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Demand vs Price

Indophile
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8/2/2011 9:21:06 AM
Posted: 5 years ago
Does demand have anything to do with the price of a product, or is it the other way round?
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darkkermit
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8/2/2011 1:26:01 PM
Posted: 5 years ago
At 8/2/2011 9:21:06 AM, Indophile wrote:
Does demand have anything to do with the price of a product, or is it the other way round?

Supply and demand determines the price of a product in a free market.
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Indophile
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8/2/2011 2:01:38 PM
Posted: 5 years ago
At 8/2/2011 1:26:01 PM, darkkermit wrote:
At 8/2/2011 9:21:06 AM, Indophile wrote:
Does demand have anything to do with the price of a product, or is it the other way round?

Supply and demand determines the price of a product in a free market.

What effect does price have on the demand curve?
You will say that I don't really know you
And it will be true.
Ore_Ele
Posts: 25,980
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8/2/2011 2:06:08 PM
Posted: 5 years ago
At 8/2/2011 2:01:38 PM, Indophile wrote:
At 8/2/2011 1:26:01 PM, darkkermit wrote:
At 8/2/2011 9:21:06 AM, Indophile wrote:
Does demand have anything to do with the price of a product, or is it the other way round?

Supply and demand determines the price of a product in a free market.

What effect does price have on the demand curve?

Price has no effect on the actual curve, as the curve is what the demand is based on price. So changing the price will not change the curve, only one's location on that curve.
"Wanting Red Rhino Pill to have gender"
darkkermit
Posts: 11,204
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8/2/2011 2:19:38 PM
Posted: 5 years ago
At 8/2/2011 2:06:08 PM, Ore_Ele wrote:
At 8/2/2011 2:01:38 PM, Indophile wrote:
At 8/2/2011 1:26:01 PM, darkkermit wrote:
At 8/2/2011 9:21:06 AM, Indophile wrote:
Does demand have anything to do with the price of a product, or is it the other way round?

Supply and demand determines the price of a product in a free market.

What effect does price have on the demand curve?

Price has no effect on the actual curve, as the curve is what the demand is based on price. So changing the price will not change the curve, only one's location on that curve.

Although it is not necessarily the case for Veblen goods, in which demand for a product increases as one increases the price.
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Ore_Ele
Posts: 25,980
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8/2/2011 2:21:39 PM
Posted: 5 years ago
At 8/2/2011 2:19:38 PM, darkkermit wrote:
At 8/2/2011 2:06:08 PM, Ore_Ele wrote:
At 8/2/2011 2:01:38 PM, Indophile wrote:
At 8/2/2011 1:26:01 PM, darkkermit wrote:
At 8/2/2011 9:21:06 AM, Indophile wrote:
Does demand have anything to do with the price of a product, or is it the other way round?

Supply and demand determines the price of a product in a free market.

What effect does price have on the demand curve?

Price has no effect on the actual curve, as the curve is what the demand is based on price. So changing the price will not change the curve, only one's location on that curve.

Although it is not necessarily the case for Veblen goods, in which demand for a product increases as one increases the price.

Only to a certain degree, but even then, the demand curve itself does not change based on price, only the position on the demand curve.
"Wanting Red Rhino Pill to have gender"
darkkermit
Posts: 11,204
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8/2/2011 2:23:40 PM
Posted: 5 years ago
At 8/2/2011 2:21:39 PM, Ore_Ele wrote:
At 8/2/2011 2:19:38 PM, darkkermit wrote:
At 8/2/2011 2:06:08 PM, Ore_Ele wrote:
At 8/2/2011 2:01:38 PM, Indophile wrote:
At 8/2/2011 1:26:01 PM, darkkermit wrote:
At 8/2/2011 9:21:06 AM, Indophile wrote:
Does demand have anything to do with the price of a product, or is it the other way round?

Supply and demand determines the price of a product in a free market.

What effect does price have on the demand curve?

Price has no effect on the actual curve, as the curve is what the demand is based on price. So changing the price will not change the curve, only one's location on that curve.

Although it is not necessarily the case for Veblen goods, in which demand for a product increases as one increases the price.

Only to a certain degree, but even then, the demand curve itself does not change based on price, only the position on the demand curve.

fair enough.
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Indophile
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8/2/2011 2:34:38 PM
Posted: 5 years ago
At 8/2/2011 2:06:08 PM, Ore_Ele wrote:
At 8/2/2011 2:01:38 PM, Indophile wrote:
At 8/2/2011 1:26:01 PM, darkkermit wrote:
At 8/2/2011 9:21:06 AM, Indophile wrote:
Does demand have anything to do with the price of a product, or is it the other way round?

Supply and demand determines the price of a product in a free market.

What effect does price have on the demand curve?

Price has no effect on the actual curve, as the curve is what the demand is based on price. So changing the price will not change the curve, only one's location on that curve.

Alright. So, price controls the demand, or vice-versa? It could be both?
You will say that I don't really know you
And it will be true.
Ore_Ele
Posts: 25,980
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8/2/2011 2:38:40 PM
Posted: 5 years ago
At 8/2/2011 2:34:38 PM, Indophile wrote:
At 8/2/2011 2:06:08 PM, Ore_Ele wrote:
At 8/2/2011 2:01:38 PM, Indophile wrote:
At 8/2/2011 1:26:01 PM, darkkermit wrote:
At 8/2/2011 9:21:06 AM, Indophile wrote:
Does demand have anything to do with the price of a product, or is it the other way round?

Supply and demand determines the price of a product in a free market.

What effect does price have on the demand curve?

Price has no effect on the actual curve, as the curve is what the demand is based on price. So changing the price will not change the curve, only one's location on that curve.

Alright. So, price controls the demand, or vice-versa? It could be both?

Price controls the demand. A change in the demand curve (or supply curve) will change where the supple curve and demand curve intersect (the intersection is the equalibrium). This will cause the price to naturally push to that point.
"Wanting Red Rhino Pill to have gender"
Indophile
Posts: 1,414
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8/2/2011 2:42:43 PM
Posted: 5 years ago
At 8/2/2011 2:38:40 PM, Ore_Ele wrote:
At 8/2/2011 2:34:38 PM, Indophile wrote:
At 8/2/2011 2:06:08 PM, Ore_Ele wrote:
At 8/2/2011 2:01:38 PM, Indophile wrote:
At 8/2/2011 1:26:01 PM, darkkermit wrote:
At 8/2/2011 9:21:06 AM, Indophile wrote:
Does demand have anything to do with the price of a product, or is it the other way round?

Supply and demand determines the price of a product in a free market.

What effect does price have on the demand curve?

Price has no effect on the actual curve, as the curve is what the demand is based on price. So changing the price will not change the curve, only one's location on that curve.

Alright. So, price controls the demand, or vice-versa? It could be both?

Price controls the demand. A change in the demand curve (or supply curve) will change where the supple curve and demand curve intersect (the intersection is the equalibrium). This will cause the price to naturally push to that point.

A change in the demand curve comes first and then price changes to meet that intersection point. That's what you said. Then how come price controls demand? Wouldn't a change in demand curve occur with change in demand (or supply) ?
You will say that I don't really know you
And it will be true.
darkkermit
Posts: 11,204
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8/2/2011 2:43:11 PM
Posted: 5 years ago
At 8/2/2011 2:34:38 PM, Indophile wrote:
At 8/2/2011 2:06:08 PM, Ore_Ele wrote:
At 8/2/2011 2:01:38 PM, Indophile wrote:
At 8/2/2011 1:26:01 PM, darkkermit wrote:
At 8/2/2011 9:21:06 AM, Indophile wrote:
Does demand have anything to do with the price of a product, or is it the other way round?

Supply and demand determines the price of a product in a free market.

What effect does price have on the demand curve?

Price has no effect on the actual curve, as the curve is what the demand is based on price. So changing the price will not change the curve, only one's location on that curve.

Alright. So, price controls the demand, or vice-versa? It could be both?

It might help if you saw a graph:
http://tinyurl.com...

The demand curve is a function of prices. However the demand curve can change as a result of changes in preferences.

Prices do not effect the demand curve, but prices effect the quantity of products bought. For most goods, the quantity of products bought decreases with price. For Veblen goods, the quantity of the product actually increases with price.
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Ore_Ele
Posts: 25,980
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8/2/2011 2:50:34 PM
Posted: 5 years ago
At 8/2/2011 2:42:43 PM, Indophile wrote:
At 8/2/2011 2:38:40 PM, Ore_Ele wrote:
At 8/2/2011 2:34:38 PM, Indophile wrote:
At 8/2/2011 2:06:08 PM, Ore_Ele wrote:
At 8/2/2011 2:01:38 PM, Indophile wrote:
At 8/2/2011 1:26:01 PM, darkkermit wrote:
At 8/2/2011 9:21:06 AM, Indophile wrote:
Does demand have anything to do with the price of a product, or is it the other way round?

Supply and demand determines the price of a product in a free market.

What effect does price have on the demand curve?

Price has no effect on the actual curve, as the curve is what the demand is based on price. So changing the price will not change the curve, only one's location on that curve.

Alright. So, price controls the demand, or vice-versa? It could be both?

Price controls the demand. A change in the demand curve (or supply curve) will change where the supple curve and demand curve intersect (the intersection is the equalibrium). This will cause the price to naturally push to that point.

A change in the demand curve comes first and then price changes to meet that intersection point. That's what you said. Then how come price controls demand? Wouldn't a change in demand curve occur with change in demand (or supply) ?

demand curve =/= demand. As said by Darkkermit, the demand curve is a function of price. The demand curve does not change based on changes in demand, but changes in consumer preferences (while cost of martial can change the supply curve, or new manufacturing techniques, etc).

At $4 a gallon, there will be a particular demand for gas, if the price drops to $3.75, there will be more demand. However, if people change their life style (maybe people start buying more fuel efficient cars, or summer rolls around and they want to go swimming), the demand curve will change, and price will adjust
"Wanting Red Rhino Pill to have gender"
Indophile
Posts: 1,414
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8/2/2011 2:59:00 PM
Posted: 5 years ago
At 8/2/2011 2:50:34 PM, Ore_Ele wrote:
At 8/2/2011 2:42:43 PM, Indophile wrote:
At 8/2/2011 2:38:40 PM, Ore_Ele wrote:
At 8/2/2011 2:34:38 PM, Indophile wrote:
At 8/2/2011 2:06:08 PM, Ore_Ele wrote:
At 8/2/2011 2:01:38 PM, Indophile wrote:
At 8/2/2011 1:26:01 PM, darkkermit wrote:
At 8/2/2011 9:21:06 AM, Indophile wrote:
Does demand have anything to do with the price of a product, or is it the other way round?

Supply and demand determines the price of a product in a free market.

What effect does price have on the demand curve?

Price has no effect on the actual curve, as the curve is what the demand is based on price. So changing the price will not change the curve, only one's location on that curve.

Alright. So, price controls the demand, or vice-versa? It could be both?

Price controls the demand. A change in the demand curve (or supply curve) will change where the supple curve and demand curve intersect (the intersection is the equalibrium). This will cause the price to naturally push to that point.

A change in the demand curve comes first and then price changes to meet that intersection point. That's what you said. Then how come price controls demand? Wouldn't a change in demand curve occur with change in demand (or supply) ?

demand curve =/= demand. As said by Darkkermit, the demand curve is a function of price. The demand curve does not change based on changes in demand, but changes in consumer preferences (while cost of martial can change the supply curve, or new manufacturing techniques, etc).

At $4 a gallon, there will be a particular demand for gas, if the price drops to $3.75, there will be more demand. However, if people change their life style (maybe people start buying more fuel efficient cars, or summer rolls around and they want to go swimming), the demand curve will change, and price will adjust

AT $4 a gallon, there will be a particular demand for gas, if the price drops to $3.75.....wait, why would it drop to $3.75? Supply increased? Demand decreased? External factors?

Isn't price always a response to external factors? Is demand not an external factor?
You will say that I don't really know you
And it will be true.
Ore_Ele
Posts: 25,980
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8/2/2011 3:05:16 PM
Posted: 5 years ago
At 8/2/2011 2:59:00 PM, Indophile wrote:
At 8/2/2011 2:50:34 PM, Ore_Ele wrote:
At 8/2/2011 2:42:43 PM, Indophile wrote:
At 8/2/2011 2:38:40 PM, Ore_Ele wrote:
At 8/2/2011 2:34:38 PM, Indophile wrote:
At 8/2/2011 2:06:08 PM, Ore_Ele wrote:
At 8/2/2011 2:01:38 PM, Indophile wrote:
At 8/2/2011 1:26:01 PM, darkkermit wrote:
At 8/2/2011 9:21:06 AM, Indophile wrote:
Does demand have anything to do with the price of a product, or is it the other way round?

Supply and demand determines the price of a product in a free market.

What effect does price have on the demand curve?

Price has no effect on the actual curve, as the curve is what the demand is based on price. So changing the price will not change the curve, only one's location on that curve.

Alright. So, price controls the demand, or vice-versa? It could be both?

Price controls the demand. A change in the demand curve (or supply curve) will change where the supple curve and demand curve intersect (the intersection is the equalibrium). This will cause the price to naturally push to that point.

A change in the demand curve comes first and then price changes to meet that intersection point. That's what you said. Then how come price controls demand? Wouldn't a change in demand curve occur with change in demand (or supply) ?

demand curve =/= demand. As said by Darkkermit, the demand curve is a function of price. The demand curve does not change based on changes in demand, but changes in consumer preferences (while cost of martial can change the supply curve, or new manufacturing techniques, etc).

At $4 a gallon, there will be a particular demand for gas, if the price drops to $3.75, there will be more demand. However, if people change their life style (maybe people start buying more fuel efficient cars, or summer rolls around and they want to go swimming), the demand curve will change, and price will adjust

AT $4 a gallon, there will be a particular demand for gas, if the price drops to $3.75.....wait, why would it drop to $3.75? Supply increased? Demand decreased? External factors?

Isn't price always a response to external factors? Is demand not an external factor?

no, demand, itself is not an external factor. Things like discovering a new reserve, or new car tech, or new laws, are external factors.

If something changes the supply curve, the price will drop, and as a result, the demand will drop.

Look at it this way.

Things change in two ways.

1) External factors -> changes supply curve -> changes location of equalibrium -> supply moves first (because supply curve moved first) -> price follows supply change -> demand follows price change -> reaches equalibrium

2) External factors -> changes demand curve -> changes location of equalibrium -> demand moves first (because demand curve moved first) -> price follows demand change -> supply follows price change -> reaches equalibrium
"Wanting Red Rhino Pill to have gender"
darkkermit
Posts: 11,204
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8/2/2011 3:09:39 PM
Posted: 5 years ago
At 8/2/2011 2:59:00 PM, Indophile wrote:
At 8/2/2011 2:50:34 PM, Ore_Ele wrote:
At 8/2/2011 2:42:43 PM, Indophile wrote:
At 8/2/2011 2:38:40 PM, Ore_Ele wrote:
At 8/2/2011 2:34:38 PM, Indophile wrote:
At 8/2/2011 2:06:08 PM, Ore_Ele wrote:
At 8/2/2011 2:01:38 PM, Indophile wrote:
At 8/2/2011 1:26:01 PM, darkkermit wrote:
At 8/2/2011 9:21:06 AM, Indophile wrote:
Does demand have anything to do with the price of a product, or is it the other way round?

Supply and demand determines the price of a product in a free market.

What effect does price have on the demand curve?

Price has no effect on the actual curve, as the curve is what the demand is based on price. So changing the price will not change the curve, only one's location on that curve.

Alright. So, price controls the demand, or vice-versa? It could be both?

Price controls the demand. A change in the demand curve (or supply curve) will change where the supple curve and demand curve intersect (the intersection is the equalibrium). This will cause the price to naturally push to that point.

A change in the demand curve comes first and then price changes to meet that intersection point. That's what you said. Then how come price controls demand? Wouldn't a change in demand curve occur with change in demand (or supply) ?

demand curve =/= demand. As said by Darkkermit, the demand curve is a function of price. The demand curve does not change based on changes in demand, but changes in consumer preferences (while cost of martial can change the supply curve, or new manufacturing techniques, etc).

At $4 a gallon, there will be a particular demand for gas, if the price drops to $3.75, there will be more demand. However, if people change their life style (maybe people start buying more fuel efficient cars, or summer rolls around and they want to go swimming), the demand curve will change, and price will adjust

AT $4 a gallon, there will be a particular demand for gas, if the price drops to $3.75.....wait, why would it drop to $3.75? Supply increased? Demand decreased? External factors?

Isn't price always a response to external factors? Is demand not an external factor?

Assuming that the preference for gas does not change, then a drop in the price would result in an increase of supply.

If preferences for gas increases, the demand curve shifts to the right. If preference for gas decreases, the demand curve shifts to the left. The demand curve is just how much more people are willing to buy if prices increases.
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Indophile
Posts: 1,414
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8/2/2011 3:17:24 PM
Posted: 5 years ago
At 8/2/2011 3:05:16 PM, Ore_Ele wrote:
At 8/2/2011 2:59:00 PM, Indophile wrote:
At 8/2/2011 2:50:34 PM, Ore_Ele wrote:
At 8/2/2011 2:42:43 PM, Indophile wrote:
At 8/2/2011 2:38:40 PM, Ore_Ele wrote:
At 8/2/2011 2:34:38 PM, Indophile wrote:
At 8/2/2011 2:06:08 PM, Ore_Ele wrote:
At 8/2/2011 2:01:38 PM, Indophile wrote:
At 8/2/2011 1:26:01 PM, darkkermit wrote:
At 8/2/2011 9:21:06 AM, Indophile wrote:
Does demand have anything to do with the price of a product, or is it the other way round?

Supply and demand determines the price of a product in a free market.

What effect does price have on the demand curve?

Price has no effect on the actual curve, as the curve is what the demand is based on price. So changing the price will not change the curve, only one's location on that curve.

Alright. So, price controls the demand, or vice-versa? It could be both?

Price controls the demand. A change in the demand curve (or supply curve) will change where the supple curve and demand curve intersect (the intersection is the equalibrium). This will cause the price to naturally push to that point.

A change in the demand curve comes first and then price changes to meet that intersection point. That's what you said. Then how come price controls demand? Wouldn't a change in demand curve occur with change in demand (or supply) ?

demand curve =/= demand. As said by Darkkermit, the demand curve is a function of price. The demand curve does not change based on changes in demand, but changes in consumer preferences (while cost of martial can change the supply curve, or new manufacturing techniques, etc).

At $4 a gallon, there will be a particular demand for gas, if the price drops to $3.75, there will be more demand. However, if people change their life style (maybe people start buying more fuel efficient cars, or summer rolls around and they want to go swimming), the demand curve will change, and price will adjust

AT $4 a gallon, there will be a particular demand for gas, if the price drops to $3.75.....wait, why would it drop to $3.75? Supply increased? Demand decreased? External factors?

Isn't price always a response to external factors? Is demand not an external factor?

no, demand, itself is not an external factor. Things like discovering a new reserve, or new car tech, or new laws, are external factors.

If something changes the supply curve, the price will drop, and as a result, the demand will drop.

Look at it this way.

Things change in two ways.

1) External factors -> changes supply curve -> changes location of equalibrium -> supply moves first (because supply curve moved first) -> price follows supply change -> demand follows price change -> reaches equalibrium

2) External factors -> changes demand curve -> changes location of equalibrium -> demand moves first (because demand curve moved first) -> price follows demand change -> supply follows price change -> reaches equalibrium

So, at a point of equilibrium, some external factors change the curve. Price changes, and accordingly demand.

The major point of confusion for me was how is the FIRST equilibrium position reached?
You will say that I don't really know you
And it will be true.
darkkermit
Posts: 11,204
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8/2/2011 3:35:11 PM
Posted: 5 years ago
At 8/2/2011 3:17:24 PM, Indophile wrote:
At 8/2/2011 3:05:16 PM, Ore_Ele wrote:
At 8/2/2011 2:59:00 PM, Indophile wrote:
At 8/2/2011 2:50:34 PM, Ore_Ele wrote:
At 8/2/2011 2:42:43 PM, Indophile wrote:
At 8/2/2011 2:38:40 PM, Ore_Ele wrote:
At 8/2/2011 2:34:38 PM, Indophile wrote:
At 8/2/2011 2:06:08 PM, Ore_Ele wrote:
At 8/2/2011 2:01:38 PM, Indophile wrote:
At 8/2/2011 1:26:01 PM, darkkermit wrote:
At 8/2/2011 9:21:06 AM, Indophile wrote:
Does demand have anything to do with the price of a product, or is it the other way round?

Supply and demand determines the price of a product in a free market.

What effect does price have on the demand curve?

Price has no effect on the actual curve, as the curve is what the demand is based on price. So changing the price will not change the curve, only one's location on that curve.

Alright. So, price controls the demand, or vice-versa? It could be both?

Price controls the demand. A change in the demand curve (or supply curve) will change where the supple curve and demand curve intersect (the intersection is the equalibrium). This will cause the price to naturally push to that point.

A change in the demand curve comes first and then price changes to meet that intersection point. That's what you said. Then how come price controls demand? Wouldn't a change in demand curve occur with change in demand (or supply) ?

demand curve =/= demand. As said by Darkkermit, the demand curve is a function of price. The demand curve does not change based on changes in demand, but changes in consumer preferences (while cost of martial can change the supply curve, or new manufacturing techniques, etc).

At $4 a gallon, there will be a particular demand for gas, if the price drops to $3.75, there will be more demand. However, if people change their life style (maybe people start buying more fuel efficient cars, or summer rolls around and they want to go swimming), the demand curve will change, and price will adjust

AT $4 a gallon, there will be a particular demand for gas, if the price drops to $3.75.....wait, why would it drop to $3.75? Supply increased? Demand decreased? External factors?

Isn't price always a response to external factors? Is demand not an external factor?

no, demand, itself is not an external factor. Things like discovering a new reserve, or new car tech, or new laws, are external factors.

If something changes the supply curve, the price will drop, and as a result, the demand will drop.

Look at it this way.

Things change in two ways.

1) External factors -> changes supply curve -> changes location of equalibrium -> supply moves first (because supply curve moved first) -> price follows supply change -> demand follows price change -> reaches equalibrium

2) External factors -> changes demand curve -> changes location of equalibrium -> demand moves first (because demand curve moved first) -> price follows demand change -> supply follows price change -> reaches equalibrium

So, at a point of equilibrium, some external factors change the curve. Price changes, and accordingly demand.

The major point of confusion for me was how is the FIRST equilibrium position reached?

New products enter the market either through new technology, government and/or entrepreneurship. The demand curve represents consumer preferences.

If apple creates a new product, it chooses how much it is willing to supply via how much of a profit it can make from it. It chooses the price by how much they believe consumers will want it.
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Indophile
Posts: 1,414
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8/2/2011 3:51:42 PM
Posted: 5 years ago
At 8/2/2011 3:35:11 PM, darkkermit wrote:
At 8/2/2011 3:17:24 PM, Indophile wrote:
At 8/2/2011 3:05:16 PM, Ore_Ele wrote:
At 8/2/2011 2:59:00 PM, Indophile wrote:
At 8/2/2011 2:50:34 PM, Ore_Ele wrote:
At 8/2/2011 2:42:43 PM, Indophile wrote:
At 8/2/2011 2:38:40 PM, Ore_Ele wrote:
At 8/2/2011 2:34:38 PM, Indophile wrote:
At 8/2/2011 2:06:08 PM, Ore_Ele wrote:
At 8/2/2011 2:01:38 PM, Indophile wrote:
At 8/2/2011 1:26:01 PM, darkkermit wrote:
At 8/2/2011 9:21:06 AM, Indophile wrote:
Does demand have anything to do with the price of a product, or is it the other way round?

Supply and demand determines the price of a product in a free market.

What effect does price have on the demand curve?

Price has no effect on the actual curve, as the curve is what the demand is based on price. So changing the price will not change the curve, only one's location on that curve.

Alright. So, price controls the demand, or vice-versa? It could be both?

Price controls the demand. A change in the demand curve (or supply curve) will change where the supple curve and demand curve intersect (the intersection is the equalibrium). This will cause the price to naturally push to that point.

A change in the demand curve comes first and then price changes to meet that intersection point. That's what you said. Then how come price controls demand? Wouldn't a change in demand curve occur with change in demand (or supply) ?

demand curve =/= demand. As said by Darkkermit, the demand curve is a function of price. The demand curve does not change based on changes in demand, but changes in consumer preferences (while cost of martial can change the supply curve, or new manufacturing techniques, etc).

At $4 a gallon, there will be a particular demand for gas, if the price drops to $3.75, there will be more demand. However, if people change their life style (maybe people start buying more fuel efficient cars, or summer rolls around and they want to go swimming), the demand curve will change, and price will adjust

AT $4 a gallon, there will be a particular demand for gas, if the price drops to $3.75.....wait, why would it drop to $3.75? Supply increased? Demand decreased? External factors?

Isn't price always a response to external factors? Is demand not an external factor?

no, demand, itself is not an external factor. Things like discovering a new reserve, or new car tech, or new laws, are external factors.

If something changes the supply curve, the price will drop, and as a result, the demand will drop.

Look at it this way.

Things change in two ways.

1) External factors -> changes supply curve -> changes location of equalibrium -> supply moves first (because supply curve moved first) -> price follows supply change -> demand follows price change -> reaches equalibrium

2) External factors -> changes demand curve -> changes location of equalibrium -> demand moves first (because demand curve moved first) -> price follows demand change -> supply follows price change -> reaches equalibrium

So, at a point of equilibrium, some external factors change the curve. Price changes, and accordingly demand.

The major point of confusion for me was how is the FIRST equilibrium position reached?

New products enter the market either through new technology, government and/or entrepreneurship. The demand curve represents consumer preferences.

If apple creates a new product, it chooses how much it is willing to supply via how much of a profit it can make from it. It chooses the price by how much they believe consumers will want it.

So price is set first and then the ball starts rolling.

For profits, production must be less than demand, leading to inefficiency.
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darkkermit
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8/2/2011 4:05:11 PM
Posted: 5 years ago
At 8/2/2011 3:51:42 PM, Indophile wrote:

So price is set first and then the ball starts rolling.

For profits, production must be less than demand, leading to inefficiency.

Yes, however prices are set via estimated consumer preferences. Of course, the producer could be wrong, creating a shortage of surplus. Hence why sometime things 'sell out' and why products just stay in the warehouse.

There is no 'less than demand', since you need a comparison. If you mean less than supply, not necessarily. There can be surplus. However, markets tend towards equilibrium, although equilibrium does not necessarily have to occur.
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