Demand
Demand
is a curve that shows an amount of products that consumers are willing and able
to purchase at different prices during a period of times (McConnell, et al,
2009). The relationship between the amount of products that consumers willing
to buy and the price of product can easily be shown in a table and graph.
Demand
for Fast Food Meal
|
|
Price per meal ($)
|
Quantity
Demanded per week
|
8
|
10
|
7
|
20
|
6
|
35
|
Table 1.0
Based on Table 1.0 and
Diagram 1.0, when the price of fast food meals is $8 per meal, the quantity
demanded for fast food meals is 10 meals per week; when the price of fast food
meals is $7 per meal, the quantity demanded for fast food meals is 20 meals per
week; when the price of fast food meals is $6 per meal, the quantity demanded
for fast food meals is 35 meals per week. However the table and diagram does
not tell the market price of fast food meals. The market price depends on the
interaction between demand and supply.
Law
of Demand
The
main characteristic of demand is as price decreased, the quantity demanded will
increase and as price increased, the quantity demanded will decrease, ceteris
paribus (McConnell, et al, 2009). In other words, this is an inversed or
negative relationship between price and quantity demanded. Economists named
this negative relationship as the law of demand (McConnell, et al, 2009).
Changes
in Quantity Demanded
A
change in quantity demanded is a movement along the fixed demand curve from one
point to another point (McConnell, et al, 2009). This happened when there is
change in price of product itself.
Demand for McDonalds’ Lunch Set
|
|
Price per set
|
Quantity
Demanded per week
|
7
|
15
|
6
|
25
|
5
|
40
|
Table
1.1
According
to diagram 1.1, when the price of the McDonalds’ lunch set increased from $6 to
$7, the quantity demanded decreased from 25 to 15 which showed the movement
along the demand curve from point A to point B. On the other hand, when the
price of McDonalds’ lunch set decreased from $6 to $5, the quantity demanded
increased from 25 to 40 which showed movement along the demand curve from point
A to point C.
Changes
in Demand
A
change in demand is the shift of demand curve to the right, which is an increase
in demand or to the left, which is a decrease in demand (McConnell, et al,
2009). The shift of demand curve occurs when the one or more determinants of
demand changed. The determinants of demand are taste, income, price of related
goods, number of buyers, and consumers’ expectations (Sexton, 2006).
Tastes
A sudden increase or
decrease of demand for a product or services is caused by change in fashion
(Sexton, 2006). Advertising or promotion may trigger the change in taste of
consumers. Other than that, a new launched product also may affect the consumer
taste. For example, when Kentucky Fried Chicken launched their new Spicy Korean
Burger, the demand for Zinger Burger is decreased where the demand curve for
Zinger Burger shifted to the left from DD1 to DD3; the
price of the burger remain unchanged while the demand for zinger burger
decreased from Q0 to Q2.
Number
of Buyers
An
increased in number of buyer in the market will increase the demand while a
decrease in number of buyer in the market will decrease the demand for a
product (Sexton, 2006). For example, when a large scaled of people are moving
in into an area, the demand for fast food will increase where the demand curve
for fast food shift to the left from DD1 to DD2; the
price of the fast food remain the same and the demand for fast food increased
from Q0 to Q1.
Consumers’
Expectations
The
demand for a good or services will increase or decrease dramatically in a
specific period because the consumers expect there is changes in price or
availability for a good or services in the future (McConnell, et al, 2009). For
example, if the customers of McDonalds expect the price of McDonalds’ McValue
dinner or lunch set will increase in the future, the demand for McDonalds’
McValue dinner or lunch set will increase for now where the demand curve for
McDonalds’ McValue dinner or lunch set shifted to the right; the price of the
meal remain the same and the demand for McValue increased from Q0 to
Q1.
(economicsfun, 2009)
Supply
Supply
is a curve that shows the willingness and ability of producers to produce a
various amount of product for sale at different level of price during a given
period (McConnell, et al, 2009).
Supply
for McDonald Burger
|
|
Price
per piece ($)
|
Quantity
Supplied per week
|
9
|
50
|
8
|
30
|
7
|
20
|
Table
2.0
Law
of Supply
The table 2.0 and diagram 2.0 shows the direct or
positive relationship between the price and quantity supplied; when the price
of burger is $7, the quantity supplied is 20 per week; when the price of burger
is $8 per piece, the quantity supplied is 30 per week; when the price of burger
is $9 per piece, the quantity supplied is 50 per week. As price increased, the
quantity supplied increased; as price decreased, the quantity supplied
decreased (McConnell, et al, 2009). This relationship is named the law of
supply.
Changes in Quantity
Supplied
Change in quantity supplied is a movement along the
fixed supply curve from one point to another. This movement occurs when there
is a change in the price of product itself(McConnell, et al, 2009).
Supply
for Fried Chicken by KFC
|
|
Price per piece ($)
|
Quantity
Supplied per week
|
4
|
200
|
3
|
100
|
2
|
50
|
Table
2.1
Based on the Diagram
2.1, when the price of fried chicken decreased from $3 to $2 per piece, the
quantity supplied by KFC will decreased from 100 to 50 which showed the
movement along the supply curve from point A to point C. When the price of
fried chicken increased from $3 to $4 per piece, the quantity supplied by KFC
increased from 100 to 200 where the supply curve moved from point A to point B.
Change
in Supply
Resources
Prices
The prices of the raw materials used to produce
determined the production cost incurred by the firms (McConnell, et al, 2009).
The production cost increased as the resource prices increased, ceteris
paribus, and thus reduced the profit. When the profit is reduced, the incentive for
firms to supply a product at each price reduced as well. For example, when the
price of potato increased, McDonalds will reduce the supply of French fries;
the supply curve of French fries shift to the left from SS0 to SS2
and the quantity reduce from Q0 to Q2.
Taxes
and Subsidies
Tax mostly treated as an expense by businesses. An
increase in revenue or property tax will increase the cost of the firm and
caused the firm to reduce supply (McConnell, et al, 2009). On the other hand,
the subsidies will lower the cost of the product and increased the incentive of
a firm to supply the product at each price. For example, when the government
increases the sales tax for all the fried chicken by the fast food industry,
then the supply of fried chicken by the entire fast food industry will reduce
causing the supply curve of fried chicken shift to the left from SS0
to SS2, the quantity reduce from Q0 to Q2.
Number
of Sellers
Ceteris Paribus, the number of sellers determined the
supply too. The larger the numbers of firms, the greater the market supply
(McConnell, et al, 2009). For example, there are many fast food dealers in
North Carolina, the supply for fast food there is greater at there. The supply
curve shift to the right in North Carolina from SS0 to SS1
due to the large number of supplier, and the quantity increased from Q0
to Q1.
(mjmfoodies, 2010)
( 1489 words)
Reference List
AmosWEB,
2013, Change in Quantity Supplied,
[Online] Available at: <http://www.amosweb.com/cgi-bin/awb_nav.pl?s=wpd&c=dsp&k=change+in+quantity+supplied>
[Accessed: 30th May 2013]
Campbell
R. McConnell, Stanley L. Brue, and Sean M. Flynn, 2009, Economics, 18th Ed, New York, McGraw-Hill/Irwin
Economicsfun,
2009. Understanding The Difference
Between Change in Supply and Quantity Supplied. [video online] Available
at: <http://www.youtube.com/watch?v=K_G-_izbPl8>
[Accessed 30th
May 2013].
Mjmfoodie,
2010. Episode 12: Change in Demand VS Change
in Quantity Demanded. [video online] Available at: <http://www.youtube.com/watch?v=aTSwcXJ700c>
[Accessed 28th
May 2013]
Robert
L. Sexton, 2006, Essentials of Economics,
2nd Ed, United States of America, Thomson South-Western
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