What effect will each of the following have on the demand for product B? Indicate how...

What effect will each of the following have on the demand for product B? Indicate how the demand side will change for each one.

a) Product B becomes more fashionable. b) The price of substitute product C falls. c) Income declines and product B is an inferior good. d) Consumers anticipate that the price of B will be lower in the near future. e) The price of complementary product D falls.

Solutions

Expert Solution

a) If the product B becomes more fashionable, the demand for the product will increase. The demand curve in this case will shift rightwards or forward. Consumers are influenced by the emerging trends and fashion and prefer to buy more of a commodity if it is fashionable or trendy.

b) Substitute goods are those goods which are used in place of one another. If C is a substitute good and its price falls, then the consumer will shift their demand from product B to C as its price is lower in comparison to the price of B that is the consumer will substitute C in place of B. As a result, the demand for commodity B will reduce or decrease and the demand curve will shift leftwards or backwards.

c) Inferior goods are those goods which have inverse or negative relationship between income and demand that is in case of inferior goods, the income effect is negative. If income declines, the consumer already consuming an inferior good is compelled further to consume it. It implies a forward shift or increase in demand for inferior goods that is the demand will increase and the demand curve will shift forward or rightwards.

d) If consumers anticipate that the price of B will be lower in the near future, the consumers will decrease the present demand of the product and increase the future demand of B. So, in present the demand curve will shift leftwards and in future the demand curve will shift forward or rightward.

Rahul Sunny answered 1 year ago

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