How do consumer expectations about future prices affect the current demand for a good?

• A. If consumers expect prices to rise in the future, current demand decreases.
• B. Consumer expectations about future prices have no effect on current demand.
• C. If consumers expect prices to fall in the future, current demand increases.
• D. If consumers expect prices to rise in the future, current demand increases.

Answer: (D)

Verified step by step guidance

1. Understand the concept of consumer expectations: Consumers form expectations about future prices based on available information, which influences their current purchasing decisions.
2. Analyze the effect of expected future price increases: If consumers expect the price of a good to rise in the future, they are more likely to buy more of the good now to avoid paying higher prices later, thus increasing current demand.
3. Analyze the effect of expected future price decreases: Conversely, if consumers expect prices to fall in the future, they may delay their purchases, leading to a decrease in current demand.
4. Summarize the relationship: Therefore, consumer expectations about future prices directly affect current demand—expecting higher future prices increases current demand, while expecting lower future prices decreases current demand.
5. Apply this understanding to the problem: The correct statement is that if consumers expect prices to rise in the future, current demand increases.