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CSEET · Economic and Business Environment · Basics of Demand and Supply and Forms of Market Competition

Which one of the following events would cause a leftward shift of the demand curve for a consumer durable such as air conditioners, assuming other determinants stay constant?

Consumers expecting air conditioner prices to fall sharply next month and postponing purchases shifts the demand curve left. Expectations of lower future prices reduce present demand at every price. A fall in own price is only a movement along the curve, while cheaper complements and higher income raise demand.

  1. AA fall in the price of air conditioners
  2. BConsumers expect air conditioner prices to fall sharply next month and postpone purchasesCorrect
  3. CA fall in the price of electricity-saving inverter kits, a complement, which are bought along with air conditioners
  4. DA rise in consumers' incomes, when air conditioners are normal goods

Explanation

Expectation of a future price fall makes buyers delay purchases, lowering current demand at every price, a leftward shift. A fall in own price (A) is only a movement along the curve. A cheaper complement (C) raises demand. Higher income (D) raises demand for a normal good.

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