Question

Give two reasons for the shift of the demand curve towards the right.

Answer 1

When the demand curve shifts to the right, it indicates increased demand for a product or service at every price level. The two reasons provided for this rightward shift are:

1. Increase in Income: When consumers experience an increase in income, they have more purchasing power and can buy more goods and services. For normal goods, an increase in income leads to a rise in demand because consumers can afford to purchase more of the goods or upgrade to better versions. As a result, the demand curve shifts to the right, reflecting a higher quantity demanded at each price level.
2. Rise in Prices of Substitute Goods: Substitute goods can be used in place of each other, such as tea and coffee or butter and margarine. If the price of a substitute good rises, consumers may switch to the relatively cheaper alternative, increasing the demand for that alternative. For example, if the cost of tea increases, people might buy more coffee instead, increasing the demand for coffee. This shift in consumer preference causes the demand curve for coffee to move to the right.