With real-world examples, illustrate the various factors that can cause a shift in the demand curve of a commodity

Question

What will be an ideal response?

Answer 1

The demand curve of a commodity can shift for the following reasons.
a) Tastes and preferences: A change in the tastes and preferences of individuals can lead to a change in demand without any change in the commodity's price. For example, if new research proves that caffeine can be very harmful to regular consumers, it is likely that the demand for coffee might decrease, even though the price of coffee may not have increased.
b) The income and wealth of consumers: Income and wealth of individuals plays an important role in determining demand. For example, a consumer who goes on vacation only once a year might start taking more vacations if his income increases. Thus, as income increases, the demand curve for a commodity, say movie tickets or vacations, shifts to the right.
c) The availability and prices of related goods: Related goods are of two types, substitutes and complements. Two goods are substitutes if an increase in the price of one good leads to an increase in the demand for the other good and vice versa. On the other hand, two goods are complements if an increase in the price of one good leads to a decrease in the demand for the other good. For example, if the price of public transport decreases, the demand for cars is likely to fall. These two goods are substitutes. On the other hand, if the price of gasoline goes up, the demand for cars is likely to fall. Gasoline and cars are complements.
d) The number and scale of buyers: The market demand for a commodity greatly depends on the number and scale of buyers. For example, if the enrollment rates in schools go up, the demand for textbooks is likely to increase, regardless of a change in price.
e) Expectations about the future: Expectations about the future also plays an important role in determining the demand for a commodity. For example, if consumers expect the price of refrigerators to increase substantially in the near future, consumers may demand more refrigerators in the present.