Question

Explain and give examples of at least four demand shifters and four supply shifters.

Answer 1

Reasons for a shift in the demand curve are

i) Change in income; if income increases, demand curve shifts to the right. If income decreases, the demand curve shifts to the left.

ii) Change in price of related good; increase in the price of a substitute good, demand for the given good increases. In the case of a complementary good, increase in the price of complementary good decreases demand of the good and the demand curve shifts left.

iii) Change in tastes and preferences also shifts the demand curve due to the change in demand and not quantity demanded.

Reasons for the shift in the supply curve are;

i) Change in price of inputs; when the cost of production increases leads to a left shift in the supply curve and vice versa.

ii) Change in the number of producers; when the number of producers increases then supply curve shifts rightwards.

iii) Change in technology; more advanced technology leads to efficient use of factors of production and shifts supply curve to the right. More redundant technology shifts the supply curve to the left.