Explain how the market demand curve for a normal good will shift (ie left, right or...

Explain how the market demand curve for a normal good will shift (ie left, right or no shift in each of the following cases? What then will happen to the equilibrium price and quantity?

a) The price of a substitute good falls

b) The price of a complementary goods falls

c) The price of the good decreases

d) Tastes shift away from good

Solutions

Expert Solution

When price of the own good changes there is no shift of demand curve but there will be movement on the same demand curve. and when demand changes due to any factor othe than own price of good then there will be shift in demand curve.

A) When price of substitute good falls there will be leftward shift of the demand curve because substitute goods could be used in place of one another and when price of substitute good falls people will like to purchase more of substitute good. Quantity sold and price of the good will decrease.

B) Complementary goods are those goods which could be used with one another like petrol and car. When price of complementary good falls quantity demanded of good increases. So demand curve of the good will shift to right and quantity sold and price will increase.

C) There is no shift due to decrease in price of the good. Decrease in price will have movement to right on the same demand curve. And quantity sold will increase.

D) If taste shift away it means people will demand less of the good, which is shown by the shift of demand to left. Quantity sold and price both will decrease.

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Rahul Sunny answered 1 year ago

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