You are on page 1of 4

# Figure 1 Comic strips regarding factors of demand

By referring to figure 1, it is a scene at roadside shop where the seller selling lemonade at \$20
each and he claimed that the price is based on the stock market. While on the other side, a
guy said that he need to buy some lemonade before the price rises higher. From the comic
strips, it shows the demand of lemonade is higher when the customers expect the price of
lemonade would increase in the future.

This situation is relating with factors of demand. According to Khanacademy (2016), demand
can refer as quantity of goods or service that customers are capable and willing to buy at
certain price. In simple word, demand is where the services or products that customers afford
and have intention to buy it.

According to Hill (2016), law of demand is the amount demand for a product increases as the
price decreases, with all other remaining the same. In simple word, there is a negative
relationship between price and quantity of products demanded when other factors considered
as constants. By referring to figure above, it shows the individual demand curve where x-axis
is referring to price, while the y-axis will be the quantity of the products. The figure shows that
the higher the price of a products, the smaller the number of product demanded by the
customers.

The points are moving along the same demand curve when the price of the product changes.
However, some factors can shift the demand curve whether to the left or to the right. Amadeo
(2016), stated that the curve shifts to the left if the determinant causes demand to drop while
the curve shifts to the right if the determinant causes demand to increase. This means that
when the demand curve shifts to the left it shows that the number of products demand is
decrease at each price while the demand curve shifts to the right means that the number of
products demand is increase at each price. Amadeo (2016) also stated that there are four
determinants that cause the demand curve shifting to the left or to the right which are change
in customers income, change in the number of consumers, change in perception and change
in taste.

Change in customers income may shift the demand curve. If the income increases the demand
for products is increases even though the price of the products remain same. This is because
when the customers income is rise it shows that the customers have high buying power. As
an example, if the customers raise theyll likely to buy more fish even the price is not changing.
This shows that the demand curve shifting to the right.

Besides, change in the number of consumers also bring impact to the demand curve. If the
number of consumers increase, the quantity product demand will automatically increase. As
an example, all types of fireworks are selling like hot cakes ahead of the Diwali and Eid Al
Adha rush, which starts with the Indian festival of lights falling of October 26, followed by the
Eid weekend from November 4 claimed by a seller in Dubai (Rai, 2011). From here it clearly
shows that the demand of the fireworks is increase due to increase number of consumers.

When consumers expect prices of product to increase in the future, they are more possible to
buy more of the product now, although the price hasn't changed. The comic strips shows a
clear example on this factor where the guy more likely to buy the lemonade even the price
hasnt changed. This cause the demand curve shift to the right.

Lastly change in taste do bring an impact towards the demand curve. There are all types of
stuffs that can change person's tastes or favourites that makes individuals to purchase more
or less of a product. According to Sari Massa (2006), sales of chickens drop to 30% due to
avian virus that spreading around Kuala Lumpur. From this statement, it shows that the
demand towards chicken is drop due to the healthy issue without concerning on the price of
the chicken. This problem cause the demand curve shift to the left.
Figure 2 Comic strip regarding price elasticity of demand

By referring to figure 2, there are two scenes where there is a guy buying lots of cola when
the price is \$1 each. However, after the price rises to \$3 each which make him stops buying
the cola. While on the other side, a lady buying a box of milk with price of \$0.80 each, even
though the price rises to \$2.4 she stills buying the milk since she needs it. As shown in the
figure, demand is affected by many factors therefore we can calculate the elasticity with a
respected of price as the variable.

## Price elasticity of demand is used to measure the responsiveness of quantity demanded of a

product to changes in price of the product (Nellis & Parker, 2002). In simple word, price
elasticity of demand is used to look on the responsiveness of demand after a change in a
product's own price.

One of the formula that can be used to measure the relationship by divide the percentage
change in quantity demanded with the percentage in price which can be seen in figure below.

Riley (2015) stated that if the answer is zero it shows that the demand is perfectly inelastic
where the demand does not change at all when the price changes which is same as ladys
situation where she keep on buying a box of milk even though the price already changed.

While if the price elasticity of demand is less than one, it means that the demand is inelastic.
However if its greater than 1 are said to have elastic demand. Besides, if price elasticity of
demand is 1 then demand is unit elastic which can be understand where the percentage of
the price increase lead to same decrease in percentage of demand.
There are several factors that influence the price elasticity of demand which are availability of
substitutes, high or low income of the consumers, habits and the degree of necessity.

Availability of substitutes cause the demand become more elastic. This factor is related with
the guys situation where he stopped buying cola when the price of the product rise. This is
because there are lots of substitute for cola such as Pepsi. When the price goes up, the guy
can replace cola with Pepsi. So, he drinks less cola.

Income level do influence the price elasticity of demand where people with higher income
normally have inelastic demand since they are being richer which cause them less sensitive
towards changes in price of a products. As an example, if price of a good rise 60% it may not
bring any impact towards rich people. However, when a slight rise in price of the same good
will affect the budget people from lower income group.

Habits is one of the factors that bring impact towards price elasticity of demand. As an
example, smokers have inelastic demand for cigarettes since they will smoke even if the price
of cigarettes getting higher from time to time. This situation is same as the young lady where
she keeps buying a box of milk even the price of the milk is increase since it is her habit to
consume milk in her daily life.

Lastly is the product is necessary or the product is a luxury. This is because normally necessary
products have tendency to have an inelastic demand however luxuries tend to have elastic
demand. For instance, one of a necessity is rare-earth metals which are an important raw
substantial in the production of solar cells which is batteries. According to Riley (2015), China
produces 97% of total output of rare-earth metals this let them to monopoly the market which
means that the rare-earth metals will be bought by all companies that producing batteries
without concerning on the price.