Demand Changes

We have all heard the term demand but what exactly is it and what effects demand changes? Demand is defined by what consumers want and are able to buy over various time frames and prices. The main changes that effect demand are:

1. Preferences
2. Incomes
3. Prices of Related Goods
4. Future Expectations

An example of a demand change and the effects that caused it could be shown by an average dog owner and their monthly dog food purchases. Let's assume that most owners lean towards one specific brand of dog food for their purchases. Now imagine that another similar dog food brand starts an ad campaign promoting their dog food claiming it includes 10% more natural products. This could cause the demand to decline because consumer preferences may change and now lean more towards the substitute product. The graph below shows the demand change.

Economic Game - Diner City

I chose to play a game called Diner City for my economics class (http://games.t45ol.com/play/6132/diner-city.html). This game requires you to manage restaurant revenue, growth and products.

The first couple of times I played the game, I didn’t purchase any new locations for my restaurant and the locations were instead purchased by my competitors. This ultimately led to my restaurants demise as the competition was too much for my small restaurant. I also made some bad purchases which cost me but didn’t help generate much revenue.

After a few tries I managed to create a successful restaurant chain. I had to consider the price of the purchases I was making and figure out which products provided maximum revenue. For instance, the 3^rd level is set in the city and people were in a hurry. Benches didn’t seem to be used and were in essence a wasted expense whereas newspaper stands seemed to do quite well. This situation also shows it’s necessary to ensure that costumer’s needs are constantly being re-evaluated and met.

Every level seemed to have the same consistent demand for menu selection, delivery services and some advertising. Certain things such as sandwich boards seemed to really help bring in customers. It was also very important to supply enough service employees and locations to ensure a steady flow of customers.

Eventually I did manage to complete all 4 levels successfully. My tip to you if you decide to try out this game would be to make sure to purchase the available restaurant locations as that seemed to be the deciding factor between winning and losing this game.

Production Possibilities

Production Possibility Curve graphs show various production possibilities and how product output will be affected if production increases/decreases are made. These graphs help us see the best choices available to maximise production and make the most from our scarce resources.

An example of how scarcity and choices this has affected my personal life would be our current landscaping project. We had to choose between hiring a landscaper or doing the work ourselves. Our choice was affected by both scarcity of time and money, and we had to base our decision off of what we place more value on. In the end, we decided both were equally important and chose to hire a landscaper to do part of the work therefore saving ourselves time and do the remaining work on our own which saved money.

ProductionPossibility Curve graphs also show visual examples of how opportunity costs work. The curve shows that in order to get more of one product, we must trade-off another product. An example of a significant opportunity cost would be my choice to return to school. Although school costs me both time and money, it will provide a long term benefit by helping my further my career. I had to decide the long-term value of school was worth the trade-off.