Q3 - List four shift factors of demand and explain how each affects demand.

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Expert Solution

Shift factors are all those which affect the demand except the own price of the good. For example for Tea except the price of tea all those things which affects the demand for Tea are shift factors because they shift the demand curve.

1) Income of consumer - If the income of consumer increases demand curve will shift to right because demand will increase at all existing prices. Decrease in income will shift the demand curve to left.

2) Price of substitute good - If price of substitute good increases demand for the good will increase. Like increase in price of coffee will increase the demand for Tea and demand curve of Tea will shift to right.

3) Price of Complementary good - Increase in price of complementary good will decrease the Demand for good and demand curve will shift to left. Like increase in price of Car will decrease the demand for petrol. Decrease in price of complementary good will increase the demand and shift the curve to right.

4) Taste and preferences - If taste and preferences changes demand curve will shift. If people like to consume more goods at existing prices then demand curve will shift to right and if preferences changed and people like to consume less than demamd curve will shift to left.

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Rahul Sunny answered 1 month ago

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