The main determinants for changes in demand are:

·         Changes in income;

·         Changes in tastes and preferences;

·         Changes in prices for related products (substitutes and complimentary products);

·         Changes in future expectations;

·         Changes in market population, age and income distribution.

All these changes can shift the demand curve AD right to AD1 or left to AD2. The main difference from simple movements along the curve is that the price and quantity are shifting and with the same price the quantity Q will change from A to D and Q1 if the demand decrease or to E and Q2 if the demand increase. The same we can do with price. With change in demand the price P for the same quantity Q will increase to B and P2 if demand increase or decrease to C and P1 if demand decrease.

For example I like quality shoes. They cost a lot and when I moved to Calgary the salary I got was not sufficient to buy the shoes I wanted. I switched rightward to AD1 curve from AD and started buying the discount shoes from postdated collections. The determinant was the decrease in income. After a few months I found a better job and switched back to my comfortable level. The Demand curve shifted leftwards from curve AD1 to AD as a result of increase in income. After some time my favorite shoe company introduced new line of more expensive shoes with improved quality. I decided to buy them. My demand curve switched again leftward from AD to AD2 as a result of change in preferences. Please note that I was buying the same quantity but the price changed from P to P1, back to P and to P2 as a result of change in demand determinants.

Hi everyone!

Recently I had a good time plying the Diner City game. This game is teaching to react on the changes and make the choices in fast-passing world by analyzing the possibilities given with limited resources on hand.  As a result of the choices I made my restaurant business either won or failed. If some wrong choices could be made at the first levels, the last one required maximum concentration and constant assessment of the choices available.  My goal was getting the most for the lowest price possible. So I tried to keep the speed of service in my restaurant at least fast and clean it when required. That goal I achieved by keeping some spare cash on hand. Also I tried to maximize revenue by increasing demand for the food with some attractive futures and extended supply of different kinds of food. But I counted the profitability or the amount of return versus the price paid of each of them and kept aside unprofitable ones. Some nice lessons I have learned was the more money you put in the business the better the return is and try to be ahead of the competitor in acquiring the capital goods.

 I think these tips would help in getting the success while playing the game and in the real world as well.   Happy gaming!

The Possibility Curve PP1 illustrated above is representing the necessity to make the choice and the trade-off or opportunity cost that everyone has to consider when making the decision. For example the choice to produce 12 units more of Product 1 means that we have to give up 20 units of Product 2. Points a and b which are on the production possibility curve represent the maximum of the Product1/Product 2 mix that the economy can produce with given resources. Point c is within the green zone and this means that the resources are not fully used and somewhere the economy is not working with full power. Point d is unattainable at the moment and economy should grow from PP1 to PP2 to be able to reach the desired output.

As a great example is my decision to buy a house. I like to travel and spend some sum of money every year on that hobby. Currently I am at point c and my monthly rent payments and travel spending don’t use the resources available at full. But with the buying the house I will get to choose between high monthly payments for better house and short trips a or lower monthly payments for condo with limited space and the possibility to have unforgettable trips b. The paradox is that every choice made is right depending of the point of view. Another possibility is to get better education that means more resources can be used and move the possibility curve from PP1 to PP2 and get better house and more trips d. And this is what I am doing now. That could involve more time and money spent now when trying to use all resources at point c wisely with the possibility to get better return in the future. As the opportunity cost I need to postpone buying the house for some time.