Distinguish Between Factors That Cause Shift In Demand And Supply Curves - SS2 Economics Lesson Note

In economics, the demand and supply curves are graphical representations of the relationship between the quantity of a good or service demanded or supplied and its price. A shift in either the demand or supply curve occurs when there is a change in any non-price determinant of demand or supply, while a movement along the demand or supply curve occurs when there is a change in price. 

In order words, a shift in demand or supply curve is caused by factors that are not related to price, while a movement along the demand or supply curve is caused by changes in price or production cost.

Factors causing shifts in demand and supply curves:

• Changes in consumer tastes  preferences: A change in consumer preferences can cause a shift in the demand curve as consumers may demand more or less of a product depending on their preferences.

• Changes in income: An increase in income leads to an increase in demand for normal goods and a decrease in demand for inferior goods. A decrease in income has the opposite effect.

• Changes in the price of related goods: The demand for a product may increase or decrease as a result of changes in the price of related goods. If the price of a substitute good increases, the demand for the product will increase, and if the price of a complementary good increases, the demand for the product will decrease.

• Changes in population and demographics: A change in the population size or demographic composition can affect the demand for a product. For example, an increase in the elderly population may increase the demand for healthcare services.

• Changes in government policy: Changes in government policies, such as taxes and subsidies, can affect the demand for a product. For example, a tax on cigarettes would reduce the demand for cigarettes.

Factors causing movements along demand and supply curves:

• Change in price: A change in price of a good or service will cause a movement along the demand or supply curve as consumers will purchase more or less of the product depending on the price.

• Changes in production costs: A change in production costs, such as labor or raw material costs, will cause a movement along the supply curve as producers will supply more or less of the product depending on the cost.

• Changes in technology: A change in technology can lead to changes in production costs and therefore cause a movement along the supply curve.

• Changes in input prices: A change in the price of inputs, such as oil or electricity, will cause a movement along the supply curve as the cost of production changes.

• Changes in the number of producers: An increase or decrease in the number of producers can cause a movement along the supply curve as the quantity supplied changes.