DETERMINANTS OF DEMAND

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

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