ECN(14).pdf - 8 Demand shifters Aa Aa E The following graph...

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Unformatted text preview: 8. Demand shifters Aa Aa E The following graph shows the market demand for new homes in a local community. Suppose that a recent increase in the crime rate reduces the rate at which new families move into the town. Show the impact of the crime wave by shifting the demand curve on the graph. Tool tip: Click and drag the curve. The curve will snap into position, so if you try to move the curve and it snaps back to its original position, just try again and drag it a little farther. Answer PRICE [Dollars per home] PRICE [Dollars per home] QUANTITY DEMANDED [Homes] QUANTITY DEMANDED [Homes] Explanation: Close A The increase in crime discourages people from moving to the town. The decrease in the rate at which people move to the town will reduce the number of buyers in the market for new housing. The increase in the crime rate causes the demand curve for new homes to shift to the left. At each home price, there will be a smaller number of buyers willing to pay that price. The following graph shows the market demand for potted meat, which is an inferior good. Suppose that a strong economic expansion causes consumer income to increase. Show the impact of the increase in income by shifting the demand curve on the graph. Answer PRICE [Dollars per can] J PRICE [Dollars per can] <— <— Dl [)1 QUANTITY DEMANDED [Cans of potted meat] QUANTITY DEMANDED [Cans of potted meal] Explanation: Close A Consumers tend to buy less of some types of goods, known as inferior goods, when household income increases. Inferior goods tend to be lower-quality substitutes for higher-quality, but more expensive, products. Potted meat, for example, is an inexpensive alternative to steak. There is an inverse relationship between the demand for inferior goods and consumer income. Since potted meat is an inferior good, an increase in income causes the demand curve for potted meat to shift to the left. At the higher income level, consumers demand a lower quantity of potted meat at any given price. The following graph shows the market demand for beef. Suppose that the price of chicken, a substitute for beef, increases. Show the impact of the increase in the price of chicken by shifting the demand curve on the graph. ...
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