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Demand Shifters and Market Forces

Explain the five demand shifters in managerial econimics-consumer income, prices of related goods, advertising and consumer taste, population, and consumer expectations and how they effect market forces.

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There are various factors that influence demand and some of the most important are the ones listed above.

1. Consumer Income: This is the most important component that determines demand. If people have more money they are likely to spend more. If they spend more the demand for goods will rise and the demand curve will shift to the right. What this indicates is that they are willing to buy more units of any good at a given price level. The opposite will happen if the income falls: people will have less money, they will buy lower amount of goods, and the demand curve will shift to the left.

This also holds true in a very intuitive way: if you as an individual have more money you will spend more and vice versa. When this thing happens on an economy wide scale, primarily due to the phase in the business cycle, the demand curve of different goods shift. For example, over the last 5 years or so (2002-2007) before the current recession hit the Chinese demand for commodities raised the prices of almost all commodities. What was happening was that China had more money, they were spending it on goods they needed, and this increase the worldwide demand since China is one of the largest economies of the world.

2. Prices of Related Goods: This aspect is easier explained using a common good and how one spends money on that. ...

Solution Summary

This solution lists five demand shifters in Managerial Economics.