A demand curve is a representation of the relationship that exist between price of goods and services and the quantity demanded. A typical presentation of the demand curve looks like the graph above (Arnold, 2010). The demand curve for the new ford model in the United Kingdom is as presented in the graph above. The number of cars demanded depends on the price of the car. Holding all other factors constant, as the price of the car increases, the consumers have an incentive to buy less of cars and substitute for other essential products (Ball & Seidman, 2012). This indicates that the quantity demanded decreases. The vice versa happens when the price decreases.
When the sterling euro exchange rate fall, importers will import the car at a less price based on foreign currency. A fall in the sterling euro exchange rate means that it takes less of foreign currency to acquire a sterling euro (Lipsey & Harbury, 2004). To foreigners, the low exchange rate will be translated as a fall in the price of the car from P1 TO P2. Thus, importers will have a high incentive to import more cars thus increasing the quantity demand (Mankiw & Taylor, 2006). The Ford Company on the other hand will be forced to supply more cars to be able to meet the demand in the market. This will shift the supply curve from S1 to S2. The new equilibrium in the market will be P2Q2.
The equilibrium level in the market is determined by the focus of demand and supply (Rittenberg & Tregarthen, 2009). At equilibrium, the market will be operating at P1Q1. When the price increases from P1 to P2 without a change in other factors affecting demand, then the demand moves to the left along the demand curve D1. An increase in price means that consumers have a less incentive to purchase the car, which is why the quantity demanded decreases (Samuelson et al., 2010). On the hand, the Ford Company has to reduce the supply of the cars in the UK market due to the low demand and thus the supply shifts on the left from S1 to S2 to form the new equilibrium at P2Q2. Overall, an increase in price will lead to a decrease in the quantity demanded in the market.
Do you need a customized paper? Place an order with us!