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

Demand for the product in present will rise.

Step-by-step solution

Step 1.Explanation.

According to the question, consumers believe that prices will be rising in the future so the consumer thinks that if he stocks up the product today at the lowest price he will get more by spending less as compare to the future price rise, therefore, the demand of the product will rise in the present.

Step 2.Graphical representation.

see here in the graph present demand increases from Dd to D1d1 because of this shift is outward and this is because consumer thinks that now is the time where he gets maximum benefit.