Factors Affecting Demand

Answer to Try It

1.

• The arrows should be drawn pointing leftwards, The curve on the right represents the old demand and the curve on the left new demand.
  Correct. If the price of a substitute good decreases we would expect demand to increase for that good, thereby lowering demand and shifting the curve to the left for the substitute.
• The arrows should be drawn pointing rightwards. The curve on the right represents the new demand and the curve on the left old demand.
  This is incorrect. If the price of a substitute good decreases we would expect demand to shift leftwards.
• The arrows should be drawn pointing leftwards. The curve on the right represents the new demand and the curve on the left old demand.
  This is incorrect. While the arrows may be pointing in the correct direction, the curve on the left should represent new demand and the curve on the right old demand.

2.

• A hurricane is expected to arrive next week.
  Correct! Expectations of an impeding storm are likely to increase short-run demand, which is consistent with what we observe in the demand curves here.
• The price of a competitor's generators has fallen.
  This is incorrect. A drop in the price of substitute goods will cause a leftward shift of the demand curve.
• The price home depot generators has dropped 20%
  This is incorrect. A price change would cause a movement along the demand curve, not a shift in demand.