Question

Please use this equation to answer questions 1 and 2: Qd = ƒ (P1, P2, T, N, I, E)

Qd is demand for Nike shirts

P1 is price for Nike shirts

P2 is price of related shirts (different brand names)

T is consumer taste

N is number of consumers

I is consumer income

E is expected price of Nike shirts in some future period

a)What could cause the current demand for Nike shirts to increase? Be specific in your answers.

b)What could cause an increase in the quantity demanded for Nike shirts? Don’t forget Supply curve shifters in answering this question.

Answer 1

a) Demand increases when factors other than price change occurs .

P2 is price of related shirts (different brand names) : When price of substitute falls , demand for Nike falls .

T is consumer taste : If consumer taste changes demand changes

N is number of consumers : If number increases , demand shifts right or increases

I is consumer income : If income increases , demand increases

E is expected price of Nike shirts in some future period : If expected price of Nike rises , then present demand will rise .

b) Increase in quantity demanded is movement along demand curve and not shift , which occurs when prices changes only keeping other factors constant .

P1 is price for Nike shirts

E is expected price of Nike shirts in some future period : If expected price of Nike is to rise in future , then producers will hold inventory at present and restrict supply at present and wish to sell more in future when price rises . This will again cause supply curve to shift left , price to rise and quantity demanded to fall .