Question

4. Below are a set of demand curves. How do demand curves normally work & give examples? What is a structural shift in a demand curve and give examples of factors that can cause a shift? How does it affect economic health?

Answer 1

Demand curve

Demand curves shows the relationship between quantity demanded and price of a commodity in a market. It is downward sloping curve which looks like the following.

We measure price on y axis and quantity on x axis. It is downward sloping because there is a negative relationship between price and quantity demanded. At a lower price, more quantity is demanded by the customers and vice versa. These changes in prices affect the market health. This happens in the presence of market equilibrium which is formed using the intersection of demand and supply curves.

Let us now understand the structural shift in demand curve by relating it to more similar concept. Difference between the structural shift and movement in the demand curve:

Basis of difference	Shift	Movement in demand curve
define	The shift in the demand curve is happens when there is a change in quantity demanded due to some other factors and not price, causing the curve to shift to a particular side.	Movement in the demand curve is when the commodity experience change in both the quantity demanded and price, causing the curve to move in a specific direction.
figure
feature	Non-Price	Price
shows	Change in Demand	Change in Quantity Demanded

Causes of shift in demand-

1. Change in price of substitute goods:

Substitute goods are the goods that can be used in place of each other. For example, tea and coffee, coca-cola and pepsi. If price of a substitute good increases, then the demand of main good will also increase because the customers will prefer cheaper product. And vice- versa. (that is if price of substitute good decreases, then the demand of main good will also fall because the customers will prefer the substitute that costs them lower.)

2. Change in price of complementary goods:

Complementary goods are the goods which are used together. For example, car and fuel or eraser and pencil. If price of complementary good increases, then it will be expensive for the customer to use the two goods together, so the demand of main good will fall.

3. Change in Income:

Change in customer’s income will also affect his demand. If the income increases, he’ll be able to buy more and thus, the demand of a normal good will also increase.