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 EXAM FOCUS POINT 
Make sure you know how to calculate the different types of elasticity, and how to distinguish between 
complements and substitutes. 
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CHAPTER 4
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MICROECONOMIC FACTORS 
 
101 
QUESTION 
Income distribution
 
What do you think might be the demand for swimming pools amongst a population of five households 
enjoying total annual income of $1m, if the distribution of income is either as under assumption 1 or as 
under assumption 2? 
Annual income 
Assumption 1 
Assumption 2 
$ 
$ 
Household 1 
950,000 
200,000 
Household 2 
12,500 
200,000 
Household 3 
12,500 
200,000 
Household 4 
12,500 
200,000 
Household 5 
12,500 
200,000 
ANSWER 
Under assumption 1, the demand for swimming pools will be confined to household 1. Even if this 
household owns three or four properties, the demand for swimming pools is likely to be less than under 
assumption 2, where potentially all five households might want one. 
 
4.11 Shifts of the demand curve
So far, we have been looking at the way a change in price affects the quantity demanded, depicted as a 
movement 
along 
the demand curve. However, when there is a 
change in the conditions of demand
, the 
quantity demanded will change even if price remains constant. In this case, there will be a different 
price/quantity demand schedule and so 
a
different demand curve
. We refer to such a change as a 
shift 
of the demand curve
. 
Figure 4 depicts a rise in demand at each price level, with the demand curve shifting to the right, from 
D
0
to D
1
. For example, at price P
1
, demand for the good would rise from X to Y. This shift could be 
caused by any of the following