Discuss: The factors contributing to movements along different points on the sam
ID: 1222041 • Letter: D
Question
Discuss: The factors contributing to movements along different points on the same demand curve, and the factors contributing to the demand curve shifting to the right or to the left of its original position. (Also, identify actual examples).
Discuss the factors contributing to movements along different points on the same supply curve, and the factors contributing to the supply curve shifting to the right or to the left of its original position. (Also, identify actual examples).
Also, reflect on “market failures.” Discuss the reasons for their occurrence and their social consequences.
Explanation / Answer
(1)
(a) A movement along the same demand curve is caused only by a change in the good's own price. If price of a good increases, its quantity demanded falls and if its price decreases, its quantity demanded rises. For example, a rise in price of KFC burgers will lower its quantity demanded, and a fall in price of Sony LED TV will increase its quantity demanded.
(b) A shift in demand curve is caused by non-price determinants of demand as follows:
(1) Income of consumers
As income level of target consumer segment rises (falls), demand for a normal good rises (falls) and demand curve shifts right (left). For example, higher income of potential car buyers will raise the demand for cars.
(2) Tastes and preferences of consumers
A preference toward (away from) a good will result in higher (lower) demand of that good, causing its demand curve to shift right (left). For example, a fashion trend of women toward wearing stiletto shoes will raise the demand for stiletto shoes.
(3) Price of related goods
If price of a substitute good rises (falls), demand for the good in question rises (falls), and if price of a complement good rises (falls), demand for the good in question falls (rises). For example, higher price of tea will rause the demand for coffee, and higher price of butter will lower the demand for bread.
Note: First question is answered.