Demand Curves Essay Questions

1. Distinguish between a shift of the demand curve for a product and a movement along the products demand curve.

Before I start to answer questions about a demand curve what is demand? Demand is an economic principle that describes what a consumer is willing and able to pay for a good or service at a given price in a given time period. The consumer must not only have the desire but must also have the financial means to purchase this good or service. Also known as ‘effective demand’. According to ‘the law of demand’ ‘as the price of a product falls, the quantity demanded of the product usually increases or vice versa’. An effective demand can be shown on the demand curve with price being on the Y-axis or vertical and the quantity demanded on the X-axis or horizontal.

Demand curves in reality are usually convex to the origin. However, for ease of analysis economist usually draw them in straight lines. The demand curve for these reasons can shift. When it shifts to the right more of the product is demanded at every price, meaning that the demand for a particular good or service has increased. When the curve shifts to the left less of a product is demanded at every price signifying that the demand of a particular good or service has decreased.

For example if I were to take the popular headphones ‘Beats by Dre’. Not taking into consideration the many types of headphones or earphones this company has, the consumers are willing to pay higher prices even if its for better quality ones. The demand curve will shift to the right because more products is demanded at every price

If I were to take as an example the rarely seen ‘Nintendo ds’ the demand curve will shift to the left because less of the product is demanded a every price, instead children use an iPad or iPod in order to play games.

A movement along a product demand curve can occur as well. Movements are altered because of a change of the price of a product; this will lead to a change in the quantity demanded. Different to shifts because these are caused by any other determinants in demand. When a price of a product falls a greater quantity of it will be demanded, or if the price of a product increases a lesser quantity is demanded.

This is altered by the willingness and capacity a consumer is willing to pay for the specific good or service. When a products price falls or is on “sale” the consumer will want to buy more of it therefor the income of the product is higher and there will have to be a larger amount demanded, but when the price rises the consumer will want to buy less of the product because of the willingness the consumer has, therefor there is a lesser amount demanded.

2. With reference to two different determinants of demand, explain why the demand curve for bicycles might increase.

An economic demand refers to how much of an item one is willing or able to buy, depending number of different factors. For example, people need to know the price of a product before the decide on how much to buy or how much money they have when the make their purchasing decisions. Economist break down the determinants of a consumer’s demand these are used to explain the movements of or along the demand curve of any product.

One determinant is income,  people certainly look at their incomes when deciding how much of and item tu buy. Economists categorize items as normal goods (general commodities or luxury goods) or inferior goods (lower quality goods or services). If a good is a normal good, then the quantity demanded goes up when income increases, and the quantity demanded goes down when income decreases. If a good is aninferior good,  then the quantity demanded goes down when income increases and goes up when income decreases. If a person were to win the lottery, he would likely take more rides on limousines than what he did before. On the other hand, the lottery winner would probably take fewer rides in a taxi than what he did before.

Another determinant is price of related goods. When deciding how much of a good they want to purchase, poeple take into account the prices of both substitute goods. Substitute goods are good that can be replaced for another. For example, Coke and Pepsi are substitutes because poeple tend to, substitute one for the other. Complentary goods on the other hand, are goods that poeple tend to use together. for example a cellphone and a cellphone charger are complementary goods because nithere function without each other. The key feature of substitutes and complements is the fact that a change in price of one of the goods has an impact on the demand for the other good. For substitutes, an increase in the price of one of the goods will increase demand for the substitute good. (It's probably not surprising that an increase in the price of Coke would increase the demand for Pepsi as some consumers switch over from Coke to Pepsi.) It's also the case that a decrease in the price of one of the goods will decrease demand for the substitute good. For complements, an increase in the price of one of the goods will decrease demand for the complementary good. In contrary, a decrease in the price of one of the goods will increase demand for the complementary good.

For example bicycles, if the demand of these were to go up there would have been a deacrese in it's price or and increase in it's popularity. Meanwhile this would cause a shift to the right of the demand curve due to the increase in popularity the consumers demand more at every price. 

Planned Economies Vs Free Market Economies

These economies urge depending on what kind of authority each country has. Whether it’s a dictatorship or communist government or even a capitalist country, each one of these has different ways to manage their economic resources due to what each country think is better for their society. Each one of these consists on answering the questions for the economic problem which are: the first, what should be produced and in what quantities? The second question is how should things be produced (what materials should be used)? The third question who should things be produced for (people that can afford it or as a ‘fair’ manner)? Not taking into account which country uses what economy, both of these have to find a way to approach a way to answer these questions.

A planned economy, in other words, a centrally planned economy or a command economy, lies on the fact that the government has total control over the allocation of resources. A planned economy denies the use of private companies and allows the government to determine what each factory produces, levels the prices, distribution and wages according to the best interest of their people planned economies gives the authority control over every resource (factors of production) the country has in or on its land. Planned economies can lack the growth and development of the country if the government does not allocate resources to refresh or administrate enterprises in the correct manner, thus the fact that it can provide stability for the country.

A free market economy has a self-righting system where there is no economic intervention and regulation by the government. The economic problem is handled by private enterprises alone. Advocates of free market traditionally consider the term to imply that the means of production is under private, not state control as well. All resources (factors of production) are privately owned; therefor the forces of ‘demand and supply’ dictate production type and levels prices and wages. Individual choices and the like hood of profit lead producers to choose an adequate allocation of resources, but when a demand changes, there should theoretically be a transition period in which resources are not allocated efficiently, until supply has shifted fully to meet the market’s needs.

In reality all economies are mixed, these have varying degrees of free market and planned economic characteristics. Countries such as china have a higher proportion of planned input, compared to countries such as United States and Colombia. For example, coffee in Colombia, a few years ago they wouldn’t let Starbucks coffee enter the country and establish a competition for the national brand Juan Valdez Café because it would lead to an economic decrease in the country’s coffee percentage; now in the next 5 years there will be at least fifty Starbucks coffee in Colombia, this happened because of the new deal the Colombian government closed for “TLC” meaning a free market trade.

In my opinion I think that all economies should be mixed but it should lead shift towards a free market economy. An individual should be able to have the power of choice and opportunity of cost, the country’s economy will increase because of the taxes, these should be higher for International brands that national ones although they should have a tax percentage too. Free market economies should also be empowered by the government because these are always willing to accept what’s in the best interest of their people, while private companies benefit more when the company’s incomes increase meaning the average lifestyle will decrease if the government doesn’t earn any profit. 

In conclusion mixed economies are always best with a free market intervention in the middle, this way, the incomes of the government increase as well as the private enterprises revenue.