Question

In: Economics

how does the graphical representation below illustrate the dynamics of directional shifts in demand relative to...

how does the graphical representation below illustrate the dynamics of directional shifts in demand relative to the factors such as changes in income, preferences, or expectations? share an example of each for reference and application for the IPad business model.

Solutions

Expert Solution

Fig1. Change in income

An IPad is a premium product demanded and desired by all people. Therefore, it can never be an inferior good. It is a normal good whose demand increases with increase in income and demand decreases with decrease in income. The effect of rightward and leftward shifts have been shown in the fig1.

Fig2. Changes in taste and preferences

Taste and preferences keep on changing for people like product design, form factor of devices etc. If people want an IPad with a modern form factor and the product is made in tandem with consumer taste and preference, the demand would increase and f the device is not according to the preference of the consumer then the demand would decrease as shown in the fig2.

Fig3. Expectations of people.

An IPad is an expensive device. If people expect the price of the device to rise in future, people would demand more now to save money in the future and if they expect the prices to fall in future, they will demand less today to save more in the future as shown in the fig3.


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