Changes in Demand

Bookmark added to your notes.
View Notes

What Causes a Change in Demand? 

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 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 D²D² to D³D³, and when demand decreases, the demand curve shifts leftward from D²D² to D¹D¹. Hence, understanding the concept of demand change is vital.

(Image to be added soon)

(Image to be added soon)

In this above graph, we can see that there is a shift from D to D1 indicating a fall in demand at the same market price. We can also see a shift from D to D2, indicating a rise in demand at the same price. 

Reasons for the Change in Demand

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.

  1. 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 good 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.

  1. Changes in the Prices of Complementary Goods

Following the guidelines of Change in Demand definition, we can say when the price of a good remains constant if 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.

  1. 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 

Did You Know?

Here are some significant facts to know about Change in demand definition and shift in the demand and supply curve. 

  • Here, the consumer's demand schedule will change. The demand schedule is a chart showing different quantities at different price levels.

  • Here, consumers will shift from one demand curve to the other.

  • Change in one or more of the given factors will cause a shift in demand, income, distribution, price of a related product, taste, population and expectation about the future price change.  

Reason for Decrease in Demand

What is the reason for 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.  

FAQ (Frequently Asked Questions)

1. What is the Consequence If There’s a Change in Demand?

To answer what causes a change in demand, we can say a change in demand situation occurs when preferences for products or services change or shift, the costs being constant. If the economy is prospering and growing vehemently, and the consumers' income is on the rise, they are likely to purchase more quantity. Even though prices are the same, the number manufactured and sold gets a steady increase. Change in demand depends on factors such as income moderating of the purchaser, economic growth, taste and preferences of the consumer. The effects of change in demand signify that the entire demand curve is shifted to the right or the left.

2. What Are the Major Causes of a Shift in the Demand Curve?

As per the change in demand definition, change may take place owing to six primary factors. These primary factors are: 

  • Moderation in the taste and preferences of the buyers due to change in trend or fashion.

  • The income of the consumers. The factor of individual income primarily influences a change in demand.

  • Any price fluctuations in the related and subsidiary goods.

  • Change in demand is also determined by the number of consumers present in the market.

  • Buyers' expectations regarding future price fluctuations are another determinant of the Change in demand issue.

These are the primary factors affecting Change in Demand. The change in demand, in a nutshell, depends on these factors.