Question

What factors produce a change in the individual level of demand (shift in the demand curve for an individual)? Show graphically.

Answer 1

Shifts or changes in demand causes the demand curve to shift to the right (when there is an increase in demand) and the demand curve shifts to the left when there is a decrease in demand.

Factors causing shift in the demand curve:

• Size of the market: Demand will change or shift if the number of consumers for the product increases. The demand curve will shift to the right.
• Income of the consumers: Changes in income shifts the demand curve. Increases in income increases the demand for normal goods and decreases in income increase the demand for inferior goods. The demand curve will shift to the right.
• Increase in the price of related goods. If the price of substitute goods falls, then there is a shift in the demand. If price of large cars increase, then the demand for small cars will increase. Demand curve will shift to the right for small cars. In case of complements, as an example, if the price of gasoline increases demand for cars will fall. The demand curve for cars will shift to the left
• Tastes and preferences of consumers. Demand will depend upon the tastes and preferences of consumers. If there is a preference for health foods, then the demand curve for health foods will shift to the right.
• Expectations: If the consumers expect the prices to fall in the future, then demand curve will shift to the left.