Supply and Demand

Factors That Shift Demand

Various factors can shift the demand curve to the right or to the left.

The demand curve shifts to the right (an increase) or the left (a decrease) for several reasons. When demand rises, an increase in consumer desire for a product (demand curves shift when something changes other than price), the curve shifts to the right, showing that more units will be demanded at each price. When demand falls, the curve shifts to the left, showing that fewer units will be demanded at each price. Factors that can shift demand include the following:

  • Changes in consumers' income (normal and inferior goods); for example, a person experiencing a lower income might gravitate towards store-brand dried beans instead of organic prepared beans.
  • Changes in taste; for example, changes in preference for genres of popular music. The rise of rap music in the 1980s increased sales of this genre and weakened sales of other genres, shifting the demand curve for rap to the right and the demand curve for other genres to the left.
  • Increases (or decreases) in population; for example, an increase in the population means that more people need more goods, shifting demand to the right.
  • Changes in the population composition; for example, as society ages, demand for mobility scooters may rise shifting the demand curve to the right.
  • Changes in the price of complements and substitutes for a particular good; for example, if the price of a tangerine lowers greatly, people may purchase a cheaper tangerine over an expensive orange, and the demand curve for tangerines will shift to the right.
  • Changes in expectations of the future price of a good; for example, if people expect the price of a good to rise, current demand will rise as people stock up on it, shifting the curve to the right. For instance, if cold weather impacted the supply of oranges, consumers may stock up on frozen orange juice now, because they expect future prices to increase.
The demand curve D1 shows initial demand for a good. If demand increases, then the entire demand curve shifts to the right, to D2. More of the good will be demanded at any price along D2 than along D1. If demand falls, then the demand curve will shift to D3. Less of the good will be demanded at any price along D2 than along D3.

Normal and Inferior Goods

The demand for normal goods rises as consumer income increases. Inferior goods are those for which demand falls as consumer income rises.

A normal good is a good that consumers will buy more of when they have an increase in income. As income rises the demand curve shifts to the right, and if income declines, the demand curve shifts to the left. Most goods are normal goods: demand for them rises when consumer income rises. Consumers generally like to have and use goods, so when they can afford to buy more of them, they do. Normal goods include things such as fresh fruit, organic pasta, and vacuum cleaners.

On the other hand, if consumers have only been buying low-quality items because they have insufficient funds to purchase higher-quality items, then they may switch to better-quality goods when their income rises and they can afford to do so; for example, when they receive a wage increase. An inferior good is one that consumers purchase less of when income rises. For example, someone who has a lower-wage job and can only afford to take his or her family out to eat at a fast-food restaurant once a week might celebrate a new high-paying job by taking the family to a more expensive restaurant each week rather than a fast-food restaurant.

Substitutes and Complements

Demand for a good increases and the demand curve shifts to the right when the price of a substitute good increases. Demand for a good falls and the demand curve shifts to the left when the price of a complement rises.

A substitute is a good that performs the a similar function as another good; for example, chicken is a substitute for beef. When the price of chicken rises, the demand for beef increases (demand shifts to the right). Demand for a good increases when the price of a substitute increases because consumers will choose the relatively cheaper good. If an unusual frost reduces the coffee harvest and coffee prices greatly increase, many people will turn to substitutes such as tea. This shifts the demand curve for tea to the right.

A complement is a good that is used together with another good; for example, printer paper is a complement to printers. Demand for a good decreases when the price of its complement rises. If printers become prohibitively expensive, sales of printer paper will fall, which causes the demand curve for printer paper to decrease or shift to the left.