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ECS1501 ASSIGNMENT 6 2024 SEMESTER 2
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ECS1501 ASSIGNMENT 6 2024 SEMESTER 2
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ECS1501 ASSIGNMENT 6 2024SEMESTER 2
Question: Explain the factors that lead to a shift in the demand curve.
Detailed Answer:
● Income Levels: An increase in consumers' income typically shifts the demand curve to
the right for normal goods, as people can now afford to buy more. Conversely, for
inferior goods, an increase in income may shift the demand curve to the left.
● Consumer Preferences: Changes in tastes and preferences can significantly affect
demand. If a product becomes more popular due to changing trends, its demand curve
shifts to the right.
● Prices of Related Goods: The demand for a good can be influenced by the price of
related goods. For substitutes, an increase in the price of one good can increase the
demand for another. For complements, an increase in the price of one can reduce the
demand for the other.
● Expectations of Future Prices: If consumers expect prices to rise in the future, current
demand may increase, shifting the curve to the right.
● Population Changes: A growing population can increase the demand for goods,
shifting the demand curve to the right.
2. Market Equilibrium
Question: How is market equilibrium established, and what happens if there is a surplus or
shortage?
Detailed Answer:
● Market Equilibrium: Market equilibrium is established when the quantity demanded
equals the quantity supplied at a particular price level. At this point, the market is at rest,
with no inherent tendency for change.
● Surplus: A surplus occurs when the price is above the equilibrium, leading to a situation
where the quantity supplied exceeds the quantity demanded. This surplus puts
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