M5 - Question and Answer
Kieva Christopher
1. What is the difference between a "change in demand" and a change in "quantity
demanded?”
A change in demand and a change in quantity demanded are both related to how consumers
purchase goods and services, but they describe different things. A change in demand refers to a
shift in the entire demand curve for a good or service. This can be caused by a variety of factors
such as changes in consumer preferences, income, or the price of related goods. For example, if
consumers' incomes increase, they may be more willing to pay higher prices for a good or service,
and thus the demand curve shifts to the right. Similarly, if the price of a substitute good decreases,
consumers may switch to that good, and the demand for the original good decreases, causing the
demand curve to shift to the left. (Arnold et al., 2022)
On the other hand, a change in quantity demanded refers to a movement along the existing
demand curve, caused by a change in the price of the good or service in question. For example, if
the price of a good decreases, the quantity demanded will increase, and the opposite is also true.
This movement along the demand curve is known as the law of demand. Another key difference
is that a change in demand is a shift in the entire curve and can be caused by a variety of factors,
whereas a change in quantity demanded is a movement along the existing curve and is caused only
by a change in price. (Kreps, 2019)
In summary, a change in demand refers to a shift in the entire demand curve for a good or
service, caused by factors such as changes in consumer preferences, income, or the price of related
goods. A change in quantity demanded refers to a movement along the existing demand curve,
caused by a change in the price of the good or service in question. (Besanko & Braeutigam, 2020)
2. What is the difference between a "change in supply" and a change in "quantity
supplied?”
A change in supply and a change in quantity supplied are both related to how firms produce
and sell goods and services, but they describe different things. A change in supply refers to a shift
in the entire supply curve for a good or service. This can be caused by a variety of factors such as
changes in technology, the cost of production, or government policies. For example, if the cost of
production decreases, firms may be able to produce more at each price level, and thus the supply
curve shifts to the right. Similarly, if the government imposes a new tax on a good, the cost of
production increases, causing firms to produce less, and the supply curve shifts to the left. (Arnold
et al., 2022)
On the other hand, a change in quantity supplied refers to a movement along the existing supply
curve, caused by a change in the price of the good or service in question. For example, if the price
of a good increases, firms will be willing to produce and sell more of that good, and the quantity
supplied will increase. This movement along the supply curve is known as the law of supply.
Another key difference is that a change in supply is a shift in the entire curve and can be caused
by a variety of factors, whereas a change in quantity supplied is a movement along the existing
curve and is caused only by a change in price. (Kreps, 2019)
In summary, a change in supply refers to a shift in the entire supply curve for a good or service,
caused by factors such as changes in technology, the cost of production, or government policies.
A change in quantity supplied refers to a movement along the existing supply curve, caused by a
change in the price of the good or service in question. (Besanko & Braeutigam, 2020)
3. Holding demand constant, what is the only thing that can cause a change in quantity
demanded? What are the things that cause a change in demand?
Holding demand constant, the only thing that can cause a change in quantity demanded is
a change in price. The law of demand states that as the price of a good or service increases, the
quantity demanded decreases, and vice versa. This relationship is represented by a downward slope
of the demand curve, where the quantity demanded increases as the price decreases. A change in
demand refers to a shift in the entire demand curve for a good or service. There are several factors
that can cause a change in demand. Some of the most common factors include:

Changes in consumer preferences: If consumers' tastes or preferences change, the
demand for certain goods or services may increase or decrease.

Changes in income: As consumers' incomes increase, they may be more willing to pay
higher prices for goods and services, causing an increase in demand. Conversely, if
incomes decrease, consumers may not be able to afford as many goods and services,
causing a decrease in demand.

Changes in the price of related goods: If the price of a substitute good decreases,
consumers may switch to that good, causing a decrease in demand for the original good.
Conversely, if the price of a complement good increases, the demand for the original good
may decrease.

Changes in population: As population increases, the demand for goods and services may
also increase.

Changes in consumer expectations: If consumers expect the price of a good or service to
increase in the future, they may buy more of it now, causing an increase in demand.
In summary, holding demand constant, the only thing that can cause a change in quantity
demanded is a change in price. A change in demand refers to a shift in the entire demand curve for
a good or service, caused by factors such as changes in consumer preferences, income, the price
of related goods, population, and consumer expectations. (Arnold et al., 2022)
4. How do changes in income affect the demand for a good?
Changes in income can have a significant impact on the demand for a good or service.
Generally, as consumers' incomes increase, they may be more willing to pay higher prices for
goods and services, and thus the demand for those goods and services increases. This is known as
an income effect. This means that as consumers earn more, they can purchase more goods and
services, and therefore they will be willing to pay more for them. This is why when incomes rise,
the demand curve for normal goods shifts to the right, and the demand curve for inferior goods
shifts to the left. (Besanko & Braeutigam, 2020)
On the other hand, as consumers' incomes decrease, they may not be able to afford as many
goods and services, and thus the demand for those goods and services decreases. This is known as
an income effect. Consumers will have to cut back on their purchases and look for cheaper
alternatives, which leads to the demand curve shifting to the left.
It's important to note that the effect of income on the demand for a good or service can vary
depending on whether the good or service is a normal good or an inferior good. A normal good is
a good for which the demand increases as income increases and decreases as income decreases.
An inferior good is a good for which the demand decreases as income increases and increases as
income decreases. (Kreps, 2019)
In summary, changes in income can have a significant impact on the demand for a good or
service. As consumers' incomes increase, they may be more willing to pay higher prices for goods
and services, causing an increase in demand. Conversely, as incomes decrease, consumers may
not be able to afford as many goods and services, causing a decrease in demand. The effect of
income on the demand for a good or service can vary depending on whether the good or service is
a normal good or an inferior good. (Kreps, 2019)
5. How do substitute and complementary goods affect the demand for a good?
Substitute goods are goods that can be used in place of another good or service. For example,
coffee and tea are substitutes for each other, as they can be used to satisfy the same consumer need
for a hot beverage. If the price of a substitute good decreases, consumers may switch to that good,
causing a decrease in demand for the original good. Conversely, if the price of a substitute good
increases, the demand for the original good may increase. This is because as the price of the
substitute good increases, it becomes less attractive to the consumer and they tend to switch back
to the original good. (Arnold et al., 2022)
Complementary goods, on the other hand, are goods that are typically used together. For
example, cars and gasoline are complementary goods, as cars require gasoline to run. If the price
of a complement good increases, the demand for the original good may decrease. Conversely, if
the price of a complement good decreases, the demand for the original good may increase. This is
because as the price of the complement good decreases, it becomes less expensive for the consumer
to purchase the original good as well. (Besanko & Braeutigam, 2020)
It's important to note that the effect of substitute and complementary goods on the demand for
a good or service can vary depending on how close the substitutes or complements are. If the
substitutes or complements are close, the effect on the demand for the original good will be greater,
and if they are less close, the effect will be less (Arnold et al., 2022).
Substitute and complementary goods can have a significant impact on the demand for a good
or service. Substitute goods can cause a decrease in demand for the original good if the price of
the substitute good decreases. Complementary goods can cause a decrease in demand for the
original good if the price of the complement good increases. The effect of substitute and
complementary goods on the demand for a good or service can vary depending on how close the
substitutes or complements are (Kreps, 2019).
References
Arnold, R. A., Arnold, D. R., & Arnold, D. H. (2022). Microeconomics. Cengage Learning.
Besanko, D., & Braeutigam, R. (2020). Microeconomics. John Wiley & Sons.
Kreps, D. M. (2019). Microeconomics for managers. Princeton University Press.