Reasons to shift Demand Curve:
- Change in tastes and preference of the consumer.
- Change in income.
- Change in the prices of other goods; complements or substitutes in consumption.
- Change in the number of consumers (population).
Reasons to shift the Supply Curve:
- Change in the costs of production i.e. the cost of inputs (parts) of the good, better technology, taxes.
- Change in the number of producers (size of the market).
- Change in prices of other goods. i.e. substitutes or complements in production.
- Changes in nature; expectations.
With that said, please give these two questions from your homework a little extra thought, as they are less intuitive and the professor says are the ones students get wrong most often:
PERSONAL COMPUTER MARKET: Intel raises/drops the price by 20% for its popular CPU chip.
STEEL INDUSTRY: researchers find new techniques for manufacturing steel which use 25% fewer materials.
GASOLINE MARKET: the state sales tax on gasoline is eliminated/imposed.
Increase in supply is a shift to the RIGHT/DOWN and a Decrease is a shift to the LEFT/UP.
Increase in demand is more intuitive, it is a shift to the right/up and decrease is a shift to the left/down.