Question

1. Identify the factors that affect demand. Come up with your own example to illustrate how these factors shift demand (do not use examples from the textbook).

Answer 1

The factors which affect demand are:

Income

Substitutes/Complements

Consumers tastes and Preferences

Future Price expectations

Note-The price of the goods doesn't shift the demand curve, it only results in a movement along the demand curve.

All of these factors affect the demand curve which shifts it to the right or left.

As seen in the above diagram the initial equilibrium is at E

Suppose when the income of the consumer's increases or the price of substitutes decreases or there is a favourable change in the tastes and preferences of the consumers then, their demand for the goods increases which will shift the demand curve to the right to D2 which will also raise the price of the goods.

On the other hand,when the price of substitutes decreases such as tea and coffee or the price of complements increases such as tire and car or when the consumers expect the price to fall in the future then their demand will decrease which will shift the demand curve to the left to D3 which also decreases to prices of the goods