tastes affect prices, because

Solutions

Expert Solution

Tastes and preferences are determinants of demand. Therefore if tastes and preferences changes, it shifts the demand curve rightwards or leftwards depending upon the nature of change.

Positive shift in taste and preferences:-

Whenever there is a positive shift in taste and preference of a a consumer where he wants to purchase more of a good due to two reasons like its endorsement by a cricketer or an actor. This will lead to upward shift in the demand curve due to which the price and equilibrium quantity both will rise. In the given curve the equilibrium point has changed from point B to point A due to which the equilibrium prices Rose by 4 dollars and the equilibrium quantity has increased by 2 units.

Negative shift in taste and preferences:-

Whenever there is a negative shift in taste of consumer then it leads to downward shift in the demand curve due to which the equilibrium price and the equilibrium quantity decreases. In the given figure, the equilibrium point is shifted from point A to point B due to which the the price has fallen by 4 dollars and the equilibrium quantity is fallen by two units.

Rahul Sunny answered 1 year ago

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