Question

Draw up a graph for a change in income , consumer preference and population . Start by drawing a demand curve for a lower population , for instance . Then show the SHIFT of the demand curve to the right when population increases . Do this for a change in income and also consumer preference .

Answer 1

I. Change in income:-

Suppose the initial equilibrium position is given by at point A where the demand and supply curve when the initial income level was at M. If there is an increase in income, then assuming that it is a normal good, demand for the good will increase and the demand curve will shift rightward from D1 to D2 and as the economy moves from point A to point B, the equilibrium price of the good will increase from P1 to P2 and the equilibrium quantity of the good will increase from Q1 to Q2. The opposite is true when income falls.

Consumer preference:-

When a favourite celebrity or sports star promotes a brand or a specific product, people will buy more of the product and demand for that product will increase and the demand curve will shift rightward from D1 to D2 and as the economy moves from point A to point B, the equilibrium price of the good will increase from P1 to P2 and the equilibrium quantity of the good will decline from Q1 to Q2( panel I) On the other hand if a study reveals that eating a particular good leads to health problems will lower the demand for the good and the demand curve will shift leftward from D1 to D2 and as the economy moves from point A to point B, the equilibrium price of the good will decline from P1 to P2 and the equilibrium quantity of the good will also decline from Q1 to Q2. ( panel ii)

Change in population:-

When there is an increase in the population, demand for the good will increase and the demand curve will shift rightward from D1 to D2 and as the economy moves from point A to point B, the equilibrium price of the good will increase from P1 to P2​​​​​​, and the equilibrium quantity of good will increase from Q1 to Q2.