Multiple Choice
Which of the following changes would shift the demand curve for coffee to the right (increase demand), holding the price of coffee constant?
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3. The Market Forces of Supply and Demand
Shifts in the Demand Curve
Multiple Choice
In analyzing shifts in the demand curve, how does an increase in the price of a substitute good affect demand for the original good (all else equal)?
A
Quantity demanded for the original good increases, but the demand curve does not shift.
B
Demand for the original good increases; the demand curve shifts right.
C
Demand for the original good decreases; the demand curve shifts left.
D
Demand for the original good becomes perfectly inelastic.
Verified step by step guidance1
Step 1: Understand the concept of substitute goods. Substitute goods are products that can replace each other in consumption, such as tea and coffee. When the price of one substitute increases, consumers tend to buy more of the other substitute.
Step 2: Recall the difference between a movement along the demand curve and a shift of the demand curve. A movement along the demand curve happens when the price of the original good changes, affecting quantity demanded. A shift of the demand curve occurs when factors other than the original good's price change, altering demand at every price level.
Step 3: Analyze the effect of an increase in the price of a substitute good. Since the substitute becomes more expensive, consumers will switch to the original good, increasing its demand at all price levels.
Step 4: Conclude that this increase in demand causes the demand curve for the original good to shift to the right, representing a higher quantity demanded at each price.
Step 5: Summarize that the correct interpretation is: an increase in the price of a substitute good leads to an increase in demand for the original good, shifting its demand curve to the right.
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