Sia
Question
Macroeconomics
Posted 7 months ago
Penny thinks that the price of books will decrease next week.
If everything else is equal, which of the following would reflect how Penny's behavior will change in response to her expectations?
Choose 1 answer:
(A) Penny will move to a new, lower quantity along her demand curve
(B) Penny will move to a new, higher quantity on her demand curve
(c) Penny's demand for books today will increase
D Penny's demand for books today will decrease
(E) Penny will demand more complementary goods to books
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Answer from Sia
Posted 7 months ago
Solution
a
Expectation of Price Decrease: When Penny expects the price of books to decrease in the future, she is likely to delay her purchase to take advantage of the lower prices
b
Demand Curve Movement: This expectation will cause a decrease in her current demand for books, shifting her demand curve to the left
c
Decrease in Current Demand: As a result, Penny's demand for books today will decrease
Answer
(D) Penny's demand for books today will decrease
Key Concept
Expectations of future prices can influence current demand.
Explanation
If consumers expect prices to decrease in the future, they are likely to reduce their current demand and wait for the lower prices. This behavior shifts the current demand curve to the left.
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