Supply & Demand Review

1. Why does the demand curve slope down from left to right?

The reason the normal demand curve slopes down from left to right, is due to the inversely proportional relationship that price & demand have. The slope exists as it follows the “Law of Demand”, this is because as the price of a product or commodity decreases then the demand increases. There are only two exceptions for the normal demand curve, and they are Giffen Goods & Veblen Goods.

2. Why does the supply curve slope up from right to left?

There is no law that determines that the supply curve should slope up from right to left. The regular supply curve does show a positive relationship between quantity of supply and price. However in accordance to theory as the quantity of supply increases so does the demand. This works because in theory a manufacturer would want to make more of their product if it was to be sold at a higher price, as there can be an increase in the profit margin.

3. Explain, using a diagram, what happens to the demand for ice cream as we move from summer to winter?

In regards to supply, the supply curve will shift to the left as prices will remain the same but the quantity of supply will be reduced. In regards to demand the curve will shift to the left as the changed in demand is due to the seasons changing and ice cream becoming less favourable during the winter. In the diagram below the shift of the equilibrium can be noticed.

 

4. People have a rise in incomes explain with a diagram what will happen to the demand for restaurant meals?

Due to a rise of income, people have a greater effective demand to go out for restaurant meals. The supply will stay the same, as the restaurants won’t necessarily react to a rise of incomes. The demand however will increase, and the price will be similar or higher than before, as people are now able to afford eating in restaurants and the price increase is a reaction to the newly generated demand.

 

 

5. There is an increase in the price of cinema tickets. Using a diagram explain what will happen.

Due to the prices of cinema tickets increasing, there will be excess supply. This is because there is not a given factor to change the supply or demand but the price has been changed. The market will naturally want to go back to the original equilibrium, if there is not another factor introduced to justify the change in price.

 

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One thought on “Supply & Demand Review

  1. On the whole very good. However your analysis of the cinema market has some errors in it. Speak to me in class and we will go over it again. There are also small errors in your analysis of diagram 3.

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