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Distinguish between "a change in demand" and "a change in quantity demanded.

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Introduction

(a) Distinguish between "a change in demand" and "a change in quantity demanded (8) (b) Using demand and supply analysis, explain the factors that may affect the market equilibrium price of mobile phones. (17) Part (a) Definition of demand Demand is the quantity of a good or service that consumers are willing and able to buy at a given price in a particular period of time, holding other things constant. "Willing" means that the consumers must desire the goods and "able" means that they must have the money or purchasing power to buy the goods. State the Law of Demand The Law of Demand states that there is an inverse relationship between the price and the quantity demanded of a good, other things being constant. As the price of a good increase, the quantity demanded will decrease. If the price of a good increases, and other things are held constant, the consumers can choose to buy less of that good, or they would choose to buy other similar goods (substitutes) to satisfy their wants. What are the differences between a change in quantity demanded and a change in demand? A change in quantity demanded occurs in response to a change in the price of the good itself while a change in demand is in response to demand non-price factors. Demand non-price factors include the income of consumers, prices of related goods, population or size of the market, expectations of the consumers, and taste of the consumers. ...read more.

Middle

Consumers' taste may change due to personal preferences, fashion trends or advertising. Consumers prefer to own mobile phones because of the convenience that they offer. It is also considered fashionable to be seen with the latest model of a mobile phone. Heavy advertising by mobile phones producers also help make mobile phones more desirable to consumers. All these factors would cause the market demand for mobile phones to increase. Price of substitutes Price of substitutes is another demand factor that affects the market equilibrium price of mobile phones. Substitutes are goods that can be used in place of another good. Examples of substitutes for mobile phones are public telephones and pagers. A change in the price of substitutes would also affect the demand for mobile phones. If the cost of using public telephones or the price of pagers were to increase, this would increase the market demand for mobile phones. Prices of complements Price of complements is another demand factor that affects the market equilibrium price of mobile phones. Complements are goods that are used in conjunction with another good. The subscription fee and the call charges are complements for mobile phones. If the subscription fee or the call charges decrease, the market demand for mobile phones will increase. Change in consumers' real income A change in consumers' real income is also a demand factor that affects the market equilibrium price of mobile phones. ...read more.

Conclusion

This will cause both the equilibrium price to fall from P0 to P1 and the equilibrium quantity to rise from and from Q0 to Q1. Figure 3. An increase in the demand for mobile phones Effects of an increase in both demand and supply on the equilibrium price. If the demand and supply for mobile phones were to increase, the equilibrium quantity will incrase. However, whether the equilibrium price will rise or fall will depend on which factor, demand or supply, is more dominant. If the increase in demand is more dominant and supply, then the demand curve will shift by a greater magnitude than the supply curve as shown in figure 5. In this case, both the equilibrium price and quantity will be higher. Fig 5. Shift In Demand Dominates However, if the shift in supply is more dominant, then the supply curve will shift by a greater magnitude than the demand curve as shown in figure 6. In this case, the equilibrium price will be lower but the equilibrium quantity will be higher. Fig 6. Shift In Supply Dominates Conclusion The market equilibrium price of mobile phones is affected by both demand and supply factors. If only demand increases, then the market equilibrium price will be higher. If only supply increases, then the market equilibrium price will be lower. However, if both demand and supply increase, then the market equilibrium price will be determined by the more dominant factor. 1 ...read more.

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