Question

In: Economics

4. How is a change in a shift factor different from a change in price?

4. How is a change in a shift factor different from a change in price?

Solutions

Expert Solution

There are many determinants of demand for a product.

The most important determinant is price. Whenever there is a change in price of a product there is movement in the demand curve. When the price of a product falls down, there is an upward movement in the demand curve due to increase in demand, and when price increases there is a downward movement in the demand curve due to fall in demand for the product.

Whenever we see movement in the demand curve, the only determinant is price, with all other factors remaining constant.

When there is change in other factors as well with the price, we see shift in the demand curve.

For example, if there is change in income of a person:-

Increase in income shifts the demand curve to the right and a fall in income shifts the demand curve to the left.


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