My recent decision to purchase low quantity of petrol for my car every month will be a suitable example to illustrate how the change in price of a good will affect its quantity demanded. As per law of demand, ‘’ There is a negative relationship between price of a good and its quantity demanded. In other words, keeping all the other things constant, as the price of a good increase, the quantity demanded of that particular good decrease and vice-versa’’.
Similarly, over past 6 months, the price of petrol has increased by $3/unit. This has affected by purchase decision and with continued rise in price/ unit, my quantity demanded for petrol has reduced. The change in price of petrol is because of limited supply of petrol, being it a natural resource. Thus, assuming that there is no sudden change in population of the city, the demand will remain constant. However, with low supply of petrol in relation to demand, the price has been increasing consistently. The relationship of price and quantity demanded can be described with the help of a diagram and demand schedule:
The above graph indicates as how the quantity demanded of petrol has decreased with increase in per unit price of petrol. Furthermore, in absence of increase in my income, where by budget line has remained constant, it is obvious that any rise in price will negatively affect my demand for that good.
Works Cited
Patel, A. a. (2013). Microeconomics principles and policies. San Diaego: Bridgepoint Education Inc.
