Economics Essay on Supply and Demand and the operation of markets.

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Alex Viguier


October 7,2012

Assignment 11.1

Part A:

A demand curve:

In economics, demand is an economic principle that describes a consumer's desire and willingness to pay a price for a specific good.

Demand: refers to how much (quantity) of a product or service is desired by buyers.

A typical demand curve is shown in the graph below, representing as a negative straight line:

The higher the price of a good, the less people will demand that good (or service). In other words, the higher the price, the lower the quantity demanded. The law of demand can prove this. The amount of a good that buyers purchase at a higher price is less because as the price of a good goes up, so does the opportunity cost of buying that good, in other words this good becomes “special” because it is rare. As a result, people will naturally avoid buying a product that will force them to relinquish the intake of something else they value more. This demonstrates why the curve is sloped negatively.

Example: A real life example would be one of two similar soda companies. If Pepsi and Coca Cola were equal in quantity demanded and price and Coca Cola decided to raise the price thinking their revenue would rise, not only would they not maximize their product, they would loose costumers to Pepsi. Pepsiwould be selling a cheaper version of coca cola therefore consumers would consumers from producers that are sell cheaper goods.

Movement along a demand curve:

Considering the fact that two changes can occur, there are two possible ways of demonstrating this. Differences of the movement along a demand curve and the shift of the demand curve consists of two different changes, thus judging from the diagram below this example indicates the movement along a demand curve.

A movement along a demand curve is the change in demand due to change in price, however the separation between the movement along the demand curve and the shift in the demand curve is how the shift in the demand curve changes due to income and other products. A change in the quantity demanded would be equal to a movement along a demand curve while a change in demand would fit more with a shift in the demand curve.

In the graph above, one can indicate the movement along a demand curve through looking at the price and quality demanded.  When looking at P1, one can say that the price of a good would be lower then if the good’s price was at P2, meaning the quantity would have increased and the prize would have decreased. This indicates that consumers demand would rise when the price of goods go down.

The red arrow slopping downwards is what represents the demand and price.  Typically, when the price falls it is a desire for quantity demanded to rise, therefore more consumers will buy products from firms if the products are cheaper. Sellers lower prices when products need to be sold, thus pushing buyers to buy more.

Example: If a small local toy store was selling Raggy-Anne dolls and teddy bears, and the teddy bears were being sold much faster and in more quantities then the raggy- anne, those dolls would have to have their price lowered so the buys would hold a larger interest to them. Therefore, the small local toyshop would not have wasted revenue by providing these dolls to the public as well as when lowering the price they will hopefully create profit.

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A shift along the demand curve

The second change is known as a shift along the demand curve; an example of a graph has been given right below:


A shift in the demand curve is when there is a change in an influencing factor. However, this is other then price, because the movement along the demand curve is influenced by the price. The shift in the demand curve can either be left or right, differing between the positive and the negative, ...

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