Answer to Question #307520 in Microeconomics for rubaiya

Question

Arya decides to set aside $300 from her paycheck every month. How will this affect her demand curve? (You may explain without using specific numbers).

Answer 1

Setting aside $300 is just like saving. It assumes that the income of Arya has reduced, which will automatically lead to adjustment in the consumption habit of Arya since she will be having little income. The demand curve of Arya will shift upwards to show the decrease in demand of Arya since the prices will now be high for Arya to keep up with her previous consumption. She will have to reduce her demand for certain commodities and even completely eliminate buying some goods that are not mandatory.