The demand curve of a product illustrates how the quantity that consumers are willing and able to purchase varies at different prices, assuming all other factors remain constant (ceteris paribus) (Merriam-Webster, n.d.). Movements along the demand curve occur without causing a shift in the curve itself. However, the position and shape of this curve can also change, influenced by various factors, known as ‘determinants of demand’ (Determinants of Demand (Factors Affecting Demand) – definition, 2010).
A primary determinant of the demand curve is consumers’ disposable income. As expected, when incomes rise, consumers may be willing to buy more of the product even at higher prices, shifting the demand curve to the right. Conversely, a decrease in disposable income can lead consumers to choose cheaper products or reduce the quantity they purchase, shifting the demand curve to the left (Mankiw & Taylor, 2010).
The nature of the product plays a crucial role in shifting the demand curve. For normal goods, when disposable income increases, the demand curve shifts right, indicating that consumers are willing to buy more units at each price. Conversely, demand for normal goods decreases when income falls, shifting the curve left. The opposite is true for inferior goods, whose demand increases as consumer income decreases due to a tighter budget, shifting the demand curve to the right, and decreases when income rises as consumers turn to normal goods, shifting the curve left. These are goods chosen out of necessity, usually of lower quality and price (Kenton, 2019).
The demand curve of a product is also influenced by changes in the prices of related goods, such as substitutes and complements. An increase in the prices of substitute goods can turn consumers towards the product under consideration, shifting its demand curve right. Conversely, if substitutes become cheaper, consumers may prefer them, reducing the demand for the original product and shifting its demand curve left. Similarly, a decrease in the prices of complementary goods shifts the original product’s demand curve to the right, as the total cost of jointly used products becomes more attractive. Conversely, if complements become more expensive, consumers might reduce their demand for the original product as well, shifting its demand curve to the left (Pseiridou & Lianos, 2015).
Consumer preferences can change in favor of a product, shifting its demand curve to the right. On the other hand, if preferences shift away from a product, its demand curve shifts to the left. Sellers recognize the critical role of consumer preferences in product demand, hence they invest significantly in marketing and advertising (Sama, 2019).
Likewise, changes in consumers’ expectations can cause a shift in the demand curve. If consumers expect future price increases, they may increase their current demand, shifting the curve right. Conversely, if they anticipate a price drop, they may reduce current demand, waiting to buy cheaper in the future, thus shifting the demand curve left. These expectations relate not only to the product’s price but also to overall economic prosperity, future income, or even expectations about evolving trends over time (e.g., fashion trends) (Khan Academy, 2016).
Furthermore, the demand curve can shift according to changes in the number of buyers. For instance, the introduction of new consumer groups and an increase in the market segment interested in the product shifts the demand curve to the right, increasing demand at all prices. Conversely, significant changes in the population or other demographic shifts (like an increase in elderly numbers, influx of migrants, or youth groups in an area) can lead to a shift in the demand curve to the right or left, depending on the product type. The opposite holds true for a decrease in the total number of buyers, which moves the demand curve to the left (Li, 1996).
Please refer to the relevant diagram that illustrates these concepts.
In summary, shifts in the demand curve depend on changes in factors that influence demand, such as income, prices of related goods, preferences, expectations, and the number of buyers. Understanding these factors and how they affect the demand curve is essential for businesses when making decisions regarding pricing, production, and marketing strategies.
Bibliographical References
Hayes, A. (2021, October 15). Understanding the Cross Elasticity of Demand. Investopedia. https://www.investopedia.com/terms/c/cross-elasticity-demand.asp
Kenton, W. (2019). Inferior Goods Explained. Investopedia. https://www.investopedia.com/terms/i/inferior-good.asp
Khan Academy. (2016). What Factors Change Demand? Khan Academy. https://www.khanacademy.org/economics-finance-domain/microeconomics/supply-demand-equilibrium/demand-curve-tutorial/a/what-factors-change-demand
Li, Y. (1996). Impact of population size on market demand under a market economy. Chinese Journal of Population Science, 8(2), 163–168. https://pubmed.ncbi.nlm.nih.gov/12291968/
Mankiw G. N. & Taylor M.P. (2010, μετάφραση), «Αρχές Οικονομικής Θεωρίας», Τόμος Α’ – Μικροοικονομική, εκδόσεις Gutenberg
Merriam-Webster. (n.d.). Ceteris paribus. In Merriam-Webster.com dictionary. Retrieved September 25, 2023, from https://www.merriam-webster.com/dictionary/ceteris%20paribus
Προσδιοριστικοί Παράγοντες Ζήτησης (Factors affecting demand) – ορισμός. (2010, June 26). Ευρετήριο Οικονομικών Όρων. Retrieved September 25, 2023, from https://euretirio.com/prosdioristikoi-paragontes-zitisis/
Sama, R. (2019). Impact of Media Advertisements on Consumer Behaviour. Journal of Creative Communications, 14(1), 54–68. Sagepub. https://doi.org/10.1177/0973258618822624
Ψειρίδου, Α., & Λιανός, Θ. (2015). Οικονομική ανάλυση & πολιτική – Μικροοικονομική. Kallipos, Open Academic Editions. http://hdl.handle.net/11419/2360
