How many demand shifters are there

An example is shown in Figure 1. Figure 1. Demand Curve. A demand curve can be used to identify how much consumers would buy at any given price. Step 2. Suppose income increases. As a result of the change, are consumers going to buy more or less pizza? The answer is more. Now, imagine that the economy slows down so that many people lose their jobs or work fewer hours, reducing their incomes.

In this case, the decrease in income would lead to a lower quantity of cars demanded at every given price, and the original demand curve D 0 would shift left to D 2. The shift from D 0 to D 2 represents such a decrease in demand: At any given price level, the quantity demanded is now lower.

When a demand curve shifts, it does not mean that the quantity demanded by every individual buyer changes by the same amount. In this example, not everyone would have higher or lower income and not everyone would buy or not buy an additional car.

Instead, a shift in a demand curve captures an pattern for the market as a whole. In the previous section, we argued that higher income causes greater demand at every price. This is true for most goods and services. For some—luxury cars, vacations in Europe, and fine jewelry—the effect of a rise in income can be especially pronounced. A product whose demand rises when income rises, and vice versa, is called a normal good.

A few exceptions to this pattern do exist. As incomes rise, many people will buy fewer generic brand groceries and more name brand groceries.

They are less likely to buy used cars and more likely to buy new cars. They will be less likely to rent an apartment and more likely to own a home, and so on. A product whose demand falls when income rises, and vice versa, is called an inferior good. In other words, when income increases, the demand curve shifts to the left. Income is not the only factor that causes a shift in demand. Other things that change demand include tastes and preferences, the composition or size of the population, the prices of related goods, and even expectations.

A change in any one of the underlying factors that determine what quantity people are willing to buy at a given price will cause a shift in demand.

Graphically, the new demand curve lies either to the right an increase or to the left a decrease of the original demand curve. From to , the per-person consumption of chicken by Americans rose from 48 pounds per year to 85 pounds per year, and consumption of beef fell from 77 pounds per year to 54 pounds per year, according to the U.

Changes like these are largely due to movements in taste, which change the quantity of a good demanded at every price: that is, they shift the demand curve for that good, rightward for chicken and leftward for beef. The proportion of elderly citizens in the United States population is rising. It rose from 9. A society with relatively more children, like the United States in the s, will have greater demand for goods and services like tricycles and day care facilities. A society with relatively more elderly persons, as the United States is projected to have by , has a higher demand for nursing homes and hearing aids.

Similarly, changes in the size of the population can affect the demand for housing and many other goods. Each of these changes in demand will be shown as a shift in the demand curve. The demand for a product can also be affected by changes in the prices of related goods such as substitutes or complements. A substitute is a good or service that can be used in place of another good or service. As electronic books, like this one, become more available, you would expect to see a decrease in demand for traditional printed books.

A lower price for a substitute decreases demand for the other product. For example, in recent years as the price of tablet computers has fallen, the quantity demanded has increased because of the law of demand. Since people are purchasing tablets, there has been a decrease in demand for laptops, which can be shown graphically as a leftward shift in the demand curve for laptops.

A higher price for a substitute good has the reverse effect. Other goods are complements for each other, meaning that the goods are often used together, because consumption of one good tends to enhance consumption of the other. Examples include breakfast cereal and milk; notebooks and pens or pencils, golf balls and golf clubs; gasoline and sport utility vehicles; and the five-way combination of bacon, lettuce, tomato, mayonnaise, and bread.

If the price of golf clubs rises, since the quantity demanded of golf clubs falls because of the law of demand , demand for a complement good like golf balls decreases, too. Similarly, a higher price for skis would shift the demand curve for a complement good like ski resort trips to the left, while a lower price for a complement has the reverse effect.

While it is clear that the price of a good affects the quantity demanded, it is also true that expectations about the future price or expectations about tastes and preferences, income, and so on can affect demand. For example, if people hear that a hurricane is coming, they may rush to the store to buy flashlight batteries and bottled water.

If people learn that the price of a good like coffee is likely to rise in the future, they may head for the store to stock up on coffee now. These changes in demand are shown as shifts in the curve. Therefore, a shift in demand happens when a change in some economic factor other than price causes a different quantity to be demanded at every price.

The following Work It Out feature shows how this happens. A shift in demand means that at any price and at every price , the quantity demanded will be different than it was before. Following is an example of a shift in demand due to an income increase. Step 1. Draw the graph of a demand curve for a normal good like pizza. Pick a price like P 0. Identify the corresponding Q 0.

An example is shown in Figure 2. Step 2. Suppose income increases. As a result of the change, are consumers going to buy more or less pizza? The answer is more. Draw a dotted horizontal line from the chosen price, through the original quantity demanded, to the new point with the new Q 1.

Draw a dotted vertical line down to the horizontal axis and label the new Q 1. An example is provided in Figure 3. Step 3. Now, shift the curve through the new point. You will see that an increase in income causes an upward or rightward shift in the demand curve, so that at any price the quantities demanded will be higher, as shown in Figure 4. Six factors that can shift demand curves are summarized in Figure 5.

The direction of the arrows indicates whether the demand curve shifts represent an increase in demand or a decrease in demand.

Notice that a change in the price of the good or service itself is not listed among the factors that can shift a demand curve. A change in the price of a good or service causes a movement along a specific demand curve, and it typically leads to some change in the quantity demanded, but it does not shift the demand curve. When a demand curve shifts, it will then intersect with a given supply curve at a different equilibrium price and quantity. We are, however, getting ahead of our story.

Before discussing how changes in demand can affect equilibrium price and quantity, we first need to discuss shifts in supply curves. A supply curve shows how quantity supplied will change as the price rises and falls, assuming ceteris paribus so that no other economically relevant factors are changing. If other factors relevant to supply do change, then the entire supply curve will shift.

Just as a shift in demand is represented by a change in the quantity demanded at every price, a shift in supply means a change in the quantity supplied at every price.

Number of Consumers: The number of consumers or the size of the market has a direct effect on demand. The arrival of new consumers in an established market results in an increase in demand for a particular product. However, demand decreases when market shrinks due to factors such as migration or human movement, socioeconomic composition, product substitution or other types of market disruption, and obsolescence, among others.

Consumer Income: For most products or normal goods, there is a direct and positive relationship between the income of a consumer and the amount of the product he or she is willing and able to buy. An increase in income generally results in an increase in demand for these normal goods. However, demand for some products or so-called inferior goods decreases with an increase in income as consumers. There is an inverse relationship between income and an inferior good.

Note that this demand shifter is also related to the income elasticity of demand. Price of Complements: Note that there are two types of related products: complements and substitutes. Complements are those products bought and consumed together. Common reasons for a decline in production costs include the following:. The electronics business is a good example.

Smartphones, tablets, computers, and flat-screen televisions are more advanced today than they were five years ago. In general, the supply of digital gadgets and electronics equipment has increased, reflecting the lower production costs at every level of operation. Lower production costs mean that producers can offer their products for sale at lower prices.

Of course, production costs can also increase. For example, if a natural disaster devastates a region, the cost of producing crops will rise, which will decrease the supply.

Think about all the ways this virus could wreak havoc with production costs. How about trying to keep your employees, customers, and products safe and virus-free? Trying to get your message in front of potential consumers who are now sheltering in their homes away from your usual messaging? Increased transportation costs for those essential workers? These are just a few of the factors that could change production costs. Change in the Cost of Resources. The costs of producing a good or service can change.

The cost of producing ice cream, for example, will change when the price of one of the necessary production resources—like sugar—changes.

When the price of sugar increases, the producers of ice cream will produce fewer units at each selling price. The entire supply curve of ice cream will shift to the left a decrease in supply of ice cream when the price of sugar increases.

With the COVID crisis, some health-care workers and service providers in high-risk jobs and in jobs that became high-risk during the pandemic demanded higher wages. Change in the Number of Producers. All of a sudden, the number of producers goes up and the supply increases. For example, when mountain bikes grew in popularity and profits rose, the number of businesses producing and selling them increased.

The new producers took resources from elsewhere to make bikes. You worked hard to make a name for your restaurant among those who want to grab and go but still get good food. Then the fear of COVID causes many cities and states to close all of their restaurants, except for takeout and delivery. Suddenly you go from the top of your type of restaurant to one of hundreds of restaurants who are producing food for takeout.

If producers expect higher or lower future prices for their products, they may change the amount supplied today. Producers want to sell the most product when they think prices will be highest, and they adjust their supply accordingly, which has an effect on the whole curve. For instance, in large part because of the COVID crisis, gas prices are at their lowest point in decades.

If oil producers expect much higher prices for their oil in coming years, they may leave more oil in the ground today so they can sell it in the future at the higher price. Change in the Demand for Related Goods. Goods that are often used together, such as cars and gasoline or cereal and milk, are complementary goods. Goods that can easily be switched out for each other are substitutes. Producers might adjust the amount of a product they supply if there is a change in the availability of complementary goods or substitutes.

If something happens to the price of one of the complements, the other complement suppliers will change their production accordingly. Producers have alternatives. So, they will respond to a change in the price of one complement by changing the supply of the other. For example, if the price of gasoline is skyrocketing, producers who make cars might switch from supplying SUVs that use a lot of gas to supplying fuel-efficient electric cars.

The production of substitutes is similarly affected. A price increase in butter may lead to an increase in the supply of margarine. Change in Subsidies, Taxes, and More. Businesses may also have more money to produce and supply more of their goods or services. The combined effect is to shift the entire supply curve to the right. Conversely, businesses will supply less when less money is available.

Government influences supply through tax policies and subsidies , regulations, and direct government spending on goods and services. An increase in tax rates, an elimination of subsidies, or an increase in regulations may cause producers to pull back on production and supply less.

By contrast, a decrease in tax rates, added subsidies, or less government regulation have the opposite effect. These factors will likely cause an increase in supply. The COVID stimulus and government subsidies to individuals and businesses, as well as lower taxes and an increase in government orders, all increase supply.