Demand Curve Shifters: Solution

Question:

1. The price of CDs falls
2. The price of music downloads falls
3. The price of iPods falls

Solution:

CDs and music downloads are substitutes.
Therefore, a fall in price of CDs shifts demand for music downloads to the left.
Reminder: Two goods are substitutes if an increase in the price of one causes an increase in demand for the other.
See figure below:



When the price of music downloads falls, the D curve does not shift
but it moves down along curve to a point with lower P, higher Q. (See below)


iPods ane music downloads are complements. Hence, as illustrated in the figure below,
a fall in price of iPods shifts the demand curve for music downloads to the right.