A change in tastes and preferences, and how the demand curve shifts

This post asks the question of what happens in the market for a good or service when the tastes or preferences for the good or service change.  This question fits into our discussion about the determinants of demand.  One of the determinants of demand is the current state of tastes and preferences for the good or service.  In this example, we will be focusing on the services for Romanian translation.  This may seem like an obscure topic, and it is to most people which will limit our demand for the service.  Because of our tastes or preferences for this specific service, we will have a low demand for it, especially compared to the demand for Spanish or Chinese translation services.  But imagine if the U.S. or Europe signed a new free trade agreement, or began spending billions of dollars in business opportunities in Romania.  This would potentially
change our tastes and preferences for this service, and likely shift the demand curve right/up.

Remember that tastes and preferences for a good or service are held constant when we construct the demand curve, the only things that we are allowing to change are the price and the quantity (for more info look at the discussion on endogenous vs exogenous variables).  Because of this, when some event occurs, like increased business opportunities in Romania, we will see a change in preferences to conduct business with Romanian translation companies.  In our example, it is a positive change in preferences (more business opportunities) so we will see the demand curve shift right/up or increase, which is shown in the graph below:

You can see that when we increase demand (shift the demand curve right/up) it results in an increase of both equilibrium price AND quantity.  This is easily visible by looking at the red dots marked 1 and 2.  Initially we were at equilibrium point 1 in the market for Romanian translation services, but after the news of increased business opportunities we move to equilibrium point 2.  This means that prices for these services have gone up, as well as the total quantity of these services that are now used.

There are two big ideas to take away from this lesson:
Remember:  A positive change in tastes or preferences increases demand (shifts it right/up).  And, if supply stays that same, then both price and quantity go up.

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peterrabi on February 21, 2016 at 1:32 AM said...

Hi! Here is a Great Blog This is easily visible by looking at the red dots marked 1 and 2. Initially we were at equilibrium point 1 in the market for Romanian translation services.Chinese translation company

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