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Demand and Supply - Essay Example

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Stiglitz and Walsh (2002) demarcate these factors into economic and non-economic factors. Below is an elaboration of these 'other factors'.
An increase or decrease in the income of consumers may lead to a rise or fall in the demand for a product. This change by and large depends upon the nature of the commodity; i.e., inferior good or normal good. In case of an inferior good, an increase in the income of consumer will lead to a fall in the demand of that particular commodity and vice versa, because consumer will then shift to a product much better than the previous commodity in his/her perception. On the contrary, in case of a normal good, an increase in the income of the consumer will cause the demand for that commodity to rise shifting the demand curve to the right and vice versa.
This is another economic factor responsible for bringing about a shift in the demand curve. A change in demand of a particular product can be effectuated by a change in price of its close substitutes. The demand for a product will rise if the price of its substitute commodities increases, shifting the demand curve to the right and vice versa. For instance, the demand for coffee for some people will increase as the price of tea rises and vice versa. On the other hand, more tea-consumers would shift to coffee if the price of coffee declines in the market, because a rational consumer will mostly opt for a cheaper substitute, once the price of any of the product rises.

Changes In The Prices Of Complements
Complements are the products that are used or preferably used with another product. Any change in the price of complements will also lead to a change in the demand for the product. For instance if the price of milk increases, the demand for tea or coffee will also fall down, causing a leftward shift to the demand curve. It is because the consumers will be inclined to consume more of a commodity if the price of a complement declines and the contrary will happen if the complement's price rises.

Non-Economic Factors
The following are the non-economic factors that are responsible to effectuate a shift in demand curve (rightwards or leftwards).
Changes In Tastes, Fashion And Preferences
Changes in tastes, fashion and preferences of consumers concerning some products are also likely to affect its demand in the market. A consumer will stop or start purchasing more of a commodity if his/her taste changes. The same is the case with fashion and preferences. If a particular product becomes in vogue, the consumers are likely to purchase more of the product and if, on the contrary a product becomes outdated, the consumers will purchase less or nothing of it. For instance, if a consumer's interest shifts from tea to coffee, the demand for tea will shift to the left (decline). Similarly, if skirts become in vogue rather than trousers, the demand for skirts will shift to the right. Hence, any change in consumers' taste, fashion and preferences is likely to cause a great shift in the demand for a particular prod ...Show more
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The law of demand simply states that any change (increase or decrease) in the price of a commodity will lead to a change (increase or decrease) in the quantity demanded of that commodity, while other factors remaining the same. Any change in quantity purchased by consumers due to a change in 'other factors' refers to a change in 'demand' causing a movement along the demand curve…
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