Demand Changes

Demand curve graphs are a great tool that can be used to show how much/little the demand for a specific item has changed over time or with an increase/decrease in price - supply of that product can then be adjusted accordingly.

There are several key factors that will cause a shift of the demand curve:

• Consumer preferences: often include ridiculous fads such as fluorescent clothing - it wasn't cool the first time!
• Prices of preferred goods
• Consumer incomes: consider the recent recession - I imagine the demand for Apple products dropped drastically!
• Expectation of future prices: if you knew the price of beer was going up at midnight, you probably wouldn't be sitting there reading this, thus creating a larger demand.

On the graph to the left, there are two different demand curve lines (red) on the graph, D1 & D2. The S line (blue) represents the supply curve. The "Y" axis is showing the price of the product while the "X" axis is showing the quantity. Let's say line D1 is starting at a price of $10 with only 1 purchased - meanwhile, there is an increase in supply which causes the price to come down and in turn, creates a larger demand and more are purchased. Line D2 starts at the same price, but with more purchases at this price. This could be due to the larger supply, or that particular item gaining popularity - both of which are factors of a demand increase. Where red meets blue is known as the market equilibrium - supply and demand are in harmony! 

Game On!

For this particular exercise, I decided to play the game called Diner City. (http://games.t45ol.com/play/6132/diner-city.html) The object of this game is to manage a restaurant sufficiently. You are responsible for everything from making decisions about the decor on the outside of your restaurant to hiring the serving and cleaning staff on the inside.

There is a delicate balance when running a business that must always be maintained in order to be profitable and the pros and cons of each decision must be weighed before making it final. For example, when considering another employee, you must determine whether or not you've got the clientele (demand) to justify that persons wage. Will he/she cost more than you'll make by hiring them? And vice-versa, when making the decision the spruce up the decor, will you have enough staff and resources (supply) to adequately serve the increase in foot traffic? Also, would a bench or newsstand deter the customers enough to avoid hiring another employee? Which would be the more logical purchase? My thoughts would be the newsstand even though it is slightly more expensive, you will more than likely recoup those costs with sales and there is also the opportunity to turn a profit! You may not always be in the financial position to answer these questions with such ease - you may only have the funds for one, so it better be the right decision or it could lead to your demise against the competition.

I think that it is always important to consider what the future has in store (pun intended) when operating a business in order to effectively manage what resources, both funds and consumer goods, are available to make it a success.

Production Possibilities Curve

Production possibility graphs are an excellent resource for economists because they provide a visual aid which clearly illustrates how much of one particular good can be produced while also producing another type with the available resources.

Graphs are a fundamental part in determining many different aspects regarding supply and demand. Finding that delicate balance is referred to as the economic equilibrium. The equilibrium refers to the point at which the most output can be obtained for each individual product while utilising the resources to their full potential.



Figure 1
Source: Wikipedia



For example, if you look to the graph in Figure 1 you will notice 5 points on the graph. Anything within the curve of the line is attainable production (point A), and anything on the outside of the line (point X) is unattainable meaning that there are not enough available resources to attain that output. Points B, C and D all represent different levels of output based on which product you would primarily produce. Point B clearly would produce many more guns than butter. Point C the opposite, more butter than guns. Point D would represent the equilibrium, showing the point on the graph where maximum outputs will be reached for both guns and butter.

I'd have to agree with the statement that a picture is worth a thousand words - just by glancing at a production possibilities graph, you are able to identify the point at which maximum output would be reached or how many guns would be sacrificed for more butter and vice-versa.



Micro vs. Macro

Microeconimics is like the sun where as macroeconomics would be all the planets & moons that revolve around it to make up the entire solar system.