Question

Which of the following will cause a movement along the demand curve for good \(X\) ? a. A change in the price of a close substitute b. A change in the price of good \(X\) c. A change in consumer tastes and preferences for good \(X\) d. A change in consumer income

Short answer

b. A change in the price of good \(X\) will cause a movement along the demand curve for good \(X\), as it directly affects the quantity demanded for that good due to the price effect.

Step-by-step solution

Option A: A Change in the Price of a Close Substitute

A change in the price of a close substitute affects the demand for good \(X\) through substitution effect. If a close substitute becomes more expensive or cheaper, some consumers may choose to buy more or less of good \(X\). However, this change affects the overall demand for good \(X\) and causes a shift in the demand curve, not a movement along the curve.

Option B: A Change in the Price of Good \(X\)

A change in the price of good \(X\) directly affects the quantity demanded for that good. As the price of good \(X\) increases or decreases, consumers tend to buy more or less of this good. This change results in a movement along the demand curve for good \(X\), which is caused by the price effect.

Option C: A Change in Consumer Tastes and Preferences for Good \(X\)

When consumer tastes and preferences change, the overall demand for good \(X\) may increase or decrease depending on whether consumers' preference for the good has increased or decreased. This change results in a shift in the demand curve for good \(X\), as it is not related to the price of the good itself.

Option D: A Change in Consumer Income

When consumer income changes, their overall purchasing power is affected, which influences the demand for various goods and services. A change in consumer income causes a shift in the demand curve for good \(X\) based on the good's nature as a normal or inferior good. This change does not lead to a movement along the demand curve, as it is not directly connected to the price of good \(X\). From the provided options, the correct answer is: b. A change in the price of good \(X\)

Key concepts

Price Effect

The price effect refers to how a change in the price of a good directly influences the quantity of that good demanded by consumers. When we talk about the demand curve of a product like good \(X\), a movement along this curve is specifically due to changes in the price of the good itself.
For example, if the price of good \(X\) decreases, consumers are typically inclined to purchase more of it, causing an increase in the quantity demanded. Conversely, if the price increases, consumers will likely buy less, leading to a decrease in quantity demanded. Both scenarios result in a movement along the existing demand curve.
This relationship is central to understanding consumer behavior and is fundamentally depicted by the demand curve, which slopes downward from left to right.

• Decrease in price = movement down the curve (increase in quantity)
• Increase in price = movement up the curve (decrease in quantity)

Recognizing the price effect helps clarify why only changes in the price of good \(X\) can cause such movements along its demand curve.

Substitution Effect

The substitution effect describes how consumers may switch from one good to another in response to changes in relative prices. When the price of a substitute good changes, it impacts consumer choices and thus the overall demand for another product.
If a close substitute for good \(X\) becomes more expensive, consumers might opt for good \(X\) instead, increasing its demand. On the other hand, if the substitute becomes cheaper, consumers might purchase less of good \(X\), reducing its demand. However, this behavior leads to a shift of the entire demand curve for good \(X\) rather than a movement along it.
Understanding the substitution effect is key to analyzing how market dynamics, such as price changes in related goods, can alter consumer purchasing patterns.

• Increased price of a substitute = higher demand for good \(X\)
• Decreased price of a substitute = lower demand for good \(X\)

This effect emphasizes shifts in demand due to changing preferences influenced by alternative options rather than the price change of the good itself.

Consumer Income

Consumer income influences purchasing power, affecting demand curves through shifts rather than movements along them. When consumer income changes, it can impact the demand for good \(X\) depending on whether it is considered a normal or an inferior good.

• Normal goods: Demand increases as consumer income rises (e.g., luxury items).
• Inferior goods: Demand decreases as consumer income rises (e.g., generic or cheaper alternatives).

When consumer income increases, people are likely to purchase more of normal goods and less of inferior goods, leading to a rightward shift in the demand curve for those normal goods. Conversely, if income decreases, the demand might shift leftward for normal goods and potentially rightward for inferior goods.
This concept emphasizes that while income changes alter consumer behavior, they do not cause movements along the demand curve but instead lead to a shift of the curve itself. Understanding how consumer income affects demand helps in anticipating market reactions to economic conditions.