Question

List the variables that will cause the supply and demand curve to shift?

Answer 1

Following variables can shift the supply curve -

1. Price of inputs - Change in price of inputs impacts the supply of a commodity. Increase in price of inputs decreases the supply and shifts the supply curve to the left and vice-versa.

2. Price of other goods - Change in price of other goods can also impact the supply of commodity. If price of other goods decreases then producers will be induced to transfer the productive resources from production of other goods to the production of given commodity. This will increase the supply of commodity and shift the supply curve to the right and vice-versa.

3. Technology - Change in technology also impacts the supply of a commodity. Technological advancement increases supply and shifts the supply curve to the right while technological obsolescence decreases supply and shifts the supply curve to the left.

4. Number of sellers - Increase in number of sellers increases the supply and shifts the supply curve to the right and vice-versa.

Following variables can shift the demand curve -

1. Price of related goods - Related goods can be classified in to two - Substitute goods and Complementary goods.

Change in price substitute goods affects the demand for a good. Increase in price of substitute good increases the demand for the given good and shifts the demand curve to the right and vice-versa.

Change in price complementary goods affects the demand for a good. Increase in price of complementary good decreases the demand for the given good and shifts the demand curve to the left and vice-versa.

2. Income of consumer - Change in income of consumers impacts the demand for a good. Increase in income increases the demand and shifts the demand curve to the right and vice-versa.

3. Tastes and preferences - Change in tastes and preferences also impacts the demand for a good. If taste and preference for the good changes in favorable manner then it leads to increase in demand for good and shifts the demand curve to the right and vice-versa.

4. Future expectation regarding price - If consumers expects price of the commodity to rise in future then they will increase their current demand for the commodity. This increase in demand will shift the demand curve to the right. Opposite will happen, if consumers expect price of commodity to fall in future.