Question

Show the effect on demand curve change in :-
1. Income
2. Price of relative goods

Answer 1

If income increases,the demand curve for any normal good would shift right and vise versa.

If prices of relative goods increase,the demand curve for any normal good would shift right and vise versa.

Explanation:

An increase in consumer income basically entails higher demand for normal and luxury goods.Therefore,as income increases,the demand for these goods also increase illustrated by a rightward shift of the demand curve.If the income decreases,the demand for normal and luxury goods will decrease portrayed by a leftward shift of the demand curve.

Now,as the price of a substitute or relative good increases,the normal or luxury good in concern becomes relatively cheaper thereby increasing its consumer demand.This change in demand can be shown as a rightward shift of the demand curve for the good in concern.If the price of the relative decreases,then the demand for the good in concern will decrease reflected by a leftward shift of the demand curve.Examples of relative goods are tea and coffee,Coke and Pepsi and so on.