Determinants of Demand

Consumer Tastes

When a product becomes more popular, the demand for this product increases and the demand curve shifts to the right. If a product loses favor with consumers, there is a decrease in demand and the demand curve shifts to the left.

Number of Consumers in the Market

When the number of consumers in a market rises, the demand for products in that market shifts to the right. For example, as our population gets older we would expect the demand for hearing aids to shift to the right. When the number of consumers in a market falls, the demand curve shifts to the left. If the number of babies being born goes down, the demand for disposable diapers should decrease.

Does the curve shift to the right or the left when the price of a product goes up?

Nothing it just moves along the curve.

Level of other Prices

When two goods are substitutes for each other (goods that can be consumed in place of each other such as Sprite and Seven-Up), then if the price of one of the goods goes up, the demand for the other good increases and its demand curve shifts to the right. The opposite would also be true. When two goods are complements to each other (goods that are used together such as tennis balls and tennis rackets), then when the price of one of the goods goes up, the demand for the other good decreases and its demand curve shifts to the left. The opposite is also true.

Income Levels

For normal goods, when your income increases the demand curve shifts to the right and when your income falls, the demand curve shifts to the left. There are goods that are called inferior goods for which the opposite is true. When your income goes up, you have a decrease in your demand for an inferior good, and when your income goes down, you actually have an increase in demand for an inferior good.

Price Expectations

We have indicated already that when the price of a good changes it causes movement along a given demand curve because of the law of demand. But what it a price does not actually change but consumers think it is going to change. This expectation of a price change in the future will shift the demand curve in the current period. For example, if you think the price of gasoline is going to go up this weekend you might increase your demand for gasoline today. This increase in the demand for gasoline in the face of constant prices is represented by a shift to the right of the demand curve. The opposite would also be true. If you think the price of gasoline is going to go down this weekend, you might delay buying gas today and today's demand curve for gasoline would shift to the left.