EXPLAIN HOW A CHANGE IN EACH DETERMINANT OF DEMAND SHIFTS TH

EXPLAIN HOW A CHANGE IN EACH DETERMINANT OF DEMAND SHIFTS THE DEMAND CURVE – AND ITS RESULT ON PRICE AND QUANTITY 1. INCOME FOR A NORMAL GOOD (Yn) 2. INCOME FOR AN INFERIOR GOOD (Yi) 3. TASTES (T) 4. PRICE OF A SUBSTITUTE (Ps) 5. PRICE OF A COMPLEMENT (Pc) 6. NUMBER OF BUYERS IN A MARKET (#B) 7. EXPECTATIONS OF PRICES AND INCOME CHANGES (EXP p,y)

Solution

Ans: a) Income for a normal good if increases, leads to increase in demand for the normal good and the demand curve shifts to the right. Thus, price and quantity demanded for the good rises.

b) Income rising leads to a decline in the consumption of the inferior good and thus the demand curve shifts left. Thus, price and quantity of the inferior good decline.

c) A change in the tastes of the consumer lead to a shift in the demand curve of the good. The right/ leftward shift would depend on the change being favourable or unfavourable. Thus the effect on the price and quantity would be dependent on leftward / rightward shift.

d) The price of the substitute if rises, leads to an increase in demand of the product being considered. Thus demnad curve would shift to the right. Then, price and quantity would both increase.