ECONOMICS

Economics

Demand and Supply Curve with Equilibrium 1 & 21

Factors causing an inward or outward shift in demand curve1

1.Changes in prices of substitutes or complementary goods2

2.Changes in Wealth and Income3

3.Changes in consumer tastes and preferences3

4.Changes in expectations of prices4

Factors causing an inward or outward shift of supply curve4

1.Changes in prices of inputs5

2.Changing Technology5

3.Fluctuating Number of suppliers5

4.Taxes5

Law of Demand6

Graphical Explanation6

Law of Supply7

Graphical Explanation8

Movement along the curves and shift of curves9

Bibliography11

Economics

Demand and Supply Curve with Equilibrium 1 & 2

The initial demand curve is shown in green, and the shifted curve is shown in blue. Equilibrium initially occurs at points (X= 85 units; Y= €1.95). After the outward shift of the demand curve, the new equilibrium occurs at points (X=98 units; Y=€1.95).

Factors causing an inward or outward shift in demand curve

Shifts in demand curves occur when a change occurs in the quantity demanded. The inward and outward shift of the demand curve depends on the increase or decrease in the demand, respectively.

A lot of factors have been noticed to cause a change in the quantity demanded. Consumers' perceptions of the product could change instead of the price, and they could be willing to buy more quantity of the same product at the same price levels. A shift to the left indicates loss of consumer interest or no need of the product. The categories defined below outline the possibilities in which the demand curve would shift. Inability to meet the following criteria would result in no shift of the demand curve.

Changes in prices of substitutes or complementary goods

Substitute goods are those goods which could be used as a compensation for the lack of the regular good. These satisfy similar consumer needs, only the branding is different. Examples of substitute goods include margarine and butter, coffee and tea, cold drink and juice, etc. Complementary goods are those which are inversely correlated; decrease in the price of one good could lead to an increase in the quantity demanded of the other good. These usually include goods that are to be used with the complementary good, for instance, DVDs with DVD Players, batteries with torches, ink cartridges with printers, software with hardware, and so on.

We can take the example of DVDs and DVD Players for clarification. If the price of DVD Players increases, the consumption of DVDs is prone to decrease. This decrease might not be due to any change in interest, but rather the fact that DVD Players are going to be bought lesser due to an increase in price, and since DVDs are used in combination with DVD Players, its demand would suffer consequently.

An example of beef and chicken could also be used to illustrate the usage and market effects of substitute goods. These are usually considered as substitute products, which means that either of them could be used as an alternative for the other one. Therefore, if the price of beef decreases, people buy more beef and less chicken. This does not signify a loss of interest in chicken, just an increase in demand driven by ...