Answer to Question #101424 in Economics for dakari

Question

1. It's a very hot, sunny day and Peter is outside and feels very thirsty. He sees a lemonade stand where a glass of lemonade is selling for $0.50. He buys one glass and drinks it. The next day, Peter is outside and the temperature is much higher than the first day. Peter is even more thirsty, and buys 2 glasses of lemonade. He pays a total of $1.00

2. It's a very hot, sunny day and Peter is outside and feels very thirsty. He sees a lemonade stand where a glass of lemonade is selling for $0.50. He buys one glass and drinks it. The next day is same as before, however, a glass of lemonade is selling for $0.30 a glass. Peter buys 2 glasses of lemonade and pays a total of $0.60.

In both of the situations we notice that Peter buys 1 glass on the first day and 2 glasses on the 2nd day. How are the 2 situations different? Where do you find a change in quantity demanded and where do you find a change in demand for Peter? Please explain as clearly as possible

Answer 1

In the first situation we have a change in demand (the quantity increase is caused by the non-price factor - the weather). In this case the demand curve shifts to the right. In the second situation we have a change in quantity demanded caused by the price decrease, so the demand curve doesn't shift, that is the movement along the same curve.