Question

Using the demand framework discussed in class and chapters 3 and 4 of the text, if consumer tastes/preferences change favorably towards a good, say due to learning new information about the benefits that can be obtained from its consumption, then:

1) i. the minimum quantity demanded at each price will rise, holding all other factors constant
2) ii. the maximum quantity demanded at each price will rise, holding all other factors constant
3) iii. the consumer's minimum willingness to pay for each incremental unit of the good (e.g., the first unit, second unit, etc.) will rise, holding all other factors constant
4) iv. the consumer's maximum willingness to pay for each incremental unit of the good (e.g., the first unit, second unit, etc.) will rise, holding all other factors constant

Answer 1

When consumer tastes/preferences towards a good increase, we see a rise in both the minimum and maximum quantities demanded at each price, and an increase in consumer willingness to pay for each incremental unit. These reflect a rightward shift in the demand curve, indicating an overall increase in demand.

Step-by-step explanation:

If consumer tastes and preferences change favorably towards a good due to new information about its benefits, then the impact on the demand framework can be understood as follows:

• The minimum quantity demanded at each price will rise, holding all other factors constant, because as preferences increase for a good, consumers will be willing to buy more of it even at higher prices.
• The maximum quantity demanded at each price will similarly rise, reflecting an overall increased interest in the product across various price points.
• The consumer's minimum willingness to pay for each incremental unit of the good will also rise, as the perceived value of the good is higher.
• Finally, the consumer's maximum willingness to pay for each incremental unit of the good (e.g., the first unit, second unit, etc.) will rise, showing that consumers place a higher value on each unit and are thus willing to pay more.

These changes demonstrate a shift in the demand curve to the right, which indicates an increase in demand at every price level. Changes in factors like consumer expectations about future prices, income levels, and complimentary goods (such as golf balls to golf clubs) can also lead to shifts in the demand curve, either to the right or to the left depending on whether the change increases or decreases demand.