Question

We know that a change in the price of a product causes a movement along the demand curve. Suppose consumers believe that prices will be rising in the future. How will that affect demand for the product in the present? Can you show this graphically?

Short answer

People will desire to buy more of a good now, before the price rises, if the predicted future price of the good rises (unless the good cannot be easily stored without waste). The current demand for goodwill rises as a result of this.

Step-by-step solution

Definition

The Law of Demand asserts that people will buy more of something if it costs less and less of something if it costs more in economics. The demand curve slopes downward from left to right in the graph.

Explanation

If the expected future price of the good grows, people will want to buy more of it now, before the price rises (unless the good cannot be easily stored without waste). As a result, the present demand for goodwill increased. If you know the price of pens was going to skyrocket next month, you might stock up now.