Change in Demand

6 Key excerpts on "Change in Demand"

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  eBook - ePub

  Media Economics

  Applying Economics to New and Traditional Media

  • Colin Hoskins, Stuart M. McFadyen, Adam Finn(Authors)
  • 2004(Publication Date)
  • SAGE Publications, Inc

    (Publisher)

  A Change in Demand occurs when there is a change in the value of a determinant of demand other than own price. An increase in demand shifts the demand curve to the right and causes price and quantity to rise. A decrease in demand shifts the demand curve to the left and causes price and quantity to fall. Thus the change in price and quantity are in the same direction as the Change in Demand.

  Changes in demand are caused by a change in a determinant of demand, such as the price of a demand-related good, income per capita, the number of potential buyers, the expected future price, and consumer tastes.

  Demand-related goods are either substitutes or complements. A substitute is a good that fulfils the same need. The cross elasticity of demand, defined as (percentage Change in Demand for product X) / (percentage change in the price of Z), is positive if X and Z are substitutes. Complementary goods are those that are used in conjunction with one another. The cross elasticity of demand for complementary goods is negative.

  Demand is positively related to income per capita for normal goods and negatively related for inferior goods. Income elasticity of demand, defined as (percentage Change in Demand) / (percentage change in income) is thus positive for normal goods and negative for inferior goods.

  A change in supply occurs when there is a change in a determinant of supply other than own price. Whatever direction supply changes, the equilibrium quantity changes in the same direction and the equilibrium price changes in the opposite direction.

  A change in supply is typically caused by a change in an input price, technology, or the number of suppliers.

  There are a host of applications of supply and demand analysis and of the elasticity concept in the media industries. Those examined in this chapter included the effect of permitting the BBC to advertise, the Principle of Relative Constancy, the recent trend to auction the electromagnetic spectrum, and the market for subsidies.

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  Business Economics

  • Rob Dransfield(Author)
  • 2013(Publication Date)
  • Routledge

    (Publisher)

  Market forces – changes in demand and supply. The relative strength of demand and supply determines the market prices of goods.

  Market prices act as signals to producers about the strength of demand for the products they supply. Rising prices act as an incentive for producers to produce more of certain types of goods. In contrast, falling prices will encourage consumers to buy more goods as they become relatively cheaper. Gaining a clear understanding of the four laws of demand and supply will enable you to have a good grasp of how the market works.

  Key Term

  Changes in demand and shifts in demand – economists distinguish between a ‘change’ in ‘demand’ (where the whole demand curve changes its position, e.g. as a result of a change in tastes or incomes), and ‘changes’ in ‘quantity demanded’ (i.e. movements along a given demand curve). Changes in quantity demanded result from a change in the price of the good whose demand is being examined.

  3.4  The construction of demand and supply curves Demand and supply curves

  A demand curve is used by economists to illustrate the relationship between price and quantity demanded. It shows demand and changes in quantity demanded. It is useful for business organizations trying to predict the effect of different prices on demand for their products. It helps them to decide how much of a good to make in order to meet quantity demanded.

  Common sense and personal experience explain the shape of the demand curve. The curve slopes down from left to right because more people can afford to buy goods at lower rather than at higher prices. Existing purchasers of a good will be tempted to buy more of a good at a lower price because they have to give up less of their income to make the purchase. Table 3.4 and Figure 3.1

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  Principles of Agricultural Economics

  • Andrew Barkley, Paul W. Barkley(Authors)
  • 2016(Publication Date)
  • Routledge

    (Publisher)

  9Demand

  Plate 9.1 Demand

  Synopsis

  This chapter highlights how consumers respond to changes in prices, income, and other economic variables. The demand curve is derived that shows the quantity of a good that consumers will purchase at different prices. The pervasiveness and importance of the law of demand are outlined, and the elasticity of demand is defined and explained. Demand determinants are discussed in detail, including prices, prices of related goods, income, tastes and preferences, expectations of future prices, and population. Business strategies for agribusinesses are emphasized. Demand, together with supply studied in Chapter 8 , forms the foundation of economics: markets.

  9.0 Introduction

  Chapters 1 –7 describe and explain the behavior of individual economic units (producers). These economic actors use specific methods to locate the optimal point in their economic decisions. Producers select the profit-maximizing combinations of inputs and outputs, and consumers purchase combinations of goods to maximize their own utility or satisfaction. Consumers use similar logic when they decide what to purchase. The decision is based on maximizing satisfaction given income, relative prices, tastes, and a number of other factors. This chapter shows the explicit connection between individuals and markets by deriving market, or aggregate, demand curves. The chapter also explains the determinants of market demand, and re-introduces the concept of elasticity, or responsiveness of consumers to changes in prices and other economic conditions. Chapter 10 shows how supply and demand curves interact to determine the prices and quantities of goods.

  9.1 Demand

  While supply curves stem from the marginal cost curves of individual producers, demand curves derive from decisions made by consumers when they decide which goods and services to buy. Demand reflects the purchases that consumers make as they strive to maximize utility, given prices and income. Demand is a technical term that describes consumer purchases, or:

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  Microeconomics

  A Global Text

  • Judy Whitehead(Author)
  • 2014(Publication Date)
  • Routledge

    (Publisher)

  shift factors .

  Changes in price are reflected in movements along the demand curve. Changes in the other factors which affect demand, such as income, taste or preferences and the price of other goods, are reflected in a shift in the demand curve. These shift factors affect the position of the demand curve.

  Demand is also affected inter alia by:

  • The availability of credit
  • The nature of the distribution of income
  • Market size
  • Accumulated wealth or affluence of the population
  • Cultural habits and behaviour
  • External influences from foreign media such as television and the internet (demonstration effect)
  • The consumption behaviour of others in the market (see Bandwagon, Snob and Veblen effects in Chapter 4 ).

  3.1.1 Derivation of market demand

  The market demand for a given commodity is simply the horizontal summation of the demands of the individual consumers.

  Consider a market with n consumers. The market demand is the horizontal summation of the demand curves of all n consumers. This is illustrated for two consumers (A and B ) in Figure 3.1 .

  It should be recognized that, although for one consumer a good may be a Giffen good (i.e. with a positively sloped demand curve), the market demand will still have the normal negative slope unless it is a Giffen good for a large enough number of consumers in that market.

  Figure 3.1 Horizontal summation of individual demands to give market demand

  3.1.2 Shape of the demand curve

  The demand curve is usually drawn as a straight line (linear demand curve). However, it may also take the form of a curve, usually one that is convex to the origin.

  The linear demand curve

  The linear demand function, expressing the relationship between the quantity demanded (Q ) and the price (P ) of a commodity may be written as:

  where,

  It is important to understand that, while the demand function is written with quantity (Q ) as a function of price (P ), it is drawn with price (P ) as a function of quantity (Q ). Therefore quantity is placed on the X -axis. The expression is Walrasian in nature whereas the drawing is based on Marshallian principles. These terms refer to economists Walras and Marshall and are explained further in Chapter 8

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  Intermediate Microeconomics: Neoclassical and Factually-oriented Models

  Neoclassical and Factually-oriented Models

  • Lester O. Bumas(Author)
  • 2015(Publication Date)
  • Routledge

    (Publisher)

    Some economic variables affect buyers and others affect producers. An increase in income allows buyers to purchase more and better products—but has no direct effect on the costs of their production and supply. Technological progress may dramatically change the way a product is made and its cost of production and supply, but that will not change the demand for it. A related matter is that demand and supply are generally, but not always, independent of each other. This creates the need to analyze each separately and in isolation from the other. There are few things as disheartening to instructors than finding students asked to confront demand-side issues slipping their analysis into the realm of supply and vice versa.

  Demand

  The demand function is defined as:

  Demand is the quantity of a product per unit of time, Q D willingly purchased at various prices, P , all other variables held constant.

  Note that the D in Q D is a superscript which identifies the quantity variable as associated with demand. Superscripts are used to identify variables particularly if subscripts are set aside for time tags, as P 96 for the price in 1996. If time tags are not used, subscripts are usually used for identification purposes.

  Standard Specifications of Demand and Supply Functions

  Several matters specified with regard to demand and supply functions warrant attention. (1) The variable “quantity” is generally shorthand for quantity per unit of time . Saying that 60,000 bushels of wheat will be purchased at a price of $4 per bushel just makes no sense. Will this quantity be purchased per hour, day, week, month, or year? The unit of time must be specified. (2) Demand and supply must refer to a standardized or homogeneous product or factor of production. The same supply function, for example, cannot refer to both the most rudimentary Chevy and the most sophisticated Cadillac. (3) In its basic form the quantities supplied and demanded are functions of price alone. This is because all other relevant variables are held constant—making them shift parameters . (4) Basic demand and supply functions are static. They only hold true during short durations of time; time periods during which shift parameters do not vary. (5) Supply and demand functions are really expectational. They cannot tell us how many cars will be bought per month, at various prices, but how many are expected

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  Cloudonomics

  The Business Value of Cloud Computing

  • Joe Weinman(Author)
  • 2012(Publication Date)
  • Wiley

    (Publisher)

  CHAPTER 8 Demand Dilemma Many businesses have come to accept an endemic problem: the fundamental disparity between the capacity to produce products and deliver services—which is fixed in the short term—and the demand for those products and services—which is almost always variable at any time scale. By “demand,” we mean users’ and customers’ needs and desires to acquire or consume Chinese take-out meals, Lamborghinis, plane tickets, electricity, Web content, and the millions of other products and services for sale every day, whether online or offline. By “capacity,” we mean the resources that enable businesses to meet those needs: woks, tables, tablecloths, servers (as in waiters), servers (as in computers), and the millions of other resources that are required, singly or in combination. Often demand and capacity use different measures: One may measure demand for food in platefuls, but capacity is measured in woks and cooks. Sometimes they are the same: A toaster needs electricity, and a power company delivers it. Here we will keep things simple and assume that demand and capacity are in the same units. Like a broken watch that indicates the correct time twice a day, capacity may coincidentally correspond to demand for a short while, but generally it is too high or too low, causing economic loss. Customer demand—at its heart—is volatile. Although tactical measures such as queuing and demand shaping can ameliorate the issue, only the cloud can truly solve it. Variability and unpredictability are two important yet distinct characteristics of demand: The position of a thrown rock following a ballistic trajectory is variable yet predictable; that of a driven car may vary unpredictably or remain constant unpredictably. The demand dilemma—varying, apparently random demand—leads to a capacity conundrum: the challenge of determining how much production, operations, and delivery capacity should be deployed

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