million, at point R.

The original demand curve D0, like every demand curve, is based on the ceteris paribusassumption that no
other economically relevant factors change. Now imagine that the economy expands in a way that raises the

incomes of many people, making cars more affordable. How will this affect demand? How can we show this

graphically?

Return to Figure 3.5. The price of cars is still $20,000, but with higher incomes, the quantity demanded has

now increased to 20 million cars, shown at point S. As a result of the higher income levels, the demand curve
shifts to the right to the new demand curve D1, indicating an increase in demand. Table 3.4 shows clearly that
this increased demand would occur at every price, not just the original one.
56 3 • Demand and Supply
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