(a) Describe each of the following:
(i) Abnormal demand
(ii) Effective demand
(b) Give three reasons for the occurrence of abnormal demand.
Explanation
(a)(i) Abnormal demands: Are demand patterns which do not abide by the laws of demand and therefore give rise to the reverse of the basic laws of demand. At higher prices increased quantities are demanded.
(ii) Effective demand: is a desire backed by ability and willingness to pay for specific quantities of commodity at alternative prices and within a period of time.
(b)(i) Ostentatious goods: These are certain goods which have prestige value e.g jewelry. If the prices of these goods fall, less will be purchased and if their prices rise, more will be purchased.
(ii) If people expect price to rise in future, they will buy more but if they expect price to fall they will buy less.
(iii) Inferior goods: These are goods whose demand falls as income rises.
(iv) Perfectly elastic demand: A rise or fall in the price of the commodity will not affect the quantity demanded.
(v) Perfectly elastic demand: Price is constant and above this price nothing will be purchased.
(vi) Ignorance of the existence of substitutes.
(vii) Rare commodities or antiquities.