Shift in Demand: When the Whole Curve Moves
The Demand Curve: A Starting Point
Before we can understand a shift, we need to know what is shifting. In economics, demand is the relationship between the price of a good and the quantity of that good consumers are willing and able to buy in a specific period. This relationship is usually shown as a graph called a demand curve.
A typical demand curve slopes downward from left to right. This illustrates the law of demand: as the price of a good falls, the quantity demanded usually rises, and vice versa. For example, if a video game costs $60, you might buy one copy. If it goes on sale for $30, you might buy two, or your friend might now decide to buy it. This change is a movement along the demand curve.
What Makes the Whole Curve Move? The Determinants of Demand
A shift in demand occurs when something fundamental changes in the market, making people want more or less of the product at every single price. Economists call these causes the "determinants of demand" or "shift factors." Let's explore the main ones.
1. Changes in Consumer Income: Your purchasing power greatly influences what you buy.
- For normal goods, demand increases when income rises. Example: As families earn more, they might buy more branded cereal instead of the generic kind, or go to the movies more often. The demand curve for movies shifts right.
- For inferior goods[1], demand decreases when income rises. Example: When a student gets their first high-paying job, they might stop taking the bus and buy a car. The demand for bus rides shifts left as income rises.
2. Changes in Consumer Tastes and Preferences: Trends, advertising, and seasons powerfully affect desire. When a product becomes popular, demand shifts right. If a health study warns that sugary drinks are harmful, the demand for them may shift left. The release of a hit new smartphone can shift demand right for its accessories.
3. Prices of Related Goods: The demand for one product is often linked to the price of another.
- Substitute Goods[2]: These are products that can be used in place of each other (e.g., butter and margarine, Pepsi and Coke). If the price of butter skyrockets, people will buy more margarine instead. The demand curve for margarine shifts right.
- Complementary Goods[3]: These are products used together (e.g., hot dogs and buns, gaming consoles and video games). If the price of gaming consoles falls and more people buy them, the demand for video games will increase. The demand curve for games shifts right.
4. Consumer Expectations: What people think will happen in the future affects what they buy today.
- If people expect the price of gasoline to rise sharply next week, they will fill their tanks today. Current demand for gasoline shifts right.
- If you hear a rumor that your favorite sneaker brand will go on sale next month, you might wait to buy. Current demand for those sneakers shifts left.
5. Number of Buyers in the Market: The total demand is the sum of all individual demands. If more people enter a market, total demand shifts right. This could happen due to population growth, a product becoming available in a new country, or a toy becoming popular with a new age group. Conversely, if people move away from a town, the local demand for many goods shifts left.
| Determinant (Non-Price Factor) | Change That Increases Demand (Curve Shifts Right) | Change That Decreases Demand (Curve Shifts Left) |
|---|---|---|
| Consumer Income (Normal Good) | Income rises | Income falls |
| Consumer Income (Inferior Good) | Income falls | Income rises |
| Tastes & Preferences | Product becomes more popular/fashionable | Product becomes less popular/unfashionable |
| Price of a Substitute Good | Price of the substitute rises | Price of the substitute falls |
| Price of a Complementary Good | Price of the complement falls | Price of the complement rises |
| Consumer Expectations | Expect future price rise or shortage | Expect future price fall or surplus |
| Number of Buyers | More consumers enter the market | Consumers leave the market |
Seeing the Shift: Graphical Representation
On a graph, a change in demand is shown by drawing a new demand curve. The original curve is labeled $ D_1 $. A rightward shift to a new, higher demand is labeled $ D_2 $. A leftward shift to a new, lower demand is labeled $ D_3 $.
Imagine the demand curve for umbrellas in a city. The original curve ($ D_1 $) shows that at a price of $15, 100 umbrellas are bought per week.
- Rightward Shift ($ D_1 $ to $ D_2 $): The weather forecast changes to predict a very rainy season. Now, at that same price of $15, people want to buy 200 umbrellas. The entire curve has moved to the right.
- Leftward Shift ($ D_1 $ to $ D_3 $): A new, fashionable raincoat with a built-in hood becomes hugely popular. Now, at the price of $15, people only want 50 umbrellas. The entire curve has moved to the left.
Real-World Applications: From Lemonade Stands to Global Markets
Shifts in demand are happening all around us. Let's trace a few scenarios from start to finish.
Case Study 1: The Smartphone Accessory Boom. Every year, a major company releases a new smartphone model with a different charging port. This single event triggers multiple demand shifts.
- Demand for the new phone: Heavily marketed, it becomes a status symbol (change in tastes). Demand curve shifts right.
- Demand for new chargers & cables: These are complements to the new phone. As more people buy the phone, demand for these specific accessories shifts right.
- Demand for old chargers: These are now for an outdated model. Their demand shifts left as preferences change.
- Demand for wireless chargers: If the new phone promotes wireless charging, demand for this substitute for wired chargers may also shift right.
Case Study 2: A Health Scare in the Food Industry. Imagine a news report links a popular brand of packaged salad to a foodborne illness.
- Demand for that brand's salad: Consumer confidence plummets (change in tastes/perceptions). Demand shifts sharply left.
- Demand for rival brands' salads: These are substitutes. As people avoid the affected brand, they switch to others. Demand for rival brands shifts right.
- Demand for fresh, unpackaged vegetables: Another substitute. Worried consumers might decide to buy whole vegetables and chop them themselves. Demand for these shifts right.
This shows how a shift in demand for one product can cause shifts in demand for related goods.
Case Study 3: The "Back to School" Season. This is a classic example driven by timing and expectations.
- Demand for notebooks, pencils, and backpacks: In July, demand is low. As September approaches, the number of buyers (students and parents) actively shopping increases, and the need (preference tied to the school calendar) increases. The demand curve for these items shifts massively right in late August.
- This shift is so predictable that stores plan for it, increasing their stock and offering sales (which are price changes causing movements along the new, higher demand curve).
Important Questions
Q1: If a store lowers the price of a video game and sells more copies, is that a shift in demand?
A: No, this is not a shift in demand. This is an increase in the quantity demanded, which is a movement along the existing demand curve. The shift factor here is the good's own price. A shift would occur if, for example, a famous streamer played the game and made it popular (change in tastes), leading more people to want it at every price, including the original, higher price.
Q2: Can multiple determinants cause a shift at the same time?
A: Absolutely, and they often do. For instance, demand for electric cars might shift right due to a combination of factors: rising consumer income (normal good), higher gasoline prices (making gasoline cars a more expensive substitute), increased preference for eco-friendly products, government tax incentives (effectively increasing consumer income for this specific purchase), and a growing number of environmentally conscious buyers. All these non-price factors work together to move the entire demand curve.
Q3: Does a shift in demand automatically mean a change in the quantity people actually buy?
A: Not immediately. A shift in demand changes the willingness and ability to buy at all prices. However, the actual quantity bought and sold in the market depends on both demand and supply. A rightward shift in demand creates a shortage at the old price, which typically leads to a price increase. This higher price then causes a movement along the supply curve (increased quantity supplied) and a movement along the new demand curve (a slight reduction in quantity demanded from the peak of the shift). The final result is a new equilibrium with a higher price and a higher quantity traded.
Conclusion
Footnote
[1] Inferior Good: An economic term for a good whose demand decreases when consumer income rises (and demand increases when income falls). The term "inferior" refers to the income relationship, not the quality of the product. Examples include generic brands, used cars, or bus transportation for some individuals.
[2] Substitute Goods (Substitutes): Products or services that can be used in place of each other to satisfy a similar need or want. An increase in the price of one leads to an increase in the demand for the other (e.g., tea and coffee, different brands of cola).
[3] Complementary Goods (Complements): Products or services that are used together. An increase in the price of one leads to a decrease in the demand for the other (e.g., printers and ink cartridges, peanut butter and jelly).