does not change and people consume products at the same rate and at the same price. If the price of the commodity is reduced, the demand curve would shift to the right.
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