Explain how the law of demand affected your purchase. Give specific examples of

Question

Explain how the law of demand affected your purchase. Give specific examples of how the determinants of demand and supply affect this product (T-I-P-E-N and P-R-E-S-T). What happens to the demand curve and the supply curve when any of these determinants change? Give examples of scenarios that would cause a change in demand versus a movement along the same demand curve and supply curve for this product. Discuss the new equilibrium price and quantity that result from these changes. Can you demonstrate some of these changes graphically?

Explanation / Answer

Consider the purchase of soda. I went to the store yesturday and purchase a soda for $1. The choice at first was difficult being there were many substitutes. Then I saw the store brand which was much cheaper than the rest. I decided to purchase this because my demand was higher as I am sure the quantity demanded (move along the curve) is higher for this product. I am glad I got such a good deal. If however, there was a coupon for free soda, the demand curve would shift to the right and I could expect the price the following week to increase. Initially at the price of $1, my quantity demanded was 5 however when the price became free, my quantity demanded increased but at a dimishing rate. I will not have as much utility for the 100th soda. As a result of the price increase I can expect next week, Maybe $1.25 my quantity demanded will be reduced to 4. This could be a good story to tell explaining everything asked for above. Cramster will not let me draw so for a graph label the y axis price and the x axis quantity draw a upward sloping supply from the orgin up and a downward sloping demand with the equilibrium point at P=1 and Q=5. Next shift the demand curve to the right with the new equilibrium point at P=1.25 and Q=4

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