Shifts in Demand and Supply Curves

Both demand and supply curves can shift, that is

move inwards or outwards.
When a demand or supply curve shifts this means
that at all price levels there will be a change in the
quantity demanded or supplied
Market demand curve shifts
 Factors that Shift the Demand Curve

1. Change in consumer income.

Higher income levels allow the consumer to purchase

more products, -- the demand curve shifts to the
right.

Lower income levels means the consumer has to

purchase less products - the demand curve shifts to
the left.

(When the economy enters a recession and more

people become unemployed, the demand for many
goods and services shifts to the left).
2. Population change: An increase in
population shifts the demand curve
to the right.
3. Consumer preferences: If the
preference for a particular good
increases, the demand curve for
that good shifts to the right
4. Prices of related goods: If prices of related goods
change, the demand curve for the original good can
change as well. Related goods can either be substitutes
or complements.
Substitutes - goods that can be consumed in place of
one another. If the price of a substitute increases,
the demand curve for the original good shifts to the
right. (EXAMPLE…)
Complements - goods that are normally consumed
together. If the price of a complement increases,
the demand curve for the original good shifts to the
left. If the price of a complement decreases, the
demand curve for the original good shifts to the
right. (EXAMPLE…)
 Factors that Shift the Supply Curve
1. Change in input costs:
An increase in input costs shifts the supply curve to the
left.

(A supplier combines raw materials, capital, and labour to

produce the output. If a furniture maker has to pay more
for wood, then profits decline, all else equal. The less
attractive profit opportunities force the producer to cut
output. If input costs decline, firms respond by increasing
output. The furniture manufacturer may increase
production if wood costs fall. )
2. Change in the size of the industry: If the size of an industry
grows, the supply curve shifts to the right. In short, as more
firms enter a given industry, output increases even as the price
remains steady. The opposite occurs if the size of an industry
shrinks. (Supply curve shifts to the left)

For example, the supply of manual typewriters declined

dramatically in the 1990s as the number of producers dwindled.
3. Increase in technology:
- shifts the supply curve to the right.
Technological progress allows firms to produce
a given item at a lower cost. Computer prices,
for example, have declined radically as
technology has improved, lowering their cost of
production. Advances in communications
technology have lowered the
telecommunications costs over time. With the
advancement of technology, the supply curve
for goods and services shifts to the right.
 Shift in the supply curve
When either demand or supply
changes, the equilibrium price
will change. For example, bad
£30
weather normally decreases the
supply of fruit. With The shift
in the supply curve inwards, £20
there will be movement along the
demand curve to a new
equilibrium price. Consumers will
buy less because of the higher
price.
An inward shift in a supply
curve, for example as a result
of an increase in costs or a poor
harvest, will result
in a new equilibrium price
at a higher level than
before and a new
equilibrium output,
at a lower level than before
If the demand curve were to
shift out because of increased
real incomes, then the new
market equilibrium would be at a
higher price and higher level
of output, than the previous
Equilibrium.
 A Shift versus a Movement Along a Demand Curve
It is essential to distinguish between
a movement along a demand curve and
a shift in the demand curve. A change
in price results in a movement along a
fixed demand curve. This is also
referred to as a change in quantity
demanded.

A change in any other variable that influences quantity

demanded produces a shift in the demand curve. A shift in
the demand curve changes the equilibrium position
 A Shift versus a Movement Along a Supply Curve
As with demand curves, it is essential
to distinguish between a movement
along a given supply curve and a shift
in a supply curve. A change in price
results in a movement along a fixed
supply curve.

A change in any other variable that

influences quantity supplied produces
a shift in the supply curve.