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Microeconomics: Shift in Demand

Whenever there is a shift in the demand or supply curve, the equilibrium price and quantity change. In this post we will explore the impact of a change in the market demand, and the factors that cause these shifts.

Determinants of Demand: changes in demand are caused by changes in consumers' tastes, consumers' incomes, and the price of related goods.
  • Consumers' tastes: if the preference for a particular good increases then the demand curve shifts to the right to represent the increase in demand. If there is a decrease in the preference of a good, then the demand decreases which is presented by the shift of the demand curve to the left.
  • Consumers' incomes: the amount of money available to buy goods and services. For normal goods, an increase (decrease) in income results in an increase (decrease) in demand.
  • Change in the price of related goods:
    • Complementary goods: goods that are consumed together, for example buns and hot dogs. If the price of a good decreases, then the demand for the complement good increases.
    • Substitute goods: goods that are consumed in place of each other. If the price of a good increases, the demand for its substitute increases. On the other hand, if the price of a good decreases, then the demand for its substitute decreases.
Example: 

If a new scientific report discovers that eating apples increases life expectancy, consumers' preference will change. The consumers are now willing to buy more apples then before, which causes the demand curve to shift to the right. The shift is represented by D2 which illustrates the new demand curve. The line D1 represents the demand curve before the report was published. As expected, the equilibrium price and quantity are now higher.


Reference: Mayer,David. AP Microeconomics Crash Course. Research & Education Association (2014). p 56-59.
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