Thursday, August 8, 2019
Factors that cause shift in demand curve Essay Example | Topics and Well Written Essays - 1500 words
Factors that cause shift in demand curve - Essay Example When the price of the bread increases to $70, the quantity demanded as a result decreases to 6 million or where the price decreases to $50 from $40 then the quantity demanded increases to 10 million. This phenomenon can be said to be the movement along the demand curve. The reason for the shift of the demand curve is due to the change in factors other than that of price, such as the change in price of the related goods, income of the consumer or preference of the consumer etc. An increase of decrease in these factors can shift the demand curve on either side as the price will remain the same. Two goods are said to be the substitute of each other when the price of one of the item causes the price of the other item to rise simultaneously or the goods are such identical to each other that a normal consumer may switch to the other good when the price of the prior rises. The customer expectation that the price of a good may increase of decrease can have affect on the demand curve as due t o the expected increase in price. The customer will tend to purchase and stock the particular good before the price rises and vice versa may happen when there is a possibility of decrease in price. The change in income of a consumer is one of the basic causes of the shift in the demand curve. When the income of the consumer increases he will switch to more luxury goods as compared to the normal goods, because of the increase in his purchasing power which provides a better margin to purchase more of a good.