Answer to Question #263835 in Microeconomics for JKK

Question

explain how income and price of related goods can affect the quantity demanded of a good using graph and example

Answer 1

Change in quantity demanded due to factors other than price is because of the shift of the demand curve.

An increase in quantity demanded due to an increase in demand.

Initial equilibrium is at point E.

Equilibrium price is P.

Initial equilibrium quantity demanded is Q.

INCOME : When there is an increase in income, an individual tends to purchase more goods and services thus there is an increase in demand for the good. The demand curve shifts right from D to D'. Thus equilibrium shifts from E to E' and there is an increase in quantity demanded from Q to Q'

PRICE OF SUBSTITUTE GOOD : When price of substitute good increases, consumer consumes less of substitute good and consumes more of the concerned good. This causes an increase in demand for the good. The demand curve shifts right from D to D'. Thus equilibrium shifts from E to E' and there is an increase in quantity demanded from Q to Q'

PRICE OF COMPLEMENT GOOD : When price of complement good decreases, consumer consumes more of the complement good and more of the concerned good. This causes an increase in demand for the good. The demand curve shifts right from D to D'. Thus equilibrium shifts from E to E' and there is an increase in quantity demanded from Q to Q'

 

A decline in quantity demanded due decrease in demand.

Initial equilibrium is at point E.

Equilibrium price is P.

Initial equilibrium quantity demanded is Q.

INCOME : When there is decline in income, an individual tends to purchase less goods and services thus there is decline in demand for the good. The demand curve shifts left from D to D'. Thus equilibrium shifts from E to E' and there is a decline in quantity demanded from Q to Q'

PRICE OF SUBSTITUTE GOOD : When price of substitute good decreases, consumer consumes more of substitute good and consumes less of the concerned good. This causes a decline in demand for the good. The demand curve shifts left from D to D'. Thus equilibrium shifts from E to E' and there is a decline in quantity demanded from Q to Q'

PRICE OF COMPLEMENT GOOD : When price of complement good increases, consumer consumes less of the complement good and less of the concerned good. This causes a decline in demand for the good. The demand curve shifts left from D to D'. Thus equilibrium shifts from E to E' and there is a decline in quantity demanded from Q to Q'