What is the reasons for shift in demand curve, Managerial Economics

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Reasons for Shift in Demand Curve

Shifts in a price-demand curve may occur due to the change in one or more of other determinants of demand. Consider, for illustration, decrease in demand for commodity X by Q1Q2 giiven the price OP1, demand for X might have fallen from OQ2 to OQ1 (i.e., by Q1Q2) for any of the below reasons:

  • Fall in the consumer's income so that he can purchase only OQ1 of X at price OP2- it is income effect.
  • Price of X's substitute falls so that consumers find it beneficial to substitute Q1Q2 of X with its substitute-it's substitution effect.
  • Advertisement made by producer of the substitute, changes consumer's preference or taste against commodity X so much that they replace Q1Q2 of X with its substitute, again a substitution effect.
  • Price of complement of X increases so much that they can now afford only OQX of X
  • Also for such reasons as commodity X is going out of fashion; its quality has deteriorated; consumer's technology has so changed that only OQ1 of X can be used and because of change in season if commodity X has only seasonal use.

 


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