Question

Q5. What are the factors that causes an increase (rightward or upward shift) in demand and supply? (Write down at least 8 points)

Answer 1

Factors that causes an increase in the demand includes:

1. One of the most important factors that let the curve of the demand to have a rightward shift is the income of the consumers. When a consumer experiences a rise in his/her earnings, he feels more comfortable in spending more. An increased income would help the consumer to gain the power to purchase more, leading to an increase in the demand.

2. A fall in the price of the complementary good is another factor that causes the demand of a good to increase. When a good has a complementary, it means that there is the existence of a kind of product which is better utilised when consumed together. And when two goods complement each other, they affect each other’s demand. When the price of a complementary good falls the customers would prefer it more so, the producer or seller of the other good would feel the need to lower the price of his product. Therefore, a decrease or fall in the price of a complementary good would lead to a fall in the price of the other product too due to which, its demand would increase.

3. Rapid increase in the number of consumers can preferably be another reason for the demand to increase. More the people or consumers, more people would be out there to buy some products.

4. A rightward shift in the demand curve also means that there are consumers who have changed their taste or preferences. When any individual’s taste is greater, the demand for that particular product would increase or be greater too.

Factors that causes an increase in the supply are:

1. When the price of the factors changes, it affects the supply curve. When the factors of production are available on a cheap rate, the supply for it would then increase.

2. When the mode of transport is improved, it decreases the expenses of the producer and he would not be spending more on the transport costs. This way, where the costs are cut off, we can say that the supply of it will increase.

3. When there are technical changes, it affects the supply too. The supply or production of a product would increase when the production is undertaken smoothly, with a better and modernized technics of production.

4. Fiscal policies play an important role to increase the supply of a commodity. When the state authorities impose a very low import duty, there will be an increase in the supply as the sellers or producers would then not have the burden to pay heavy duties.