The Factors Causing the Shift in Demand Curve is very important in the shifting the demand curve in Microeconomics. The changes in demand causes shift in the demand curve. The changes in demand curve are caused by changes prices of related goods such as substitutes and complements. The causes of changes in demand curve have been shown in the following table in income, tastes and preferences.
What are the Factors Causing the Shift in Demand Curve in Microeconomics?
The factors causing the shift in demand curve in microeconomics are as follows:
- Price of related goods
- Consumer Incomes
- Consumer Tastes and Fashion
- Technological Progress
- Change in Size and Composition of Population
- Change in Distribution of Income
- Taxation Policy
- Change in Real Income
Factors Causing the Shift in Demand Curve are:
(1) Price of related goods
The demand for a commodity and the price of related goods has two types of relationships. A fall in the price of a commodity m increase or decrease the demand for the price of one goods leads to the fall in the demand for other commodity, those goods are called substitutes.
As for example, when rice of coffee falls, the demand for tea falls. When price of coffee falls, consumers buy more of coffee and buy less of its substitute, tea. In case of substitutes, the demand for a commodity varies directly other commodity. If the fall in 2 with the price of substitutes.
If the fall in price of a commodity leads to the rise in demand for other commodity, those goods are called complements. Because if the price of a commodity falls, more of it is consumed and the complementary good is also consumed more.
This kind of relationship exists in the goods that should be consumed together. As for example, pen and ink, car and petrol, shoe and shoelaces.
(2) Consumer Incomes
The quantity demanded of a commodity changes with the change in consumer incomes. In general, when income increases people demand more of a commodity.
If the demand increases the increase in income, such goods are called normal goods. On the contrary, if the demand decreases with the increase in income, such goods are called inferior goods. Most goods are normal goods.
The inferior goods are typically cheap. As consumer incomes rise, they spend less on cheaper goods like inferior quality rice, usina.
(3) Consumer Tastes and Fashion
The tastes and fashion of consumers change from time to time consumer taste for a particular commodity increases, the demand for that commodity increases. On the other hand, if the taste creases for that commodity, the demand for that commodity decreases.
As for example, the taste for kurta-paijama among Nepalese women has increased these days, which has increased the demand for them. Likewise, the fashion for mini-skirts has reduced the demand for textile materials.
In past, the tastes and fashion were shaped by convenience custom, and social attitudes. But they can be changed by advertisement and increase in knowledge.
(4) Technological Progress
The new commodities produced due to technological progress reduce the demand for old commodities.
As for example, the for piano has declined and that of radio, television has increase supply of electricity has reduced the demand for kerosene mantles demand.
(5) Change in Size and Composition of Population
The increase in population increases the demand for goods and services. The scarcity of water at Kathmandu, and appreciable rise in price of food grains is due to high growth of population.
Likewise, the change in composition of population also changes the demand for goods. The increase in female population leads to increase in demand for saris, lipsticks, and ornaments.
(6) Change in Distribution of Income
The change in distribution of income in favor of the poor people increases the demand for many things. If the distribution of income is concentrated on rich, the demand for luxuries will be high.
(7) Taxation Policy
If the taxes are levied deliberately to reduce the demand for commodity, the demand will fall. Since few years back wines, beers and tobacco have been heavily taxed so as to reduce consumption.
Similarly, high import taxes are levied on luxury goods such motorcar, television, and video deck simply to reduce demand.
(8) Change in Real Income
The increase in quantity of money increases the price level This reduces the real income of people. Consequently people buy less due to fall in purchasing power.
The increase in real income may have little effect on necessaries like foodstuffs. But it may considerably increase the demand for luxuries and semi-luxury.
If the people feel future shortage of commodity or rise in price. The demand will increase at present.