Shifting the Demand Curve

The Demand Curve

As stated earlier, the quantity of an item that either an individual consumer or a market of consumers demands is determined by a number of different factors, but the demand curve represents the relationship between price and quantity demanded with all other factors affecting demand held constant. So what happens when a determinant of demand other than price changes?

The answer is that when a non-price determinant of demand changes, the overall relationship between price and quantity demanded is affected. This is represented by a shift of the demand curve, so let's think about how to shift the demand curve.

An Increase in Demand

An increase in demand is represented by the diagram above. An increase in demand can either be thought of as a shift to the right of the demand curve or an upward shift of the demand curve. The shift to the right interpretation shows that, when demand increases, consumers demand a larger quantity at each price. The upward shift interpretation represents the observation that, when demand increases, consumers are willing and able to pay more for a given quantity of the product than they were before. (Note that the horizontal and vertical shifts of a demand curve are generally not of the same magnitude.)

Shifts of the demand curve need not be parallel, but it's helpful (and accurate enough for most purposes) to generally think of them that way for the sake of simplicity.

A Decrease in Demand

In contrast, a decrease in demand is represented by the diagram above. A decrease in demand can either be thought of as a shift to the left of the demand curve or a downward shift of the demand curve. The shift to the left interpretation shows that, when demand decreases, consumers demand a smaller quantity at each price. The downward shift interpretation represents the observation that, when demand decreases, consumers are not willing and able to pay as much as before for a given quantity of the product. (Again, note that the horizontal and vertical shifts of a demand curve are generally not of the same magnitude.)

Again, shifts of the demand curve need not be parallel, but it's helpful (and accurate enough for most purposes) to generally think of them that way for the sake of simplicity.

Shifting the Demand Curve

In general, it's helpful to think about decreases in demand as shifts to the left of the demand curve (i.e. a decrease along the quantity axis) and increases in demand as shifts to the right of the demand curve (i.e. an increase along the quantity axis), since this will be the case regardless of whether you're looking at a demand curve or a supply curve.

Revisiting the Non-Price Determinants of Demand

Since we identified a number of factors other than price that affect the demand for an item, it's helpful to think about how they relate to our shifts of the demand curve:

• Income: An increase in income will shift demand to the right for a normal good and to the left for an inferior good. Conversely, a decrease in income will shift demand to the left for a normal good and to the right for an inferior good.
• Prices of Related Goods: An increase in the price of a substitute will shift demand to the right, as will a decrease in the price of a complement. Conversely, a decrease in the price of a substitute will shift demand to the left, as will an increase in the price of a complement.
• Tastes: An increase in tastes for a product will shift demand to the right, and a decrease in tastes for a product will shift demand to the left.
• Expectations: A change in expectations that increases current demand will shift the demand curve to the right, and a change in expectations that decreases current demand will shift the demand curve to the left.
• Number of Buyers: An increase in the number of buyers in a market will shift market demand to the right, and a decrease in the number of buyers in a market will shift market demand to the left.

This categorization is shown in the diagrams above, which can be used as a handy reference guide.