Answer to Question #143941 in Economics of Enterprise for berkha

Question

Keeping the present rate of inflation (increase in the general price level) in mind, consumers living in Karachi are anticipating that the price of tomatoes will go up just like it did last year in November. In your opinion explain if there would be any impact on the current demand for tomatoes or not. Also, if there would be any change elucidate the movement or shift in the demand curve graphically.

Answer 1

The demand for tomatoes in Karachi will automatically increase due to the anticipated increase in the rate of inflation which will have a direct impact on the price of tomatoes. Consumers will buy more of tomatoes at the current price so that to cater for that period when the price will increase. They will have buy more of tomatoes now when the price is relatively low. The demand for tomatoes now will automatically increase leading to the shift of the demand curve from D1D1 to D2D2 as shown by the diagram below.