Friday 20 December 2013

What might cause the change in demand for an iPod?

It's important to be precise with questions like these, because subtle changes in wording and context can change the answer.


Demand can mean the number of iPods that consumers will buy. In that case, raising the price will decrease demand, and vice versa. This is common sense: the more expensive something is, the less likely people are to shell out the money for it.


However, microeconomics and business textbooks frequently use Demand as shorthand for...

It's important to be precise with questions like these, because subtle changes in wording and context can change the answer.


Demand can mean the number of iPods that consumers will buy. In that case, raising the price will decrease demand, and vice versa. This is common sense: the more expensive something is, the less likely people are to shell out the money for it.


However, microeconomics and business textbooks frequently use Demand as shorthand for the Demand Curve. The Demand Curve is a function that correlates the possible prices of a product with the number of buyers at any given price. Under this paradigm, a change in supply or price does not constitute a change in demand; it simply moves the current market to a different point on the same curve. That is to say, if you increase an iPod from $300 to $400, fewer will sell, but the number who would have bought at $300 is unchanged. Those people still count as "demand" for the iPod, since they do still want an iPod, just not at its current price.


To change a Demand Curve, we can answer with almost anything that makes the iPod more or less desirable regardless of price. New features, brand recognition, or improved warranties could all increase collective desire for an iPod; high-class competitors, poor reviews, lack of reliability, or an ugly redesign could all decrease that desire. In fact, there are more valid answers that invalid ones. The only catch is that we cannot answer with "how much it costs."

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