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What High Prices for Tea and Coffee - Essay Example

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This paper outlines that a decrease in the price of mobile phones will not cause a shift in the demand curve. Instead, it will cause an expansionary movement along the demand curve. A decrease in price from P to P1 will increase the demand for mobile phones from Q to Q1. …
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What High Prices for Tea and Coffee
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What High Prices for Tea and Coffee

Download file to see previous pages... From this paper, it is clear that the quantity demanded will decrease from Q to Q1 causing the price to also fall from P to P1. However, next month, when prices are anticipated to fall, people will spend more on mobile phones due to lower prices causing the demand curve to shift on the right. This will result in an increase in the quantity demanded followed by an increase in price. A fall in the price of a call made from a mobile phone will cause the demand for mobile phones to increase the usage of mobiles will now become comparatively economical. Consumers will prefer mobile phones over other substitutes; in this case, a landline is the closest substitute, due to lower prices of the call made from a mobile phone. This change will shift the demand curve to its right causing the quantity demanded of mobile phones to rise as shown in the graph above.
Due to an increase in the price of a call made from a landline, the demand for landline phones will decrease. People will shift to cheaper alternatives, in this case, mobile phones. Since using the landline is now comparatively costly, people will tend to switch to mobile phones to avail lower prices. This can also be described as the relationship between substitute goods in which one prefers to shift to an alternative due to increase in prices of the existing commodity or service. Therefore, demand for mobile phone will again shift to the right as depicted in the diagram above. Yes, part (a) of this question illustrates the law of demand as the number of mobile phones demanded was solely affected by the decrease in the price of the mobile phone itself. Law of demand can be best described as the inverse relationship between the price of the good and quantity demanded.  ...Download file to see next pagesRead More
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