Determinants of supply and demand
Now that we have addressed how and the demand and supply curve works, in this article, we will introduce the next topic: shifts in the demand and supply curves. These are called determinants of supply and demand.
A change in determinants shifts the entire curve outwards or inwards.
Demand Determinants
Changes in any of the following will either increase (shift right) or decrease (shift left) the demand curve:
1. Tastes, preferences, and/or popularity
2. Number of buyers
3. Income of buyers
4. Price of substitute goods
5. Price of complementary goods
6. Expectations of future prices of goods
This means that anything that increases the quantity demanded at a given price, or that increases the maximum willingness to pay for a given quantity shifts the demand curve.
Supply Determinants
Changes in any of the following will either increase (shift right) or decrease (shift left) the supply curve:
1. Prices of resources/inputs/factors or raw materials
2. Technology
3. Taxes and Subsidies
4. Price expectations
5. Number of sellers in the market
This means that anything that increases the quantity supplied at a given price, or that requires a hiher price needed to sell the same given quantity shifts the supply curve. Higher costs of production decrease supply.
