The demand curve

The demand curve

The demand curve is obtained from the quantity demanded at a given time. An increase in prices results in a decrease in quantity demanded. The indifference curve, on the other hand, offers a combination of products that provide a level of satisfaction to people. However, there are different ways to achieve the same level of satisfaction by substituting goods with others. On an indifference curve, an increase in price for a product lowers utility level for that product, causing people to shift their taste to the next best substitute offered at a lower price. In the process, the increase in the price of the first product reduces its demand, while increasing the demand for the substitute. The difference in the indifference curve, therefore, changes the consumers’ demand curve for the product and its alternative.

With special offers for expensive goods, two things happen to the consumer. First, there is a substitution effect, where the consumers substitute the product they had been using for the more luxurious product being offered at a lower price (Greenlaw and Taylor, 2017). This causes the demand for the luxurious product to go up during the special offer period. The second is the income effect, where the special offer makes the consumer have the buying power of the product (Greenlaw and Taylor, 2017).  In the end, the consumers buy the luxurious product at the offered rate, which otherwise they would not have the power to buy. Advertising makes consumers shift their buying habits. Since the product being advertised is similar to a product they are already using, the advertisement makes the product seem better than what the consumers have been using. The consumers end up changing their preference for a product with the same use.