Question

List three products that you are familiar with and the approximate price of each. Which of the products, if any, do you have a demand for? Consider the two requirements of demand as you answer this question.

Short answer

Demand exists if you desire a product and can afford it. Evaluate each product based on this criteria.

Step-by-step solution

Identify Product 1 and Its Price

Let's select 'smartphone' as the first product. On average, a modern smartphone costs around $800.

Identify Product 2 and Its Price

Choose 'bicycle' as the second product. The approximate price for a good bicycle is $300.

Identify Product 3 and Its Price

For the third product, we'll select 'laptop.' A decent laptop typically costs approximately $1000.

Consider the Requirements of Demand

Demand for a product requires two things: desire and purchasing power. We should assess whether you have the desire to purchase each of these products and the financial means to do so.

Evaluate Demand for Each Product

- For the smartphone, if you desire to stay connected and have the financial means, there is demand. - For the bicycle, if you enjoy cycling and can afford $300, you have demand. - For the laptop, if you need it for work or study and can afford it, there is demand.

Key concepts

Purchasing Power

Purchasing power refers to your ability to buy products based on the amount of money you have. It determines how much you can actually afford to spend on goods and services. Without sufficient purchasing power, even if you desire a product, you may not be able to buy it.
To understand your purchasing power, consider:

• Your total income and savings.
• Your current financial commitments, like rent or bills.
• Any financial help or credit available to you.

If you wish to purchase a laptop priced at $1000, having enough money in the bank means you have the purchasing power for it. However, if your monthly expenses already consume most of your income, your purchasing power may be limited, despite any desire for the product. Understanding purchasing power is crucial for evaluating demand, as it can affect consumption behavior.

Product Prices

Product prices, the cost of goods in the market, play a significant role in shaping demand. Prices affect how much of a product you can afford and, consequently, your purchasing power. If prices rise, the same amount of money buys fewer goods, reducing purchasing power and potentially lowering demand. Here's how product prices impact demand:

• Increased prices can lead to decreased demand, as fewer people can afford the product.
• Reduced prices often increase demand, making the product accessible to more consumers.
• Prices help determine the comparative value of different products.

For instance, if the price of a smartphone increases to $1000, some individuals with a fixed budget may no longer have the purchasing power to afford it, reducing their demand for the product. Recognizing the impact of product prices can help consumers make informed spending decisions.

Consumer Desire

Consumer desire is the personal preference or want for a product. It varies among individuals and is influenced by tastes, needs, and social trends. Desire is a fundamental component of demand since it drives the initial interest in a product. Factors that shape consumer desire include:

• Personal interests, such as a passion for cycling creating a desire for a bicycle.
• Social influences, like peer pressure or trends urging you to own the latest smartphone.
• Practical needs, such as a requirement for a laptop for studies or work.

A person's desire can often be strong, but without the purchasing power to buy the product, that desire may remain unfulfilled. Nevertheless, intense consumer desire can sometimes influence individuals to save more or reduce spending in other areas to meet their wants. Hence, both desire and purchasing power are essential when determining the demand for a product.