Demand Changes: Key Factors Explained

The change signifies an increase or reduction in the demand and supply volume from the equilibrium. Besides the price of the product, other factors exist that determine the changes in quantity demanded. These factors are changes in the taste and preferences of the consumers, population, income changes, technologies, and more. Even climatic change can result in a change in demand for a particular product. Owing to the influence of these determinants, there is a Change in Demand and supply of a commodity. Hence, the supply curve shifts so do the demand curve. Now, we will discuss in detail the Change in demand definition.

Changes in Demand

If the product's price is constant and the other factors are variable, then shifting of the demand curve is possible in the rightward or leftward direction. It depicts the Change in Demand, therefore the movement is not restricted along the single demand curve. The move is possible for a higher or lower demand curve. In the above figure, when Demand increases, the demand curve shifts rightward from \[D^{2}D^{2}\] to \[D^{3}D^{3}\], and when demand decreases, the demand curve shifts leftward from \[D^{2}D^{2}\] to \[D^{1}D^{1}\]. Hence, understanding the concept of demand change is vital.

In the above graph, we can see that there is a shift from \[D to D^{1}\] indicating a fall in demand at the same market price. We can also see a shift from \[D to D^{2}\], indicating a rise in demand at the same price. 

Reasons for the Change in Demand

The main reasons for the Change in Demand or for shifting of the demand curve are: 

1. Changes in the Income of the Consumer 

When the cost of a good remains constant, the demand for that good increases (decreases) if the cost of the substitute goods increases (decreases). As a consequence, the demand curve moves to the right or left.

2. Changes in the Prices of Substitute Goods

To be more precise with what causes a change in demand, we can explain this one. When the rate of goods is constant, the demand for the good increases (decreases) if the number of its complementary goods decreases (increases). As a result, the demand curve shifts to the right or left.

3. Changes in the Prices of Complementary Goods

Following the guidelines of the Change in Demand definition, we can say when the price of a good remains constant if the costs of its corresponding goods decrease (increases), the demand for the good increases (decreases). Resultantly, the demand curve shifts to the right or the left. This concept typically explains the Change in demand examples.

4. Changes in the Taste and Preferences and of the Consumers 

When the price of commodities remains constant if taste and preferences on that good increase (decreases), the demand for that item also increases (decreases). Therefore, the demand curve shifts to the right or the left.

Precisely, these were the chief determinants of the Change in demand factors that influence the Change in demand curves.

Considering all the factors of what causes a change in demand, we can conclude that, the demand curve shifts to the right when, 

• The income of the consumer increases

• Cost of the substitute goods increases 

• Prices of the complementary goods decreases

• Taste and preferences of the consumers increases

Conversely, the demand curve moves to the left when

• The income of the consumer's decreases

• Prices of the substitute goods decreases 

• Estimates of the complementary goods increases

• Taste and preferences decreases 

Reason for Decrease in Demand

What is the reason for the decrease in demand?

• Overall the price decreases, but the equilibrium in quantity increases.

• Overall price decreases and equilibrium in quantity reduces.

• The overall price stays the same, but the equilibrium quantity decreases.

• The overall price increases, but equilibrium quantity reduces.

According to the Change in demand definition, when there is a reduced demand with a provided supply curve, the market supply gets excess. Due to the excessive quantity, the price of a particular commodity also falls. Therefore, the right answer to this question is the third one: The overall cost stays the same, but equilibrium in quantity decreases.  

What is Demand?

Demand refers to the quantities of commodities that the consumers are able to buy at each possible price during a given period of time other things being equal. It is the ability and willingness to buy a specific quantity of a good at alternative prices in a given time period.

The determinants of demand are as follows:

• Price of commodity

• Price of related commodities

• Level of income of the household

• Taste and preferences of consumers

The above-mentioned factors are also responsible for the change in demand. Let's discuss these points in detail below:-

• Price of the Commodity-  there is an inverse relationship between the Price and Demand of a commodity. The rise in the price of the commodity will decrease the demand for that particular commodity and vice versa.

• Price of Related Commodities- the types of the commodity can be categorized into substitute and complementary goods.

1. Substitute Goods are those goods that the consumers can use in place of other goods and provide the same level of satisfaction. Here if the price of substitute goods rises then the demand for the given commodity also increases and vice versa.

2. Complementary Goods are those goods that are demanded jointly as the other goods or are useless in the absence of the other goods. Here the rise in the price of the complementary goods results in the decrease in demand for the given commodity. 

• Level of Income of the Household- level of income affects demand. When there is an increase in income it will result in increased demand for normal goods. In the case of inferior goods, the rise in income will result in a decrease in demand for the inferior goods.

• Taste Preferences of Consumers- there are various factors for the change of preferences of the consumers. For example, the demand for umbrellas during the rainy season will be higher than on a sunny day. Therefore, the change in demand occurs according to the taste and preferences of the consumers which are determined by various factors.