Question

1. What forces or events may cause a rise or a drop in any demand curve?

2. What forces or events may cause a rise or a drop in any supply curve?

3. What will happen to the demand, supply, price and quantity of the M&M chocolate over the next 2 years? Why?

Answer 1

1. Some factors leading to shifting od demand curve:

a. Change in the price of a good - If there is an increase in price of a normal good then quantity demanded will fall and if there is a fall in price then quantity demanded will increase of a normal good because of the law of demand which states the inverse relationship between quantity demanded and price.

b. Change in the price of substitute goods - A fall in the price of a substitute good will lead to a fall in demand leading to a leftward shift in the demand curve and vice versa.

c. Change in price of complementary goods - A fall in the price of a complementary good leads to a rise in demand for the good because complementary goods are used together and a fall in the price of a complementary good will lead to an increase in demand of other good leading to a rightward shift in the demand curve.

d. Change in tastes and preferences - If tastes of consumers change to some other good due to innovative products or any other reason then it will lead to a leftward shift in the demand curve.

e. Change in income - Income plays an important role in determining the quantity demanded by individuals. If there is an increase in income then it will lead to a rightward shift in the demand curve and vice versa.

f. The expectation of future prices - If consumers anticipate an increase in price of a good then it will lead to an increased demand today because high future prices will reduce the purchasing power of individuals and consumers would be willing to purchase higher quantities today leading to a rightward shift in the demand curve.