Before
answering this question, it is important to know what ``Demand´´ means.
What is
demand? Demand is defined as the quantity of a good or service that consumers
are willing and able to purchase at a given price in a given time period. The
law of demand states that ``if the price of a product falls, the demand for
that product will increase´´. This is logic because, for example, if soccer balls
used to cost $80 and its price now is of $40, the demand for that product will
increase because more people will be willing to buy a soccer ball. The demand
of a product might have influences on different factors and some of these are:
· The population size: if a population
is big, products will have a greater demand.
· The ages of the population: If there
are a lot of babies, then strollers will show a higher demand.
· Income changes: if there are changes
in the income distribution.
· Seasonal changes: During wintertime,
there will be more demand for coats than during the summer.
· Government policy changes: The taxes
on incomes might affect the money that will be spent by people.
Demand Curves have two axis, the
``y´´ axis represents the price and the ``x´´ axis will represent the quantity
demanded. If there is a change in the price, there will be a change of the
quantity demanded. There might be an increase in demand and the reasons are
because of the ``Income Effect (reflects how much someone can buy) and ``Substitution
Effect´´(A product will be more desirable if the price decreases).
What is a shift on a demand curve?
There are two shifts, these are:
· SHIFT TO THE RIGHT: More of the
product is demanded at every price. This means that the demand for a good/product
increases.
· SHIFT TO THE LEFT: Less of a product
will be demanded at every price. This means that demand for a particular
good/product decreases.
*The shifts are caused if there is a
change of the determinants mentioned before and the curve WILL NOT shift if the
price changes.
MOVEMENT ALOND A DEMAND CURVE: There
will be a movement along a demand curve if the price changes since it is on the
``Y´´ axis.
EXAMPLE: Lets say that this demand curve is for rulers.
P1 represents $5 and P2 represents $2. As the price has dropped $3, there is a
movement along the demand curve. As the price decreases, the quantity demanded
increases. Q1 represents 100 rulers and Q2 represents 150 rulers. Since P2 is
$2, Q2 will be grater that Q1.
2. With
reference to two different determinants of demand, explain why the demand curve
for bicycles might increase. Use a diagram to support your answer.
Two determinants of demand are:
· TASTES AND PREFERENCES: Marketing studies
the tastes and degree of satisfaction consumers have towards some products.
Some firms will try to influence their consumers to buy their products. This
represents a shift to the right in the demand curve.
· COMPLEMENTS: These are products that
will be usually purchased together, in this case, bicycles and helmets or
bicycles and knee guards.
BRAND BICYCLE: If this product is a
preference for the population because of its brand, each time, there will be
more quantity demanded at every price, which means that there will be a shift
to the right in the demand curve.
NO BRAND BICYCLE: Let say that the
population doesn´t like this bicycle because of the quality. For the company
being able to exist, it will have to lower the prices so more people buy them.
This would show a movement along the demand curve. If no one buys them, it will
shift to the left.
HELMETS: Because they are needed for
riding a bicycle, as more bicycles are purchased, more helmets will be
purchased. This will show a shift to the
right.
If there is a fall in price in bicycles, the demand curve will show a movement; the demand curve for helmets will show a shift to the right, as more will be purchased at every price.
Fátima Crespo Martín
