Asked Jan 16, 2020

       Suppose that an increase in the supply of a good causes expectations of future price decreases to change.  Which of the following additional outcomes is most likely?

  1. a change in quantity demanded followed by a change in demand
  2. a change in quantity demanded alone
  3. a change in demand alone
  4. neither a change in quantity demanded or a change in demand

Expert Answer

Step 1

Change in demand refers to a shift in the demand curve due to a variety of changes in non-price factors. A change in quantity demanded refers to a movement along the demand curve, which is caused only by a change in price.

Step 2

In the given situation, the supply of the good changes due to future expectations of price, which represents a change in demand. Initially, there is a leftward shift in the demand curve which reduces both the price and quantity. An increase in quantity supplied based on the future expectations will shift the supply curve to the right, which caused a downward movement along the demand. This would increase the quantity supplied and reduce the level of price.

Step 3

This can be graphically ex...

Economics homework question answer, step 3, image 1

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