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Demand and Supply Curves, etc.

I recently bought skim milk instead of soy milk because the skim milk was less expensive. (It could be a purchase of anything, soda, fast food meals, etc.) I used milk because that is what I specifically bought and why.

1. Please help me explain how the law of demand affected my purchase.

2. 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).

3. What happens to the demand curve and the supply curve when any of these determinants change?

4. 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.

5. Discuss the new equilibrium price and quantity that result from these changes.

Solution Preview

The law of demand tells us that as the price for a good rises, fewer people will buy it, holding other factors constant. So, you can see that this was played out in your decision to buy skim milk. Had soy milk been less expensive than its nearest substitute, you would have chosen it instead. The more its price rose, relative to skim milk, the less likely you were to buy it.

The five demand determinants are (1) taste of preference, (2) income, (3) price of complements and substitutes, (4) expectation of consumer regarding future price, and (5) numbers of buyers in the market. You can find how each of these would affect your decision with a ...

Solution Summary

Determinants of supply and demand; how the law of demand affects purchases; movement of the demand curve versus movement along the demand curve.