Understanding Strawberry Demand Curves

Sep 21, 2024

Lecture 3: Demand Curves for Strawberries

Introduction

  • Focus on demand curves for strawberries.
  • Analysis in an XY space:
    • Y-axis: Market price of strawberries.
    • X-axis: Quantity traded in kilos per hour per day.

Relationship between Price and Demand

  • Inverse Relationship: Normally, an inverse relationship between price and quantity demanded.
    • Higher price leads to lower demand (contraction of demand).
    • Lower price leads to higher demand (extension of demand).
  • Movement along the demand curve occurs due to changes in the price of strawberries.

Shifts in Demand Curve

  • Outward Shift: Increase in demand at the same price (e.g., from Q1 to Q4).
  • Inward Shift: Decrease in demand at the same price.
  • Caused by changes in factors other than the price of strawberries.

Factors Influencing Demand

  1. Price of Substitutes:
    • Rise in price of substitutes (e.g., cherries) causes an outward shift in demand for strawberries.
  2. Price of Complements:
    • Rise in price of complements (e.g., ice cream) causes an inward shift in demand.
  3. Real Disposable Income:
    • Fall in income (inflation/taxes) causes an inward shift.
    • Assumes strawberries are a normal good.
  4. Advertising:
    • Successful campaigns (e.g., health benefits) cause an outward shift.
  5. Price Promotions:
    • Supermarket promotions decrease the price, causing movement along the demand curve, not a shift.

Summary

  • Shift in Demand Curve: Triggered by changes in conditions other than product price.
  • Movement along Demand Curve: Triggered by changes in the product's price.

Nature of Demand Curves

  • Linear vs. Non-Linear Curves:
    • Linear curves simplify analysis but are unrealistic.
    • Demand is often non-linear: Responsiveness to price changes varies at different price points.
  • Example:
    • Price cut from P1 to P2: Minimal response.
    • Price increase above P1 to P3: Significant demand reduction.
    • Price fall from P2 to P4: Positive demand response.

Conclusion

  • Demand curves are traditionally drawn as straight lines but are often non-linear.
  • Next lecture will focus on supply curves.