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.
