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

The scenario described involves a change in the quantity of sugar Ms. Stuman purchases due to a fall in its price. In economics, this concept can be understood as follows: 

When the price of a good decreases, consumers can afford to buy more of it with the same income, effectively increasing their real purchasing power with respect to that good. In this context, the reduction in sugar prices allows Ms. Stuman to purchase more sugar than before, indicating a change in the quantity demanded due to the lower price.

This increase in the quantity demanded as a result of a price decrease is known as an expansion in demand. It is important to note that this is different from an "increase in demand," which is caused by factors other than price, such as changes in consumer preferences or income levels.

Therefore, the correct term for this phenomenon is: Expansion in demand

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.