Question

Given a scenario, draw a supply/demand graph, beginning with a market in equilibrium, and show the effect of changes in both a determinant of supply and a determinant of demand.

Answer 1

Determinants are those factors which cause the shift of the demand curve either leftwards or righteards

Some of the determinants of demand are

• income level of consumer
• expectation level of consumers
• presence of substitutes or complements in the market
• Taste and preferences etc

Let's say an example when there is increase in the income of consumer then it will lead to more demand and this will cause the shift of demand curve to the right shown below

2.Supply determinants are those which causes the shift of supply curve.

The shifts can be either leftwards or rightwards

Some of the determinants of supply curve are-

• Presence of competition in the market
• presence of new technology in the market
• expectation level of sellers etc

Let's take an example- If there is new technology in the market then this will lead to fall in the input prices of production and ultimately increasing more supply

this will lead to shift of supply curve to the rightwards shown below -