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Question
Macroeconomics
Posted 4 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, higher quantity on her demand curve
(B) Penny will move to a new, lower quantity along 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 4 months ago
Solution
a
Expectations and Demand: When consumers expect prices to fall in the future, they may delay current consumption, leading to a decrease in the current demand
b
Demand Curve Interpretation: A movement along the demand curve occurs when there is a change in the quantity demanded due to a price change. A shift in the demand curve indicates a change in demand at every price level, caused by factors other than the price of the good itself
c
Analyzing the Options:
- Option A (increasing the quantity demanded) would occur if the price had already decreased.
- Option B (decreasing the quantity demanded) would occur if the price had increased.
- Option C (current demand increasing) does not align with the expectation of a future price decrease.
- Option D (current demand decreasing) aligns with the expectation of a future price decrease, as consumers wait for the lower prices.
- Option E (demanding more complementary goods) is unrelated to the expectation of future prices of books
Answer
Option D: Penny's current demand for books will decrease.
Key Concept
Expectations of future prices affect current demand.
Explanation
Penny expects book prices to decrease next week, which would likely cause her to delay purchases today, thus decreasing her current demand for books.
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