Answer to Question #307521 in Microeconomics for rubaiya

Question

Fariha's parents increase her allowance, so she spends more money on coffee every week. How can you explain this with a graph?

Answer 1

How can you explain this with a graph?

This is an example of a shift in Fariha's demand curve. Because she has a permanent increase in her income, thus, she begins to buy more coffee, even though the prices haven't dropped. This will cause a shift of the demand curve to the right (from D₁ to D₂).

This is shown in the graph below: