(a) Distinguish between the effect of an increase in income and an increase in the price of a good on the demand
for the good.
Being willing and able to buy something at a given price for the specific and corresponding quantity.
Introduction:
- The determinant of demand is anything but the price.
- The price of a good only changes the quantity demanded
- The inverse relationship between the increase in price and less quantity demanded, considering and
including ceteris paribus
Paragraph 1
- The increase in income will higher the demand of a good if it is a
normal good
Pr Increase
- However if the good is considered an inferior good then the demand
curve will shift to the left, as now the consumer will aim to buy normal
goods instead
- The following graph demonstrates the shift of the demand curve to the
right, assuming that the good being demanded is a normal good.
D1
Paragraph 2 Quantity
- The price of a good will only affect the quantity demanded
- Therefore there will be no shift of the demand curve, but rather a
Pri Increase in
change ON the demand curve QD1
- Showing a change in the quantity demanded, which is only
affected by price Q
Conclusion
- The demand curve will only shift, to the right or left, if there is an
alternate motive besides the price of a good. 4 8
- The price of a good will only affect the quantity demanded by the Quantity
consumer
(b) Evaluate the impact of non-price determinants of supply on producers and consumers.
*Including, considering and applying ceteris paribus (where every other variable is the same and unchanging)* +
Being willing and able to produce something at a given price for the specific and corresponding quantity.
Introduction
- Non price determinants affect the shift of the supply curve, not a point on the curve
- The quantity supplied is the only thing that is affected by the price
- We are going to take into exemple technological advances and subsidies and taxes
Paragraph 1
- Technological advances in economics and specifically supply affect the supply in a market for a specific
good/service.
- The better the technology the more is supplied and therefore the supply curve moves to the right
- Same price = more quantity supplied
- The producer is offering more, and the consumer has more options at a cheaper price - works on both sides
Paragraph 2
- Taxes limit the supply therefore the supply curve shifts to the left
- where same price = less quantity supplied
- This is not convenient for the consumer because they are paying more than they were before for the same
quantity.
- However it is convenient to the producer because they have adapted their supply on how strict the tax is.
And therefore technically they are not losing anything.
- A subsidies will encourage more supply = cheaper prices for the same quantity supplied
- Also convenient for the producers because they are receiving money from the government to provide more
of a good/service = helps their overall buisness
Alternate Perspective
- Subsidies might cause the price of a good to increase because the buisness might consider is a way to
make more profit than they would if the price was cheaper for quantity supplied.
Evaluation/conclusion
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