1) Distinguish between a shift of the demand curve for a product and a
movement along the product’s demand curve.
Demand is the quantity of a good or a service that a consumer desires
and able to afford it at a given time for a price. So it is the quantity of people who want and
are able to economically afford the product.
For example, the demand for expensive items like, Rolex watches is not
very high; because not many people are able to afford them therefore it has low
demand. The demand for items like, toilet paper, have an enormous demand
because everything needs it, and it is not very expensive.
Demand can be showed in a demand curve diagram, with price being on the
y-axis and quantity demanded on the x-axis. Demand curve can shift to the left,
meaning a drop in demand, or it can shift to the right, meaning a rise in
demand; also the change in price of a product causes a movement along the
existing demand curve.
With the graph it is easier to identify and understand how demand works.
It shows on the diagram the demand relationship. The lower the price, the
higher the demand will be.
Even thought there are many factors that may cause the demand curve to
shift, there only exists one that does not shift, which is a change in price,
this only causes a movement along the demand curve. Nevertheless as the price
changes the quantity demanded for the product will also change.
One effect that causes the movement along the curve is, The income
effect or ‘real income’ this is how much an individual can buy with their
certain income, so when the Price of a product decreases the individuals real
income will increase, making it more likely for that person to buy more of the
product.
Other effect is the substitution effect; this occurs when the price of a
product decreases it makes it more desirable in comparison to other, more
expensive ones. The consumers will buy more of the cheaper product, to replace
other, more expensive products, which have the same uses.
Nevertheless there are many factors that cause the demand curve to
shift, either to the left or to the right. Factors like, income, price and
quality of similar products, size of population, change of age structure,
change in income distribution, personal preferences, government policy changes,
seasonal changes and many others.
The demand curve can shift to the right, meaning that the product has
incremented its demand at every price.
If the demand curve shifts to the left it means that there is less
demand for the product.
The low states that it is compulsory to use a helmet while riding a bike
on the street, but change to this rule has been made.
As for now it is no longer compulsory to wear a helmet while riding a
bike unless the individual is underage.
Also the government enquires citizens to ride bikes, therefore it
subsidises bike companies making them cheaper to produce.
