Question

The following situations relate to the demand curve for iPhones [normal good]. For each situation, state whether it is a change in quantity demanded or a change in demand. For every ‘change in demand’ indicate whether the change is an increase in demand or a decrease in demand as it relates to the quantity demanded/demand for iPhones now. (a) Income statistics show that income of 18–25-year-olds have increased by 10 Percent over the last year. (b) Apple announces that it will introduce a new, improved and cheaper iPhone to go on sale next month (c) Believing that it has significant control of the market for smart phones, Apple decides to raise the price of iPhones with the goal of increasing profits. (d) The price of Android phones, a substitute for the iPhone, decreases. In

Answer 1

An increase in the income of 18-25 year olds would lead to an increase in the demand for iPhones.

The announcement made by Apple, would lead to a decrease in the demand for iPhone.

An increase in the price of iPhones would lead to a decrease in the quantity demanded of iPhones.

A decrease in the price of android phones would lead to a decrease in the demand for iPhone.

A demand curve is a curve that shows the relationship between the price of a good and the quantity demanded. A normal demand curve is downward sloping. This means that as prices increases, the quantity demanded would decrease.

Only a change in the price of a good leads to a change in the quantity demanded. This would mean a movement along the demand curve for the good.  Other factors leads to a change in demand. This is shown by either an outward shift or inward shift of the demand curve. When demand increases, there is an outward shift. When demand decreases, there is an inward shift of the demand curve.

An increase in income would lead to an increase in demand for iPhone because iPhone is a normal good. This would lead to an outward shift of the demand curve.

As a result of the announcement, demand would decrease. This is because human beings would like to buy goods cheaper, so they would defer purchase to next month. This would lead to an inward shift of the demand curve.

An increase in the price of iPhones would lead to a decrease in the quantity demanded of iPhones.

If there is a decrease in the price of androids, there would be an increase in the demand for androids and a decrease in the demand for iPhone. This would lead to an inward shift of the demand curve.

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