Economics

Homework 1
Draw diagrams and briefly how you expect changes in the following to influence the position
of the demand curve:
 An increase in interest rates: Low interest rates make it cheaper to borrow money.
With the increase in interest rates, demand for borrowing would decrease. A decrease
in demand will then shift the demand curve to the left.
 A large increase in unemployment: more jobless persons mean less spending power
and therefore the demand for goods and services will decrease causing a leftward
shift.

 A sustained rise in the earnings from work: An increase in income will cause
an outward shift in demand (to the right). Workers are able to have more
spending power and therefore the demand for goods and services will increase.
 A reduction in income tax: Reducing taxes causes a rightward movement of
the demand curve as consumers demand more goods and services with their
higher disposable incomes.
What would you expect to happen to the demand for Dell Pcs if Hewlett Packard cut their
prices?
If Hewlett Packard cut their prices, the demand for Dell Pcs would decrease. Lower prices
would trigger a higher demand.
What would you expect to happen to the demand for all Pcs if the price of software and
printers came down sharply?
Software and printers are complementary goods, therefore with the decrease in the price, the
demand for PCs would increase.