How Do following affect the equilibirum price and quantity ? show graphically .
1) a change in consumer's tastes in favour of product
2) a reduction in consumers income
3) an increase in price of complementary goods ???
Change in consumer's taste in favor of the product will lead to an increase in the demand for the product, thereby leading to a rightward shift in the demand curve from D1D1 to D2D2. This will lead to an increase in the equilibrium price and equilibrium quantity of the product.
b. Reduction in Consumer's income-
Reduction in the income of the consumer's will decrease his demand for the good. As a result of which, the demand curve will shift leftward from D1D1 to D2D2. This will lead to a decrease in the equilibrium price from P1 to P2, and the fall in equilibrium quantity from q1 to q2.
c. Increase in the price of complementary goods-
Increase in the price of the complementary goods will lead to an decrease in the demand for the other good. This will lead to a leftward shift in the demand curve from D1D1 to D2D2. As a result of which, equilibrium price will fall from P1 to P2, while equilibrium quantity will fall from q1 to q2.