Question

Macroeconomics

Jhons and others expect that there will be a sale at her foreign film store next week. Draw a graph labeling both axis of the demand and supply curves with the change that occurs.

Answer 1

When there is change in demand due to factors other than price of a good, it leads to shift in demand curve of that good.

In the given case, it is said that there will be a sale at foreign film store in future. It implies that customers will expect that prices will fall in near future. This will lead to reduction in current demand and will shift the demand curve leftwards. It can be shown with the help of following diagram:

In the diagram we can see that, due to expectation of fall in price in future, there is shift in demand curve to leftwards from D to D1. It will lead to a fall in prices from P to P1 and fall in quantity also from Q to Q1. This also shifts the equilibrium point from E to E1.