Applying Supply and Demand Real World Examples

ApplyingSupply and Demand: Real World Examples

ApplyingSupply and Demand: Real World Examples

Themarket forces are usually influenced by the changes in demand as wellas supply. Demand and supply form the most fundamental economicconcepts in the market. The principle of demand denotes that, if allthe other factors are kept constant, the higher the price of aparticular good, the lower the number of people demanding thatproduct. Essentially, this implies that the greater the price, thesmaller the amount demanded. On the other hand, the law of supplydenotes that the greater the price, the larger the quantity supplied. A classical case demonstrating the changes in demand in a realmarket regards the recent increase in the price of subscription byNetflix (Goldman, 2016).

Inan article published by CNNMoneyon April 19th, 2016, Goldman (2016) reported that Netflix hadbroadcasted in the month October that it would increase the fee forits normal HD plan from $9 per month to $10. According to the newsarticle, the longer one had been a subscriber, the longer it wouldtake until his/her price increase. While most companies usuallyincrease their prices at once, Netflix optioned to stagger theprocess over a period of one year. The reason for staggering theprice increase includes the fear for the manifestation of the demandprinciples. As witnessed back in the year 2011 when Netflix increasedits prices, there was a decrease in demand manifested by a severebacklash from the subscribers. The company lost over 0.8 millionsubscribers, an indication that the increased price decreased thedemand for the Netflix services. Therefore, the staggering priceincrease option is also aimed at ensuring that the company retains aconsiderable number of its subscribers even after the process isover.

Reference

Goldman,D. (19, April, 2016).Netflixprices are going up: Here`s when you`ll have to pay more.Retrieved fromhttp://money.cnn.com/2016/04/19/technology/netflix-prices/