Question

there is a rumor that an online music provider is going to soon raise prices by $0.75 per song. identify the demand curve that is most likely to result before any price hike occurs. which factor is affecting demand? how does it work?

Answer 1

Popularity of a certain music artist or genre of music and the subculture/generational kinds of people that support it, listen to it and love it. It’s a preferential type of situation. For example. Eminem will always be WAY more sought after than a band called “insane clown posse” or “meatloaf”

Answer 2

Answer:

Holding everything else equal, the demand curve will shift to the right; that means that demand for the good (in this case, the amount of songs) will increase at all prices. This increase is the result of a phenomena called "Expectations" and refers to a change in expected future prices. This happens because people expect prices to go up in the future, so they will prefer to consume now, thus increasing the current demand.

Explanation:

The law of demand states that, holding everything else equal (ceteris paribus), as prices increase, the quantity demanded by consumers decreases and viceversa. Nevertheless, when a change in expectations occurs, this migh affect the current demand as well. In this case, if people expect the price to go down in the future, they will prefer to postpone their consumption because they expect the good to be cheaper in the future, thus decreasing the demand of the good and shifting the curve to the left. The opposite occurs when people expect prices to go up in the future, since they will rather consume now that is cheaper than later. This increases demand and shifts the demand curve to the right.