Question

give an account of those "determinants" of demand that can shift the demand curve. (include an example)

Answer 1

Price is not a determinant of demand. When price changes, quantity demanded will change and that causes a movement along the demand curve. Other determinants of demand that can shift the demand curve are :

1) Income - If a good is normal good (for example - clothing), increase in income causes an increase in demand, shifting the demand curve Rightward. And, decrease in income decreases demand, shifting the demand curve leftward.

But if a good is inferior good (for example - public transport), increase in income decreases the demand for the good, shifting the demand curve leftward. And, decrease in income increases demand for the good, shifting the demand curve Rightward.

2) price of related goods -

A) Substitute goods (goods that are used in place of the another): price of substitute good and demand for the other good is directly related.

For example - coca cola and Pepsi are substitute of each other. Increase in price of coca cola increases demand for Pepsi.

B) complement goods (goods that are consumed together) - price of complement goods and demand for the other goods are inversely related.

For example : Cars and gasoline are used together. Increase in price of car decreases demand for gasoline.

3) expectations of future : If Consumers expect price of a good to increase in future, then they will buy less in future period and more in today's period. Therefore, demand of that good will increase. The opposite is true if Consumers expect the price to decrease in future.

If Consumers expect their future income to increase, they are willing to spend more in today's period. Therefore, demand will increase. Their demand will decrease if they expect lower future income.

4) Number of buyers : More number of buyers increases demand and less number of buyers decreases demand.