Question

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

Answer 1

Determinants which shifts the demand curve;

1) Price of related goods: Demand for a commodity is also affected by the change in the price of related goods like substitute goods or complementary goods. Substitute goods are those goods which are used in place of one another. Increase in the price of one good increases the demand of other good and vice-versa. On the other hand, complementary goods are those goods which jointly satisfy a particular want of consumer. An increase in the price of one good decreases the demand of other good. It causes shift of demand curve either rightward or leftwards.

2) Income of the consumer: Increase in the income of consumer increases the demand of normal good while reduces the demand of inferior goods. It causes shift of demand curve either rightward or leftwards. Increase in the income shifts the demand curve rightwards and vice-versa.

3) Taste and Preference of the consumer: If consumers have favorable taste and preference for the good then demand of that good increases and vice-versa. If consumers have favorable taste and preference for the good then demand curve shifts rightwards and unfavorable taste for the commodity shifts it leftwards.

4) Expectation: If people expect that price of a commodity will reduce in near future then people demand less number of goods today and as a result, demand decreases and causes the demand curve to shift leftwards. When people expect that price of a commodity will increase increase in near future than present consumption increases and leads to rightward shift of demand curve.

Diagram showing Increase in Demand:

Price 小P' D' ーラQuantity

Diagram showing Decrease in Demand: