In the theory of shifts in the demand curve, how does an expected increase in the future price of a good affect the current demand for that good, holding all else constant?

• A. Current demand increases (the demand curve shifts right).
• B. Current demand is unchanged; only quantity demanded changes along the same demand curve.
• C. Current demand decreases (the demand curve shifts left).
• D. Current demand becomes perfectly inelastic.

Answer: (A)

Verified step by step guidance

1. Understand the concept of demand curve shifts: A shift in the demand curve means that at every price, the quantity demanded changes. This is different from a movement along the demand curve, which happens when the price of the good itself changes.
2. Recognize that expectations about future prices can influence current demand. If consumers expect the price of a good to increase in the future, they may want to buy more of it now to avoid paying a higher price later.
3. Analyze the effect of an expected future price increase: Holding all else constant, this expectation makes the good more attractive today, increasing the willingness to buy at current prices.
4. Conclude that this increased willingness to buy at every current price causes the demand curve to shift to the right, indicating an increase in current demand.
5. Remember that this is a shift in demand, not just a movement along the demand curve, because the change is due to a factor other than the current price of the good.