exercise 4: identifying the determinants of demand. you have seen have how an increase in demand is depicted…
exercise 4: identifying the determinants of demand. you have seen have how an increase in demand is depicted on a graph by a shift in the demand curve. when the demand curve shifts upward and to the right, this is indicative of an increase in demand. when the demand curve shifts to the left, this is indicative of a decrease in demand. factors that result in a change in demand are the determinants of demand. complete the table below. for each determinant of demand: indicate whether demand will increase or decrease; provide an explanation as to why. \ndeterminant of demand demand increases or decreases? explanation\npopulation increases\npopulation decreases\nincrease in most peoples’ income\ndecrease in most peoples’ income\nprice of substitute increases\nprice of substitute decreases\nprice of complementary good increases\nprice of complimentary good decreases\nproduct becomes a popular fad (change in taste of buyers)\nproduct now out of fashion (change in taste of buyers)\nthere is an expectation that the price of the product will soon fall\nthere is a fear that the economy will go into a recession where many firms will fail and unemployment will increase
Answer
Brief Explanations:
- Population increases: Demand increases. More consumers mean more potential buyers.
- Population decreases: Demand decreases. Fewer consumers lead to less demand.
- Increase in most peoples’ income: Demand increases. People have more purchasing - power.
- Decrease in most peoples’ income: Demand decreases. People have less money to spend.
- Price of substitute increases: Demand increases. The product becomes relatively more attractive.
- Price of substitute decreases: Demand decreases. The substitute becomes more attractive.
- Price of complementary good increases: Demand decreases. The combined cost of using the goods rises.
- Price of complementary good decreases: Demand increases. The combined cost of using the goods falls.
- Product becomes a popular fad (change in taste of buyers): Demand increases. More people want the product due to changing preferences.
- Product now out of fashion (change in taste of buyers): Demand decreases. Fewer people want the product due to changing preferences.
- There is an expectation that the price of the product will soon fall: Demand decreases. Consumers delay purchases to buy at a lower price later.
- There is a fear that the economy will go into a recession where many firms will fail and unemployment will increase: Demand decreases. Consumers become more cautious with spending due to economic uncertainty.
Answer:
| Determinant of demand | Demand increases or decreases? | Explanation |
|---|---|---|
| Population increases | Increases | More consumers, more potential buyers |
| Population decreases | Decreases | Fewer consumers, less demand |
| Increase in most peoples’ income | Increases | Higher purchasing - power |
| Decrease in most peoples’ income | Decreases | Lower purchasing - power |
| Price of substitute increases | Increases | Product is relatively more attractive |
| Price of substitute decreases | Decreases | Substitute is more attractive |
| Price of complementary good increases | Decreases | Higher combined cost of use |
| Price of complementary good decreases | Increases | Lower combined cost of use |
| Product becomes a popular fad (change in taste of buyers) | Increases | Changing preferences in favor of product |
| Product now out of fashion (change in taste of buyers) | Decreases | Changing preferences against product |
| There is an expectation that the price of the product will soon fall | Decreases | Consumers delay purchases |
| There is a fear that the economy will go into a recession where many firms will fail and unemployment will increase | Decreases | Consumers are cautious due to economic uncertainty |