Extension
and contraction of demand are the changes in demand due to change in
price. As the price of the product changes consumers move along with the demand curve. The extension of demand takes place
when price falls, and contraction
of demand takes place when price rises.
When
all other things remain unchanged, a price change normally cause a change
in demand, either extension or contraction of demand.
The
Extension of demand takes place as price decreases. This is shown in the
above diagram. As the price falls from 30 to 25 demand changes from
12 to 18 that is from Point A to Point B.
The
contraction of demand takes place when price rises. As price
increases from 15 to 20 the demand contract from 30 to 24 that is from point D
to C as shown in the diagram.
Back to Home Page Click here