Extension and Contraction of Demand:

When the quantity demanded of good rises due to the fall in price, it is called extension of demand. When the price falls from OP0 to OP2, the quantity demanded increases from OQ0 to OQ2. When the quantity demanded of a good decrease due to a rise in the price, it is called a contraction of demand. When the price rises from OP0 to OP1, the quantity demanded of the good decreases from OQ0 to OQ1. The extension and contraction of demand take place as a result of changes in the price alone when other determinants of demand such as tastes, income and prices of the related goods remain constant.

Fig: Law of Demand

OQ0 – OQ1-Contraction of demand

OQ0 – OQ2 -Extension of demand