Factors Affecting Shift of Demand: When The Demand Curve Shifts

Factors affecting shift of demand
1) Income of consumers: When income of consumers rise, demand curve shifts to

right, because consumers can afford to purchase more of each commodity at a
given price.
2) The prices of related goods: A demand curve shifts to right if price of the
substitute commodity rises or if the price of complementary commodity falls.
3) Time Period: Demand varies on time or seasons. when the availability is more
on particular season, prices are low so that demand rises and more people purchase
so the curve shifts right. But once the season changes, price increases and people
start negotiating if demand is more; else the demand decreases as people cant
afford.
4) The number of consumers: When number of consumers increase, demand for
commodities increases and the curve shifts right..
5) Advertisement: When company comes up with promotional activities and
advertisements of products, it will induce more demand trying to change
individuals tastes and preferences for a productand the curve will shift to right.

When the Demand Curve Shifts:
Fish and meat are substitutes: if the price of meat rises, the demand for fish
will increase, and if the price of meat falls, the demand for fish will
decrease.

Figure shows the effect of a rise in the price of meat on the market for fish.
The rise in the price of meat increases the demand for fish. Point E
1
shows
the original equilibrium, with P
1
the equilibrium price and Q
1
the
equilibrium quantity bought and sold. An increase in demand is indicated by
a rightward shift of the demand curve from D
1
to D
2
. It generates an
increase in the quantity and price supplied, an upward movement along the
supply curve. A new equilibrium is established at point E
2
, with a higher
equilibrium price, P
2
, and higher equilibrium quantity, Q
2
. Hence, When
demand for a good or service increases, the equilibrium price and the
equilibrium quantity of the good or service both rise.
A fall in the price of meat reduces the demand for fish, shifting the demand
curve to the left. At the original price, a surplus occurs as quantity supplied
exceeds quantity demanded. The price falls and leads to a decrease in the
quantity supplied, resulting in a lower equilibrium price and a lower
equilibrium quantity. Hence, When demand for a good or service decreases,
the equilibrium price and the equilibrium quantity of the good or service
both fall.
Factors affecting shift of Supply:
1) Prices of other goods: The supply of one good decrease, if prices of other good
increases, causing producers to reallocate their resources towards more profitable
goods.
2) Number of sellers: If the number of sellers increases for particular goods the
supply curve will shift to right
3) Technology: Due to significant technological advancements, the efficiency
increases which in turn make the supply to shift to the right.
4) Taxes: Taxes impact the profitability of producing a good. If businesses have to
pay more taxes, there will be less supply and curve will shift to left.

When the Supply Curve Shifts
In the real world, it is a bit easier to predict changes in supply than changes
in demand. Physical factors that affect supply, like the availability of inputs,
are easier to get a handle on than the fickle tastes that affect demand. Ex:
floods result in reduced availability of fishes.

Figure shows how shift affected market equilibrium. The original
equilibrium in market for fish is at E
1
. As a result of flood, supply falls and
S
1
shifts left to S
2
. At original price, P
1
, a shortage of fish now exists and
market is no longer in equilibrium. The shortage causes a rise in price and a
fall in quantity demanded, an upward movement along the demand curve.
The new equilibrium is at E
2
, with an equilibrium price, P
2
, and an
equilibrium quantity, Q
2
. In the new equilibrium, E
2
, the price is higher and
the equilibrium quantity is lower than before. Hence, When supply of a
good or service decreases, the equilibrium price of the good or service rises
and the equilibrium quantity of the good or service falls. Similarly, an
increase in supply leads to a right shift of the supply curve. At the original
price, a surplus now exists; as a result, the equilibrium price falls and the
quantity demanded rises. Hence, When supply of good increases, the
equilibrium price of the good or service falls and the equilibrium quantity
rises.
Simultaneous Shifts of Supply and Demand Curves
Finally, it sometimes happens that supply curves and demand curves for
many goods and services typically shift quite often because the economic
environment continually changes.

Figure illustrates two examples of simultaneous shifts.
In both cases, the equilibrium price rises from P
1
to P
2
as the equilibrium
moves from E
1
to E
2
. In general, when supply and demand shift in opposite
directions, we cant predict what the ultimate effect will be on the quantity
bought and sold.

similarly when supply and demand shift in same directions, we cant predict
what the ultimate effect will be on the price bought and sold.
The possible outcomes when the supply and demand curves shift in the same
and opposite directions are as follows:
When demand increases and supply decreases, the equilibrium price
increases but the change in equilibrium quantity is ambiguous.
When demand decreases and supply increases, the equilibrium price
decreases but the change in equilibrium quantity is ambiguous.
When both demand and supply increase, the equilibrium quantity increases
but the change in equilibrium price is ambiguous.
When both demand and supply decrease, the equilibrium quantity
decreases but the change in equilibrium price is ambiguous.

Sources of reference:
supply and demand- mc-graw hill higher education
demand and supply: change in equilibrium, principles of microeconomics by
krugman - www.worthpublishers.com

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Factors affecting shift of demand

1) Income of consumers: When income of consumers rise, demand curve shifts to

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