- Distinguish between a shift of the demand curve for a product and a movement along the product's demand curve
In economics, demand is the quantity of a service or good that consumers
are keen and able to purchase at a given price. That means that as the price of
the product lessens, the quantity demanded of the product will usually increment.
This is only assuming that ceteris parabus is in place, which means as one
factor changes the other ones stay equal. We can
show this by drawing a demand curve for the product with price being on the
y-axis and quantity demanded on the x-axis. However, what determines a shift or
a movement along the product’s demand curve?
There
are many factors that cause the demand curve to shift nevertheless the only factor
that does not do this is price. The change in price of a product causes a
movement along the existing demand curve. As the price of the product changes,
the quantity demanded of the product will begin to change with it also. There
are two effects that cause this movement along the curve, the income effect and
the substitution effect. The income effect or ‘real income’ reveals how much a
person can buy with their income. Therefore when the price of the product
decreases, a person’s real income will increase which then leads to people
buying more of this product. The substitution effect is different in the way
that if the product’s price decreases it will become more desirable and thus become
the substitute product for similar products bought formerly. Another cause in
the movement along the demand curve of a product is complements; products that
are used together. When a couple or several products complement each other, a
decrease in one of the product’s price will cause a movement along that product’s
demand curve. This then allows the other product’s demand curve to shift which
is NOT a movement along the demand curve. All in all, the ONLY factor that
causes movement along the existing demand curve for a product is price.
Meanwhile,
there are many factors that cause the demand curve for a product to shift. Aspects
such as income, the price of similar products, tastes, expectations, and other
factors affect the shift in the demand curve of a product. A shift to the right signifies that more of
the product is demanded at every price; meaning that the demand has augmented.
A shift to the left signifies that less of the product is demanded; meaning
that the demand has declined.
Income
affects the shift in the demand curve for a product in two ways. With normal
goods as income rises, demand also rises which causes a shift to the right. As
for inferior goods when income increases, demand decreases because consumers
would switch to the better products.
As
for the price of other products, we already saw how substitutes and complements
affect the movement along the demand curve of the product but it also affects
the shift! In substitutes as the price of one product decreases the other
product’s demand falls and shifts to the left. With complements, a decrease in
one of the product’s price will cause a movement along that product’s demand curve.
This then allows the other product’s demand curve to shift to the right.
Taste
can cause a shift to the right as well for the reason that if there is an
increase in liking to a product, then more people will demand it. Expectation
can make a shift to the right in the demand curve since expectations regarding
the future may influence demand for a good or service in the present.
Other
factors that can also cause a shift in the demand curve of a product are the size
of a population, changes in age structure, income distribution, government
policy changes, and seasonal changes.
In
conclusion, we were able to see what determines a shift or movement along the
demand curve of a product. It all depends on the factor being affected and knowing
the difference will definitely help you create and understand demand curves.
- With reference to two different determinants of demand, explain why the demand curve for bicycles might increase. Use a diagram to support your answer.
The
demand curve for bicycles might increase/ shift to the right due to two
non-price determinants, complements and substitutes.
The demand curve of a bicycle is as follows:
However, it is against the law to ride a bicycle without a helmet. Therefore, bicycles and helmets are complement products.
The demand curve of the name brand helmet is as follows:
A problem arises though because the name brand helmet is pretty expensive and that can be a deal breaker for many people. That is not helpful because then the demand curve for bicycles would shift to the left. That is where a substitute comes into place. There happens to be a generic brand helmet that is much cheaper than the name brand helmet.
The demand curve for the generic brand helmet is as follows:
This means that the name brand helmet would shift to the left because the generic brand is significantly cheaper meaning it would become the substitute.
The demand curve for the name brand helmet now:
Now the bicycle and generic helmet can be bought together which causes both of them to shift to the right.
The demand curve for the generic brand helmet now:
The demand curve for the bicycle now:
All in all, this is a possible way of using two determinants (complements and substitutes for a bicycle’s demand increasing.
Sources:
- Mr. Caple's Wisdom
- IB Economics Course Companion
Your work was very meticulous and I agree with everything you said. you used copious amounts of detail. It could have been made a little easier to follow but overall it was good.
ReplyDeleteThanks Lee-Ann! I'll use your advice for next time! I'll try to make it more blog based than essay based so that the reader can follow more easily! :)
DeleteMatt, loved your work its a role model for mine . You made it very clear for the reader, your graphs although they look messy they helped the reader understand your points. I agree with all the things you said good job. :*
ReplyDeleteThank you Jaime! Referring to the graphs, I was just following how the Youtube videos make the graph! Hahaha thanks! :)
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