Demand, Supply, and market Equilibrium (graded) Price Elasticity of demand (grad

Question

Demand, Supply, and market Equilibrium (graded) Price Elasticity of demand (graded) Q amp A Forum (not graded) Demand, Supply, and market Equilibrium (graded) Think of a product that you have purchased recently (e.g. soda, diapers, takeout meals, milk, shoes, manicure/predicure, video game etc...) Explain how the law of demand affected your purchase. Give specific examples of how the determinates or demand and supply affect this product (T-I-P-E-N and P-R-E-S-T) what happens to the demand curve and the supply curve when any of these determining change? What would cause a change in demand in demand versus a movement along the same demand for this product? How would you determine the new equilibrium price and quantity that result from these changes? Can you demonstrate some of these changes graphically?

Explanation / Answer

Let the product in question is Soda

As per law of demand, all else equal, if the price of soda rises then i will purchase less soda and if price falls i will purchase more of it.

The demand determinants are

1) taste: as preference of taste rises demand rises with curve shifting right and as preference falls demand falls with curve shifting left.

2) income: For normal goods like soda as income rises demand rises with curve shifting right and as income falls demand falls with curve shifting left.

3) complements and substitute's price : If substitutes price fall or complements price rise then demand will fall shifting curve to left and vise versa.

4) consumer's future price expectation : If i expect that price are going to fall in near future then i will stop purchasing now shifting the demand curve to left and if i expect prices to rise then i will increase my current purchase shifting the curve to right.

5) numbers of buyers: as no. of buyer rises demand rises with curve shifting right and as this number falls demand falls with curve shifting left.

Supply determinants

1)Number of Producers : as no. of producer rises supply rises with curve shifting right and as this number falls supply falls with curve shifting left.

2)Production Costs: as production cost rises, profit falls so supply also falls with curve shifting left and as this cost falls, profit increases, and so will supply, shifting curve to right.

3)Expectations of future prices: If expectation of future prices, current supply will fall, shifting supply curve to right and vice versa

4)Subsidies $ Taxes: With more subsidy and less tax, production rises shifting curve to right and with less subsidy and more taxes, production falls shifting curve to left.

5)Technology: Growth in technology increases production and will shift curve to right.

Movement along curve happens when there is change in price of good keeping all else constant i.e. is soda is now costlier but the equilibrium price and quantity does not change, while if any of the determinant of demand chaanges then demand curve shifts, if the shift is towards right then equilibrium quantity rises and price falls. If shift is towards left then equilibrium quantity falls and price rises.

Related Questions

Navigate

• Browse (All)
• Browse D
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.