We previously learned that a change in quantity demanded is not the same as a change in demand.

A change in demand is when the actual demand curve shifts. It either shifts to the right (indicating an increase) or shifts to the left (signaling a decrease). When it shifts to the right, more people are willing to buy your product, and when it decreases, fewer people are willing to purchase it.

Causes for Changes in the Demand Curve:

• Price of a substitute good

• Price of a complementary good

• Expectation of a price change

• Changes in income

• Change in the customer base

Imagine that your competitor has a substitute good, and they just lowered their price. Now the quantity demanded for their product is going to increase, and as a result, your demand curve is going to decrease. It’s going to shift to the left because fewer people want your product since more people desire the competitor’s substitute product.

Another reason the demand curve can change is a shift in the price of a complementary good. If you have a complementary good and its price just decreased, more people will want that good and consequently more of your good as well. Hence, your demand curve is going to increase, shifting to the right.

Another reason is when people expect the price of a product to drastically change. If consumers anticipate that the price of a good will significantly increase, they’ll want to stock up on it now, causing the demand curve to shift to the right. The demand curve would increase, shifting to the right.

When people earn more money, they spend more, which increases the demand curve. The last cause for a change in the demand curve is when there’s a change in the customer base (i.e., the number of customers). If the customer base increases, then the demand curve would also increase, shifting to the right.

Causes for Changes in the Supply Curve:

• Production costs

• Subsidies and taxes

• Enhanced technology

Now, let’s discuss the causes of a change in the supply curve. From the perspective of the business, we ask, “Does the business want to create more goods or fewer goods at the same price?” In other words, “Did the supply curve increase to the right or decrease to the left?”

The first cause of a change in the supply is when the production costs decrease. If it’s less expensive for companies to produce a good, they’ll want to create more of it at the same price.

Subsidies and taxes can also change the supply curve. Subsidies are payments that the government provides to incentivize businesses. If these subsidies increase a company’s funds, it will have more to spend on production, and therefore the supply curve will increase.

Enhanced technology can also impact the supply curve. As technology improves, it becomes cheaper to produce a product. Therefore, a company will have more money available to spend, leading to the production of more goods at the same price. These are the main causes of a change in the supply curve.