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Question

Difficulty: EasyDeterminants and Changes in Demand

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

  1. An increase in consumer disposable incomeAnswer
  2. B
    A decrease in the price of the good itself
  3. C
    A fall in the price of a substitute good
  4. D
    A reduction in total market population

Answer

An increase in consumer disposable income causes an outward (rightward) shift in the demand curve for a normal good.
For a normal good, an increase in consumer disposable income raises overall purchasing power. Consumers purchase more of the commodity at every given price, causing the entire demand curve to shift outwards to the right.

Step-by-Step Solution

1
Distinguish between price determinants and non-price determinants of demand.
Changes in price cause movement along the demand curve, whereas changes in non-price determinants (income, tastes, substitute/complement prices, population) shift the entire curve.
To identify which option results in a curve shift rather than a movement along the curve.
2
Analyze the impact of an increase in disposable income on a normal good.
Higher disposable income increases consumer purchasing power, causing higher quantity demanded at all price levels.
Normal goods have a positive income elasticity of demand, so demand shifts rightward when income increases.

Key Concept

Determinants of Demand and Demand Curve Shifts
Estimated Time:45s
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Topics

Determinants and Changes in Demand

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