Sample Economics Term Paper on Supply and Demand

Consumer demand for any given commodity tends to fluctuate from time to time. A change in demand for a commodity results in a shift of the entire demand curve. The change in demand for the commodity in question, ice cream, could be positive or negative. A shift in demand is caused by a change in consumer preference, a change in consumer income, a change in the number of consumers, and a change in the price of a substitute commodity.

The first factor is a change in consumer preference. On cold days, consumers prefer to consume hot drinks as compared to ice creams. As a result, ice cream sales will decrease because consumers’ preferences have changed in favor of hot drinks (Mankiw, 2020). Therefore, on cold days, ice cream demand and sales decrease meaning that a lot of ice cream will remain unsold. On the other hand, ice cream demand and sales increase on hot days as more consumers prefer to consume ice cream as compared to other drinks. Therefore, on hot days, demand and sales of ice cream increase, and the ice-cream quantity available may be insufficient to meet the high demand.

The second factor causing a shift in demand for ice cream is a change in buyers’ incomes. Suppose that on some days, ice cream consumers have extra money to spare on ice cream. Demand for ice cream will increase and the sales will also increase. The ice cream may not even be enough to cater for the available demand. On days that consumers do not have extra money to spare on ice cream, ice cream sales will decrease and some ice cream may not even be sold due to a sharp decrease in demand.

A change in the number of consumers is the next factor causing a shift in demand. On holidays and days when a large number of students and staff on campus have off days, demand for ice cream sharply decreases and the sales made are minimal. A lot of ice cream remains unsold. However, on normal school days, ice cream demand increases, and all of the ice cream is sold. The demand for ice cream may even override the available quantity of ice cream.

Finally, a change in the price of a substitute also causes a shift in the demand curve. Suppose that ice cream and fresh mango juice are substitutes. When the price of chilled mango juice decreases, consumers will rush to purchase and consume mango juice causing a large decrease in the demand for ice cream. Therefore, a large quantity of the available ice cream for sale remains unsold. When the price of chilled mango juice increases, its demand decreases while the demand for ice cream increases. Therefore, all the ice cream available for sale will be purchased and some potential consumers may be unable to purchase ice cream due to the limited quantity available.

When a new ice cream seller comes into the market, the price of ice cream will decrease. The entrance of a new seller into the market means that there is more ice cream available for sale but the number of consumers is constant. Supply has increased while demand is constant. The final result is a decrease in the price of ice cream and a larger quantity sold.

Figure 1: Diagram showing the effect of an increase in supply on the price of ice cream

Source: Self

The original price of ice cream was $1.50 and the quantity sold was Q1 before the entrance of a new seller. After the entrance of a new seller, the price dropped to $1.00 while the quantity sold increased to Q2.

References

Mankiw, N. G. (2020). Principles of economics. Cengage Learning.