Answer to Question #184068 in Microeconomics for zain ul abdeen

Question

There are five factors that can cause change in demand. Describe the effect of change in these factors on quantity demand, quantity supply, and thus on the point of market equilibrium.

 1.taste

2.number of buyers

3.income

4.price of related goods

5.consumer expectations?

Answer 1

1) Taste

A product for which consumers' tastes and preferences are greater. its demand would be large and its demand curve will therefore lie at a higher level increasing the market equilibrium point.

2.Number of buyers.

If number of buyers is high demand increase and vice versa. High number of buyers also attracts many suppliers for there is a ready market increasing market equilibrium point.

3. Income.

For instance, if someone's income grows, then his demand for goods will increase, shifting his demand curve to the right increasing the market equilibrium point

4.Price of related goods

Goods are either related as substitutes (used for same purpose) or complimentary ( used together )

If good X and Y are substitutes increase in price of good X cause an increase in demand of good Y and vice versa. It will also lead to high supply for good X for it has high price and vice versa.

5) Consumer expectations

If consumer expect a higher price, future then demand increases. If sellers expect a lower price, in future then demand decreases lowering the market equilibrium point.

Supplier are likely to supply less if there is a future expectation of increase in price and vice versa