The Lack Of Advertising Can Effect Demand Economics Essay

1. Introduction

This assignment will explain resource and demand and how both are key factors that impact price with samples from everyday life.

Firstly to explain that price is derived by the interaction of resource and demand. The marketplace price is dependent upon both these components. The market is where an agreement between potential buyers and sellers to buy or sell goods or services will arise and can agree on a cost. When an exchange occurs, the agreed price is called the equilibrium price.

2. Demand

"Demand in economics has three characteristics, desire to truly have a good, willingness to pay for that good and the ability to purchase that good. In absence of any of these three characteristics there is absolutely no demand" Gupta G. S (2006).

Demand is based on consumers which is the relationship between your price that is incurred and the quantity of that product that'll be purchased at that price. The quantity demanded is the quantity of a product people are prepared to buy at a specific given price.

3. REGULATIONS of Demand states that when the price of a product raises then less will be demanded. When the price of something is reduced then more will be demanded. The reason why quantity demanded is a key adjustable to price is we must assume people have a restricted amount of income. With other things being equal the higher the price of a product small the amount that may be purchased and vice versa.

Another factor that influences demand is substitutes. Most products have such as Tesco tea is an alternative to Lyons tea. If the price tag on Lyons tea increases relative to the price of Tesco brand, customers will buy less Lyons tea and much more of the Tesco substitute.

The marriage between price and the amount of product people want can be illustrated over a demand plan and a demand curve.

4. Demand Timetable illustrated in table 1. 1 shows the volumes demanded at each different price other activities being equal. We can see as price is reduced demand rises. This demand plan can then be illustrated by pulling a demand curve which graphs the partnership between the amount demanded of a product and its own price.

Table 1. 1 Demand schedule

Price of Video Game (Euro)

Quantity Demanded of Video Game Per Day

5

5

4

10

3

15

2

20

1

25

5. A Demand curve shows how price influences the number demanded by plotting price on the vertical axis and volume demanded on the horizontal axis. As price goes down demand increase. We can see this from the demand curve illustrated in graph 1. 2. that the demand curve slopes downward from kept to right indicating as price falls demand boosts, for illustration if the price of a video game is at five euro there's a number demand for five, but when the price is lowered to 1 Euro the quantity demand heightens to 25.

Graph. 2 Demand curve

6. Change in a demand occurs when a good's amount demanded changes even though the price remains the same. The shift can increase or lower depending on a number of factors such as:

When income raises customers will buy more goods and vice versa.

If the price tag on substitute goods reduces customers will change to that product and vice versa.

If price of the complement product reduces the demand for both will go up, i. e. if the price of DVD players reduces the demand for the Dvd movie player and DVD's will raises and vice versa.

Change in style affects demand. If customers are in favour of something demand rises, when they change against a product demand falls.

Advertising or the lack of advertising can effect demand

Population change also has an effect but usually long run.

Graph 2. 1 illustrates a move in demand where that when a consumer's income rises from 200 Euro to 250 Euro a week, one of the conditions of demand has improved. Together with the increased income the buyer is ready and able to buy more video games. This causes the demand for video games per day increasing demand without change of price.

Graph 2. 1. Switch popular curve.

http://t2. gstatic. com/images?q=tbn:ANd9GcRRvA8vEjzK48wT3i-XEU4bt-X2k691CLCBIopjodywnatU6xY_Jw

http://www. netmba. com/econ/micro/demand/curve/

7. A perverse demand curve is when a price increases, demand rises and when price falls demand falls. This is the opposite of an demand curve (amount 1. 2). There are two significant reasons this may happen.

Giffen goods, known as following the economist who found out the phenomenon was based on the observation that the indegent of Victorian London bought less breads when it was cheap. For the reason that when the price of an inferior good falls the customer has more money open to buy top quality goods.

Exclusive goods, is when there is a greater appeal for exclusivity for a few consumers as the price boosts so will demand. Types of exclusive goods are certain types of jewellery and cosmetic makeup products.

8. Supply

Is "a fundamental economic theory that describes the quantity of a particular good or service that's available to consumers" (www. investopedia. com)

Supply is based on manufactures and can be defined as the quantity of goods available which along with demand is 1 of 2 key parameters that impact price. The higher the price of a good the greater the quantity which will be supplied other things being equal. You can find five determinants of amount supplied,

The price of the item is cost of creation plus profit. We expect the higher the price, a lot more profitable it'll be to make thus increasing resource.

If the price of other goods increase. The creation of the product whose price that does not increase will make it less attractive than before. Therefore we expect the supply of a commodity will fall season as the price of other commodities rise.

Price of factors of production can be an important influence on price. If the cost to make a product escalates the profit margin will be reduced. Because of this if the price of labour increases this may cause a decrease in supply. However if there is a decrease in cost of labour a more substantial volume can be profitably supplied.

The goals of firms. Producers might want to decide to keep carefully the price high to restrict demand keeping revenue high, a good example of this is the sales of I-phones. They could also opt to sell as much as possible, even if it costs them some revenue in doing this.

The state of technology can aid a developer in minimising his cost of development and increasing efficiency. Mass creation is therefore possible with technology, reducing the cost to produce a unit.

9. Regulations of supply areas that all other things equal, as the price of a good rises its quantity offered will grow. This ends up with producers willing to offer more products on the market on the market at higher prices by increasing production as a means of increasing earnings.

Table 3. 1 illustrates a source schedule showing the several quantities of video game consoles that providers are inclined and able to supply at different prices over confirmed time frame.

Table 3. 1. Resource schedule.

Price of gaming console (Euro)

Quantity offered per day

1

12

2

28

3

42

4

52

5

60

10. A resource curve illustrated in graph 3. 2 is a graph that presents the relationship between the price of your good and the quantity supplied. When price increases the quantity supplied also boosts.

Price is plotted on the vertical axis and quantity supplied is plotted horizontal axis. The supply curve is upward sloping from remaining to right reflecting the law of supply. If the price of gaming consoles boosts from four euro to five euro per gaming console we can see that the quantity demanded will increase from 50 to 60, we can see this by following source curve in graph 3. 2.

Graph 3. 2 resource curve.

http://www. netmba. com/images/econ/micro/supply/curve/supplycurve. gif

http://www. netmba. com/econ/micro/supply/curve/

11. A shift in a resource curve is when there's a change in resource for a reason other than a change in price.

Graph 4. 1. illustrates that the supply curve has shifted to the right. This means that more comes at the same price.

The major causes of a rise in supply moving the supply curve to the right are:

improvements in technology

reduced price of natural materials

reduced production costs

reduced labour costs.

The supply curve can also switch to the left showing a fall in supply. This means less will be provided at the same price.

The significant reasons for this are:

a change in development to a more lucrative option

increase in cost of uncooked materials

a decline popular for the product

increases in the price of production.

Graph 4. 1 Switch in a resource curve

http://www. netmba. com/images/econ/micro/supply/curve/supplyshift. gif

http://www. netmba. com/econ/micro/supply/curve/

12. Price and productivity determination. The price tag on a good regulates the quantities demanded and offered. By combining the resource and demand curves we can show the way the actual price of an good and the quantities bought and sold are determined.

13. Equilibrium may be defined as the main point where resource equals demand for a product. The equilibrium price is where in fact the demand and supply curves intersect. This shows us the stage where the quantity demanded equals the quantity supplied giving us the equilibrium price. By looking at graph 5. 1 where in fact the demand curve crosses the supply curve at the heart is known as the market clearing price. The marketplace clearing price is where there is absolutely no surplus or scarcity.

Surplus occurs when number supplied exceeds number demanded.

Shortage occurs when amount demanded exceeds amount supplied.

The equilibrium price will stay unchanged after the demand and offer curves remain unchanged. If either the demand or resource shifts, it will result in a new equilibrium price. Such as for example if console games are one euro each, consumer demand can go beyond supply. This causes a scarcity of console game titles on the market. Shortages will to force up the purchase price and consumers contend to buy the product. When prices increase to a point where consumers will not buy the product or buy substitute product, demand reduces. This creates a surplus. To reduce surplus the purchase price falls and consumers start buying again keeping equilibrium.

Graph 5. 1. Source and demand curves intersecting

http://www. netmba. com/images/econ/micro/supply-demand/supplydemand. gif

http://www. netmba. com/econ/micro/supply-demand/

14. Conclusion

Supply and demand are considered a simple basis of economics. They are key variables of price and outcome in different marketplaces. They are an important part of a free of charge market economy that will respond to changes to get over shortages and surplus and keep maintaining an equilibrium price and help keep the market firm.

Demand identifies how much of a product is looked for by buyers. Amount demanded is the amount of a product individuals are prepared to get at a certain price.

Supply refers to how much the market can offer. Variety supplied refers to the amount of a product providers are prepared and able to supply at a certain price. Therefore price is a representation of source and demand.

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