Question

QUESTION 47

1. In the following cases, explain what happens to demand or quantity demanded and how the change would be shown on a graph of the demand schedule (movement on curve or shift in curve).
   I. Assuming that tickets to an NFL game are normal goods, what is the effect of an increase in the incomes of NFL fans?
   II. Assuming that DIRECTV and Dish satellite are substitutes, what happens if the price of a DIRECTV subscription increases?
   III. Assuming that data plans and cell phones are complements, what happens if the price of data plans decreases?

Answer 1

Change in demand is due to change in other factors , assuming price of the commodity to be constant. Change in demand can be Increase in demand ( rightward shift) or decrease in demand ( leftward shift).

Change in quantity demanded is due to change in price , assuming others factors to be constant. Change in demand causes extension or contraction along the demand curve.

1. Normal goods are high quality goods . These goods show positive relationships between income and demand. When income of Consumer Increases, demand for tickets to NFL game will also increase. This will cause rightward shift in the demand curve from D to D1, assuming price to be constant.

2. Substitute goods are those goods that can can be used in place of other goods. When price of one rises, demand for another also rises and vice versa.

Here direct TV and dish satellite are substitute goods. When price of direct TV subscription rises, demand for dish satellite will also increase, assuming price of dish satellite to remain constant. Demand curve of dish satellite will shift rightward from D to D1.

3. Complementary goods are those goods are Demanded togather. When price of one good rises, demand for its complement falls and vice versa. For example data plans and cell phones.

If price of data plans will decrease, demand for mobile phones will increase. Assuming price of mobile phone to be constant.