Below is my question

Question

Our organisation is currently very concerned with the high level of inflation affecting consumers.

Can you discuss the effect that general increases in price would have on demand for goods and services?

What happens if we expect prices to increase by even more in the future?

How would that affect the demand curve? (Hint; Think about what may shift the demand curve).

Answer 1

Hey Alannah. According to the law of demand, the demand for goods and services decreases as their prices rise. In your question, there are three scenarios causing a demand curve shift. First, current price hikes will have the effect of reducing demand for goods and services, causing a leftward demand curve shift. Second, future projections of price hikes will have the opposite effect as people purchase more of the products now when it’s cheaper rather than later when products will be more expensive; hence, causing the demand curve to shift to the right. The third is inflation. Inflation reduces the consumers purchasing by reducing sparable income for extra purchases. Subsequently, consumers will purchase less, causing a leftward demand curve shift.