In economics there are a number of factors that influence the demand of a good or service, this factors include the price, the existence and the price of substitutes, the price of complements, future expectation of changes in prices of the good, taste and preference and the disposable income. All this factors will determine the demand of a good for the individual in an economy.
I drink coffee every day and I purchase coffee in the supermarket where I consider the brand, the price and also my disposable income at the time of purchase, I prefer coffee to other drinks such as cocoa, chocolate and other fruits. The taste of coffee is what I like and there are many brands of coffee which are expensive and others are cheap. This paper discusses the decisions I make when purchasing coffee from the supermarket.
Price of coffee:
The price of a good will determine the demand of goods, when the price is high then the demand of a good is low. The price is very important when I am making decisions, I always want to maximize my utility with my money, I make sure I spend less and at the same time get a quality brand from the supermarket. I therefore don’t choose the cheapest brand and at the same time I don’t prefer a very expensive brand. I choose the brand that is average in price and this is because I will derive more utility than the cheapest brands, also this is because I don’t want to spend much on coffee.
Substitutes of coffee:
Substitutes are those goods that can be used for the same purpose with a good example for our case is coffee and its substitute is tea. When the prices of a good rises and that of its substitute is low, then individuals will demand the substitute. Coffee has its complements which include cocoa and chocolate and even tea, I have to consider their prices when purchasing coffee, coffee is far much expensive than these other substitutes and therefore I consider their prices before purchasing coffee, when I don’t have enough of my disposable income then I will purchase tea or chocolate drinks because they are cheaper than coffee. However my preference and taste still remains to be coffee.
Complements of coffee:
Coffee has complements and this include sugar and milk, sugar however is the only true complement of coffee as it must be used with coffee, therefore I will have to purchase sugar and some times milk when I purchase coffee, therefore when prices of sugar are, too high then I prefer other drinks such as fruit drinks, this is because sugar must be present when drinking coffee and if I cannot afford sugar then I have to go without the coffee and purchase other fruit drinks.
I prefer coffee to other drinks because of the taste, the taste of coffee cannot be compared to any other taste and for this reason I like coffee and I drink it often. Even when I cannot afford to purchase coffee I still feel that I have to take coffee each day and therefore the taste of coffee is the reason why I love coffee.
The expectations of future prices of goods will affect the demand of a good, when consumers expect the price of a good to rise in the future, then the demand of that good will rise today to avoid high prices in the future, on the other hand if the consumers expect prices to go down in the near future, then they will postpone purchases of the good until the prices go down.
Therefore when I consider the price of coffee, if I expect the prices to rise in the near future I will purchase more coffee than I need to avoid the high prices in the future.
Income is another determinant of demand of a good, when the disposable income increases for a normal good then the demand of that good will increase, in my case with coffee, when my disposable income increases then I demand more coffee at the time, at this point I can afford to purchase a larger quantity of coffee at one time.
The market demand for coffee:
I am rational in the decision I make regarding the consumption of coffee, in economics rationality means optimizing and this involves getting the value of the money you spend, consumers in an economy are said to be rational if they tend to maximize utility and at the same time spend less.
Regarding the changes of demand of the market for coffee I am in a position to predict the
outcomes of the coffee market, when prices of coffee rise then the demand for coffee will go down and consumers will demand more of coffee substitutes. When the price of its complements such as sugar is raised then the demand for coffee will drop. Therefore I am in a position to predict the reaction of the market regarding coffee.
Demand for coffee is very predictable, the demand for all goods will depend on the price of that good, the existence and the price of their substitutes, the taste and preference, the complement goods of that good and the future expectations of those goods, for a rational consumer it is very easy to predict the outcome of demand for a good in the market
Brian Snow (1997) Macroeconomics: introduction to macroeconomics, Rout ledge publishers, UK
Stratton (1999) Economics: A New Introduction, McGraw Hill Publishers, New York
Philip Hardwick (2004) Introduction to Modern Economics, Pearson Education Press, UK
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