Question

With real-world examples, illustrate the various factors that can cause a shift in the demand curve of a commodity. Please Discuss in Detail

Answer 1

Shift in the demand curve whether it is leftward or rightward occurs due to change in factors other than price. Rightward shift in demand curve indicates increase in demand of product while leftward shift in demand curve indicates decrease in demand of product. The factors that can cause shifts in the demand curve include change in price of substitute goods, change in price of complements, change in real income of consumer, change in tastes & preferences of consumers, etc. These factors are discussed in detail below:

1) Change in price of substitute goods: Substitute goods are those goods which are used in place of one another. The quantity demanded of the good will increase when the price of substitute good increases, this causes demand curve to shift rightward & vice-versa. For example: If price of Pepsi increases then demand for Coca cola will increase even though its price didn't change.

2) Change in price of complements: Complementary goods are those goods that are demanded jointly. The quantity demanded of good increases with decrease in price of complementary good & the demand curve shifts righwards & vie-versa. For example: If price of ink decreases then it will cause increase in demand for pen, even though its price didn't changed.

3) Change in the income of the consumer: If the income of consumer increases, then consumer buys more of a product & the demand curve shifts towards right & vice-versa. When income of a person is less then they buy less of a product but as the income increases, the quantity demanded of a good increases. For example: when income of the consumer increases then they will tend to buy more chicken & steak, even if their prices did not changed which will cause a rightward shift in their respective demand curves.

4) Change in taste & preference of consumers: Taste & preference of consumers can be influenced by advertising & marketing. Taste & preferences includes change in fashion, custom, etc. The quantity demanded of a good will increase for which consumers develop taste & preferences & will lead to a rightward shift in the demand curve & vice versa. For example: if consumer will develop a preference for pencil cut trousers then its demand will increase, even if its price didn't changed.

5) Expectation about future price of goods: If people have an expectation that price of a good will increase in future then its quantity demanded will increase causing a rightward shift in the demand curve & vice-versa. For example: If consumers expect that price of chocolate bars will increase in future, then they will tend to buy more of them & will increase their quantity demanded without change in their price.