Question 5

The demand curve shifts left.

When there is an expectation of lower income in the future, consumers anticipate having less purchasing power, which leads to a decrease in the demand for normal goods. Consequently, this results in a leftward shift of the demand curve.

A) The demand curve shifts down.

This option is incorrect because a downward shift of the demand curve does not accurately reflect the impact of lower future income. A downward movement typically indicates a decrease in price, not a decrease in demand due to income expectations.

B) The demand curve shifts right.

This option is incorrect as it suggests an increase in demand. Lower expected income would lead consumers to cut back on spending, thus decreasing demand for normal goods, which would not support a rightward shift.

C) The demand curve shifts up.

This option is incorrect because an upward shift of the demand curve would imply an increase in demand at every price level. However, with the anticipation of lower income, consumers are expected to demand less of normal goods, contradicting the premise of this option.

D) The demand curve shifts left.

This option is correct because a leftward shift indicates a decrease in demand. Expectations of lower future income lead consumers to lower their consumption of normal goods, resulting in this shift.

Conclusion

The correct answer, D, is definitively right as it accurately describes the economic principle that lower expected income results in decreased demand for normal goods. All other options fail to capture the relationship between consumer income expectations and demand shifts, highlighting the importance of understanding consumer behavior in economic contexts.