Share
Explore BrainMass

Shifts in supply and demand curves: Determinants and Equilibrium

Think about a product that you have purchased recently (e.g. soda, diapers, takeout meals, milk, shoes, manicure/pedicure, video game, etc.). 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? Also at that this time of year some stores begin to offer discounts for winter clothing. Can you explain why they offer the discounts? What can we say is happening to the Demand or Supply curve for prices to come down? What can we say about how consumers react to the lower price?

Solution Preview

>Think about a product that you have purchased recently

Bags of potato chips.

>Explain how the law of demand affected your purchase.

The law of demand states that consumers want to buy less of a product as its price increases. The price of my favorite potato chips recently increased, so I bought fewer bags.

>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).

Determinants of demand:
Price of substitute goods: If the price of pretzels decreases, consumers will switch some of their consumption from chips to pretzels.
Tastes or preferences: A successful TV advertising campaign can raise the demand for a particular brand of chips.

Determinants of supply:
Price of inputs: If the price of an ingredient of ...

Solution Summary

This solution lists some of the determinants of supply and demand, and gives examples of factors that might cause the determinants to change. It also explains how a shift in the demand or supply curve will affect a product's equilibrium price and quantity. Two examples are presented: potato chips and winter clothing.

$2.19