Brief explain the three factors that affect demand of a commondity production possibility frontiers with the help of examples of two goods
Three factors that affect the demand of a commodity are:
1. Price of the commodity: The most significant factor that affects the demand of a commodity is its price. Generally, when the price of a commodity decreases, the demand for it increases and vice versa. This is known as the law of demand.
2. Income of consumers: The income of consumers also plays a vital role in determining the demand for a commodity. Generally, when the income of consumers increases, the demand for normal goods increases. On the other hand, the demand for inferior goods decreases as consumers prefer higher-quality alternatives.
3. Availability of substitutes: The availability of substitutes for a commodity can also affect its demand. If there are close substitutes available in the market, consumers may switch to these alternatives if the price of the original commodity increases.
Example of two goods:
1. Coffee and tea: If the price of coffee decreases, consumers may choose to buy more coffee and less tea, as they are substitutes for each other. Similarly, if the price of coffee increases significantly, consumers may switch to tea as a cheaper alternative.
2. Smartphones and traditional mobile phones: With an increase in consumers' income, the demand for smartphones may increase as they are considered superior goods compared to traditional mobile phones. However, if the price of smartphones increases substantially, consumers may opt for traditional mobile phones as they are more affordable.