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Which of the following will result in a DECREASE in demand (i.e., a leftward shift of the demand curve)?An increase in the price of a complement to the goodAn increase in income, if the good is normalAn increase in the price of a substitute for the goodAn increase in the size of the market

Question

Which of the following will result in a DECREASE in demand (i.e., a leftward shift of the demand curve)?An increase in the price of a complement to the goodAn increase in income, if the good is normalAn increase in the price of a substitute for the goodAn increase in the size of the market

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Solution

The first and third options can result in a decrease in demand, causing a leftward shift of the demand curve.

  1. An increase in the price of a complement to the good: Complementary goods are those that are often used together. For example, coffee and sugar, cars and gasoline, etc. If the price of a complement (say, sugar) increases, the demand for the good it complements (coffee, in this case) will decrease because the overall cost of consuming both goods has increased. This will cause a leftward shift in the demand curve.

  2. An increase in the price of a substitute for the good: Substitute goods are those that can be used in place of each other. For example, tea and coffee, butter and margarine, etc. If the price of a substitute (say, tea) increases, more people will want to buy the good (coffee, in this case) because it has become relatively cheaper. This will cause an increase in demand, not a decrease, so this option does not result in a leftward shift of the demand curve.

The second and fourth options typically result in an increase in demand, not a decrease.

  1. An increase in income, if the good is normal: Normal goods are those for which demand increases when income increases. So, if income increases, the demand for the good will increase, not decrease. This will cause a rightward shift in the demand curve, not a leftward shift.

  2. An increase in the size of the market: If the size of the market increases, that means there are more potential buyers for the good. This will increase the demand for the good, causing a rightward shift in the demand curve, not a leftward shift.

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