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Difficulty: EasyDeterminants and Changes in Demand

Which of the following non-price factors will cause an outward (rightward) shift in the demand curve for a normal economic good?

  1. An increase in consumer income levelsAnswer
  2. B
    A reduction in the market price of the good itself
  3. C
    A fall in the price of a close substitute product
  4. D
    An increase in the market price of a complementary product

Answer

An increase in consumer income levels cause an outward (rightward) shift in the demand curve for a normal good.
For a normal good, an increase in consumer disposable income expands purchasing power, prompting consumers to buy more of the commodity at every existing price level. Graphically, an increase in demand is represented by an outward (rightward) shift of the demand curve.

Step-by-Step Solution

1
Distinguish between non-price determinants (which shift the curve) and own-price changes (which cause movement along the curve).
Identified that income, substitute prices, and complement prices shift the demand curve, whereas own-price changes do not shift the curve.
Non-price determinants alter the overall demand at all price levels.
2
Analyze the impact of an increase in consumer income on a normal good.
Higher income increases purchasing power for normal goods, leading to higher demand at every price point.
By definition, a normal good has a positive income elasticity of demand.
3
Determine the direction of the shift.
An increase in demand is represented graphically as an outward (rightward) shift of the demand curve.
Rightward shifts denote greater quantity demanded at every given price.

Key Concept

Determinants of Demand vs Movement Along Demand Curve
Estimated Time:45s
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Topics

Determinants and Changes in Demand

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