Effect of change in Taste and Preferences on the demand for a good.

-

Learning Contents:

·           Effect of Favorable taste and preferences on the demand for a good

·           Effect of Unfavorable taste and preferences on the demand for a good

Introduction

Taste and Preferences indicate consumer’s likes, dislikes, choices, opinions, etc. that keep on changing with time and therefore, affect the demand for different goods and services. A good for which a consumer develops positive taste and preferences, its demand would increase and therefore, the demand curve would shift to the right. On the other hand, a good for which a consumer develops negative taste and preferences, its demand would decrease and therefore demand curve would shift to the left. 

Taste and preferences are influenced by advertisement, change in fashion, climate, research and inventions, culture, etc. For e.g. a consumer would prefer to buy more of those goods which are in fashion today and hence their demand will increase. So, this post would explore how demand for good changes in two situations  given as follow:

a. When favorable taste and preferences are developed.

b. When unfavorable taste and preferences are developed.

 

a. When favorable taste and preferences are developed.


A consumer if develops positive taste and preferences, causes demand to increase and therefore, shifts the demand curve to the right. Figure 1.1 illustrates the situation showing that a consumer initially purchases OC1 units of good at OP1 price. D1 is the initial demand curve. Suppose, price is constant and if the consumer develops positive taste and preferences, then demand increases from OC1 to OC2 and therefore, the demand curve shifts to the right from D1 to D2. This forward shifting of the demand curve is called an increase in demand.




b. When unfavorable taste and preferences are developed.




A consumer if develops negative taste and preferences, causes demand to decrease and therefore, shifts the demand curve to the left. Figure 1.2 illustrates the situation showing that a consumer initially purchases OC1 units of good at OP1 price. D1 is the initial demand curve. Suppose, price is constant and if the consumer develops negative taste and preferences, then demand decreases from OC1 to OC2 and therefore, the demand curve shifts to the left from D1 to D2. This backward shifting of the demand curve is called a decrease in demand.



We summarize this by saying that there exists a positive relationship between taste and preferences and the demand for the good. It means positive or favorable taste and preferences indicate increased demand for a good and vice versa.



Choose the correct answer based on the above learning

1.Which of the following refers to ‘Preferences’ influences demand here?

a. the availability of a good to all income classes.

b. directly observable changes in prices and income

c. the excess of wants over the available supplies

d. an individual's attitudes toward goods and services.


2. Rashi is seen wearing a new short and sleek dress which is in trend nowadays. People want this dress. Which demand determinant are we talking about?

a. Change in Consumer Income

b. Change in Consumer Tastes

c. Change in Price of Substitute Good

d. Change in Consumer Price Expectations

3. What type of relationship exists between Taste and preferences and demand for the goods?

a. Positive

b. Negative

c. Both a. and b.

d. No relation exists

4. As a result of favorable ‘taste and preferences’ demand curve

a. becomes a horizontal straight line

b. becomes a vertical straight line

c. shifts to the right

d. shifts to the left


5. The demand curve for good shifts to the_________ when the consumer develops ________ taste and preferences.

a. right; negative

b. left; positive

c. left; negative

d. Both a. and b.


Answer Key:

 

1.d

2.b

3.a

4.c

5.c


Thanks & please share with your friends

Comment if you have any questions.

 


   

 

 

 

 

 

 

 

 

 

Comments

Post a Comment

Popular posts from this blog

SHIFTS & ROTATIONS IN PRODUCTION POSSIBILITY CURVE

-
Image
    Learning Contents:                                                                Shifts   in   PPC  Rotations in PPC Change in Production Possibility Curve (Shifting/Rotation) The change in the Production Possibility curve can be of two types:  Shift in PPC: PPC will shift when there is a change in productive capacity (resources or technology) with respect to both the goods. Rotation of PPC: PPC will rotate when there is a change in productive capacity (resources or technology) with respect to only one good. Shifts in PPC:   The shift in PPC can either be rightward or backward. These shifts bring about a change in the production of both goods in an economy. The shifts in PPC are of two types: Rightward shift in PPC: Rightward shift in PPC occurs when the resources are increased or technology is improved for the production of both goods that means we can produce more of both the goods. Accordingly, PPC shifts to the right from Initial PPC (AB) to Final PPC (CD).   Re
Read more »500

Income Elasticity: Luxury Goods, Necessity Goods, and Inferior Goods.

-
Image
  Learning Contents:                                                               ·         Understanding Income Elasticity with respect of luxury goods, necessity goods and inferior goods. The demand for a commodity not only depends on the price of a commodity but also the income level of the consumer. It is a general understanding that a consumer usually prefers to spend more when his income rises and less when his income falls. Sometimes, we might also experience a fall in the demand of certain goods and services even when income rises. Therefore, income elasticity varies with respect to different types of goods and services. The income elasticity measures the percentage change in quantity demanded as a result of percentage change in the income of the consumer. The formula of income elasticity of demand is, The income elasticity measures the demand’s sensitivity or responsiveness to the change in income.   In simple words, it measures to what extent demand changes as a result o
Read more »500

CONSUMER’S PREFERENCES AND INDIFFERENCE MAP

-
Image
    Learning Contents:                                                               ·          Understanding Consumer preferences and Indifference curve. ·          Understanding Indifference Map. Introduction: The concept of the indifference map is based upon the concept of consumer preferences. So, it is important to first understand the concept of consumer preferences. Consumer’s Preferences: Preferences indicate individual tastes, likings, etc. that determine the amount of pleasure, happiness people get from the consumption of the goods and services and measured by the utility of various bundles or combinations of goods. It allows the consumers to rank these bundles of goods according to the levels of utility it provides them. Note that preferences are independent of income and prices. The ability to purchase goods does not determine a consumer’s likes or dislikes. One can have a preference for Rolex watches over Titan but only have the financial means to wear a titan
Read more »500