GK
BUSINESS ECONOMICS
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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1.Price of the commodity should not change
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2.Quantity should not change
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3.Supply should not change
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4.Income of consumer should not change
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Detailed explanation-1: -The first assumption regarding the law of demand to operate is that the income of the consumer must remain same or should not change (i.e. neither rise nor fall). Income is assumed to remain constant, since, its rise may lure the consumer to buy more goods and raise demand despite an increase in the commodity prices.
Detailed explanation-2: -The assumptions of the Law of Demand: Price of related goods remains constant. Income of the consumer remains constant. Taste and preferences of the consumer remain constant.
Detailed explanation-3: -No change in prices of related goods: The law assumes that prices of substitutes and complementary goods remain constant.
Detailed explanation-4: -Substitution of goods is not an assumption under law of DMU, because if one good substitutes for another then law of DMU will not remain applicable.
Detailed explanation-5: -The Law of Demand is based on the following assumption. There should not be any change in the size and composition of the population. Because a change in population will bring about a change in demand even if the price remains the same. The income of consumer should remain constant.