How do consumer expectations affect demand (i.e., shift the demand curve) in a market?

• A. If consumers expect the good’s price to rise in the future, current demand decreases (shifts left) because they postpone purchases.
• B. Consumer expectations can only change the quantity demanded (a movement along the demand curve), not the demand curve itself.
• C. If consumers expect the good’s price to rise in the future, current demand increases (shifts right); if they expect the price to fall, current demand decreases (shifts left).
• D. Consumer expectations shift the supply curve, not the demand curve, because firms adjust production plans based on expected future prices.

Answer: (C)

Verified step by step guidance

1. Understand the concept of the demand curve: it shows the relationship between the price of a good and the quantity demanded, holding all else constant.
2. Recognize that consumer expectations about future prices influence their current purchasing behavior, which affects demand.
3. If consumers expect the price of a good to rise in the future, they are more likely to buy more now to avoid paying higher prices later, causing the demand curve to shift to the right (increase in demand).
4. Conversely, if consumers expect the price to fall in the future, they may delay purchases, leading to a decrease in current demand and a leftward shift of the demand curve.
5. Note that these changes are shifts of the entire demand curve, not movements along the curve, because expectations change demand at every price level, not just the quantity demanded at a specific price.