Shifts in Demand

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Shifts in demand occur to the right for increases and left for decreases. At every possible price, there is a different quantity demanded.

Figure 2. An increase in demand is illustrated by a shift of the demand curve to the right. Figure 3. A decrease in demand is illustrated by a shift of the demand curve to the left.

Things That Shift Demand
The demand for a product may shift because of changes in:

1. the number of consumers. Demand increases as the number of consumers increases.

2. income. A normal good is a product for which an increase in income increases demand. An inferior good is a product for which an increase in income decreases demand.

3. the price of a substitute good. Substitute goods are products that people use interchangeably. Most people treat different brands of gasoline as substitutes, for example. If the price of a substitute good increases, then demand increases and vice versa. Some people treat Pepsi and Coke as substitutes. If the price of Pepsi increases, then the demand for Coke increases.

4. the price of a complementary good. The demand for a product increases if the price of a complementary good decreases and vice versa. Complementary goods are products that are usually consumed together, such as DVD players and DVDs. If DVD players become significantly cheaper, then the demand for DVDs probably increases.


5. tastes and preferences. Changes in tastes, preferences, fashions and fads can either increase or decrease the demand for a product. For example, the demand for a product usually increases when a celebrity endorses it.

6. expectations. Expectations about the future can increase or decrease demand. For example, if people expect to receive a pay raise or bonus next month, they might increase their demand for something now. Or if people expect the price of a product to fall next week, they might decrease their demand for it now.