ACCA Applied Knowledge · Business and Technology · Microeconomic factors
A fall in the price of a good leads to consumers buying more of it, with nothing else changing. How is this best described in demand and supply analysis?
The increase in quantity bought is an extension of demand along the existing demand curve. A change in the good's own price causes movement along the curve, whereas a shift of the whole curve requires a change in a non-price factor.
- AA rightward shift of the demand curve
- BAn extension of demand along the existing demand curveCorrect
- CA contraction of supply along the supply curve
- DA leftward shift of the supply curve
Explanation
A change in the good's own price causes a movement along the demand curve, not a shift of it. A lower price extends demand. Shifts occur only when non-price factors such as income or tastes change.
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