Difficulty: Medium
Correct Answer: An increase in the price of a substitute good that consumers can use instead.
Explanation:
Introduction / Context:
Demand for a good depends on several factors, including its own price, consumer income, tastes, and the prices of related goods such as substitutes and complements. Understanding how each factor affects the demand curve is central to microeconomics. This question focuses on which change will cause an increase in demand, that is, a rightward shift of the demand curve, not merely a movement along the curve due to a change in the good's own price.
Given Data / Assumptions:
- We are examining what causes an increase in demand (a shift of the demand curve), not just a change in the quantity demanded from a price movement along the curve.
- The options involve changes in income and changes in the price of the good itself or its substitutes.
- The terms normal good and inferior good follow their standard definitions: demand for a normal good rises with income, while demand for an inferior good falls with income.
- Other factors such as tastes and population are assumed constant.
Concept / Approach:
An increase in demand means that at every possible price, consumers are willing to buy more of the good, so the demand curve shifts to the right. This can happen if income increases for a normal good, if income falls for an inferior good, if the price of a substitute good rises, or if the price of a complement falls. A change in the price of the good itself, in contrast, typically causes a movement along the same demand curve rather than a shift. The question's options mix these ideas, and you must pick the one that clearly represents a demand increasing shift.
Step by Step Solution:
Step 1: Option A states that income increases for an inferior good. For an inferior good, higher income usually lowers demand, so this would decrease, not increase, demand.
Step 2: Option B mentions a decrease in the price of the good itself. This leads to a movement along the demand curve (a higher quantity demanded) but not an increase in demand in the sense of a rightward shift.
Step 3: Option C describes a decrease in income for a normal good, which reduces demand and shifts the demand curve leftward.
Step 4: Option D mentions an increase in the price of a substitute good. When a substitute becomes more expensive, consumers switch to the relatively cheaper good, increasing its demand and shifting its demand curve rightward.
Step 5: Therefore, option D correctly describes a change that increases demand for the good in question.
Verification / Alternative check:
Take tea and coffee as substitute goods. If the price of coffee rises significantly while the price of tea and consumer incomes remain unchanged, many coffee drinkers will partially switch to tea because it is relatively cheaper. At each possible price of tea, the quantity of tea demanded will now be higher than before, which means the demand curve for tea has shifted to the right. This confirms that an increase in the price of a substitute good leads to an increase in demand for the other good, consistent with option D.
Why Other Options Are Wrong:
Option A is wrong because for an inferior good, an increase in income causes demand to fall, not rise.
Option B is wrong because it describes a movement along the existing demand curve due to a change in the good's own price, which is not what economists mean by an increase in demand as a shift of the curve.
Option C is wrong because for a normal good, a decrease in income reduces demand and shifts the demand curve to the left, not to the right.
Common Pitfalls:
Students often confuse an increase in quantity demanded (movement along the curve due to price change) with an increase in demand (shift of the curve due to other factors). Another common error is to misremember the behaviour of inferior goods relative to income. To avoid these mistakes, always ask whether the change affects the good's own price or some other determinant like income or the price of related goods, and then decide whether you are dealing with a shift or a movement along the demand curve.
Final Answer:
An increase in the price of a substitute good that consumers can use instead.
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