Question

Format for presenting the test and answers: Copy the question to a new document, and then formulate your answers. Do not separate the question from the answer Spell-check your document prior to submitting, Please be concise in your answers, but thorough 1. Name and explain the factors that shift the demand and supply curve to the right or to the left

Answer 1

Determinants of demand Besides the own price of the commodity, there are other nonprice determinants. These include the income of the consumer, their tastes and preferences, price of goods and services that are substitutes or complements to the original commodity and buyer's expectations. The latter includes expected future price of the commodity or the expected income in near future. In the first case of change in own price, when the price of a commodity rises, there is an upward movement along the same demand curve. The downward movement along the demand curve is experienced in case of a price fall. The second case belongs to a change in any nonprice factor such as, an change in income of the buyer. The price of the commodity is assumed to be unchanged, which implies that more or less units are demanded at each price. Thus, the demand curve does not show a movement but a shift to the left or right depending on the nature of change. For an increase in number of consumers, increase in income, higher expected price in future and expected income, increase in price of substitute and decrease in price of complement, there is an increase in demand shown by a rightward shift of the demand curve. Each time a factor is changed, others are kept unchanged.

Determinants of supply Own price of the commodity is considered a fundamental determinant of supply. But there are quite a few nonprice determinants as well. These include price of resources, taxes, subsides, technological changes, change in the number of sellers, price of related goods, and expectations about the future prices. The latter includes expected future price of the commodity. The impact of a change in any of the determinant on the supply function can be traced out under two cases. The first case notices the change in own price of the commodity. This causes a movement (upwards or downwards) along the original supply curve. The second case belongs to a change in any nonprice factor such as, a change in the price of a major resource. Since other factors including the price, are assumed to be unchanged, this changes the cost of production and the number of units supplied at each price. Now in that case supply curve does not show a movement but a shift to the left. When there is an increase in the price of inputs, taxes, reduction in subsidies, unfavourable changes in technologies, reduction in number of sellers and higher expected price in future, the supply is decreased and supply curve shifts to the left. The opposite happens when there is a decrease in the price of inputs, taxes, increase in subsidies, favourable changes in technologies, increase in number of sellers and lower expected price in future.