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Shifts in Demand

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Economics

Consumer behavior constantly changes, and as a reflection of consumer behavior, demand is hardly a constant but a variable subject to change. But how do we interpret these changes, what causes them, and how do they affect the market? In this explanation, you will gain a deeper understanding of shifts in demand and their causes, as well as the conclusions you may draw from this type of change in consumer behavior. Interested? Then continue reading!

Shift in Demand Meaning

Shift in demand represents a change in the quantity of a product or service that consumers seek at any price point, caused or influenced by a change in economic factors other than price.

The demand curve shifts when the quantity of a product or service demanded at each price level changes. If the quantity demanded at each price level increases, the demand curve shifts rightward. Inversely, if the quantity demanded at each price level decreases, the demand curve will shift leftward. Thus, shifts in the demand curve reflect changes in quantities that consumers are seeking at every price level.

Think of the following example: many people prefer to take vacation and travel in the summertime. In anticipation of summer, more people book flights to overseas locations. In turn, international airlines are likely to see an increase in the quantity of international flight tickets demanded. Such an increase in quantity demanded due to seasonal changes would translate into a rightward shift in the demand curve.

Shift in demand is a representation of a change in the quantity of a good or service demanded at every price level due to various economic factors.

Types of shifts in demand curve

As shifts in demand are characterized by a change in the quantity of a product or service demanded by consumers in the market, when visualized on a graph, these shifts will be reflected by the demand curve moving either up or down with respect to quantity. They are referred to as leftward and rightward shifts respectively.

Rightward shift in demand curve

If the quantity demanded at each price level increases, the new points of quantity will move rightward on the graph to reflect an increase. This means that the entire demand curve will shift rightward, as illustrated in Figure 1 below.

In Figure 1 below the initial position of the demand curve is labeled as D1 and the position after the shift is labeled as D2, the initial equilibrium and equilibrium after the shift as E1 and E2 respectively, and the supply curve is labelled as S. P1 and Q1 represent initial price and quantity, whilst P2 and Q2 represent the price and quantity after the shift.

Shift in demand.Rightward shift in demand. StudySmarterFigure 1. Rightward shift in demand curve - StudySmarter

Leftward shift in demand curve

If the quantity demanded at each price level decreases, the new points of quantity will move leftward on the graph, hence shifting the demand curve leftward. See Figure 2 for an example of a leftward shift of the demand curve.

In Figure 2 below the initial position of the demand curve is labeled as D1 and the position after the shift is labeled as D2, initial equilibrium and equilibrium after the shift as E1 and E2 respectively, and the supply curve is labelled as S. P1 and Q1 represent initial price and quantity, whilst P2 and Q2 represent the price and quantity after the shift.

Shift in demand. Leftward shift in demand. StudySmarterFigure 2. Leftward shift in demand curve - StudySmarter

Remember that when drawing a new demand curve that reflects the shift in the quantity sought by consumers in the market, price is isolated as an economic factor of influence and thus kept constant. Therefore, your data points for the new demand curve will only change by quantity at every existing price point, thus forming a new curve that is either rightward or leftward of the original demand curve before the effects of any changes are applied.

Causes of shifts in Demand Curve

Since a shift in demand is brought on by economic factors other than price, the factors outlined below are the ones that you will need to know for now. Any changes in these factors are likely to bring on a change in quantity demanded at each price level, which is then reflected by either a rightward or leftward shift in the demand curve.

Consumers’ income

As consumers’ income rises, falls, or fluctuates, chances are these changes in income will lead to changes in quantities of normal goods and services that the consumers will seek out based on what they can afford.

Normal goods are types of goods and services that will see an increase in quantities demanded due to an increase in consumers' income, and a decrease in quantities demanded due to a decrease in income.

If, for instance, consumers’ income experiences a significant decrease, the affected consumers may demand fewer products and services that are considered normal goods due to no longer being able to afford the same quantities.

Examples of Shift in Demand Curve

Think of the following example: due to an economic downturn, a large proportion of the population experiences cuts in wages. Due to this decrease in income, taxi services experience a fall in quantities demanded. Graphically, this decrease would translate to the demand curve for taxi services shifting leftward.

On the other hand, if consumers experience a significant rise in their income, normal goods may see a rightward shift in demand, as these consumers may feel more comfortable purchasing higher quantities of such goods when receiving a higher income.

Following the same example from above, if consumers were to see an increase in their income, they might start taking taxis more often, thus increasing the quantity of taxi services demanded and shifting the demand curve rightward.

Notice how these changes do not include changes in price for the discussed goods and services, as shifts in demand are brought on by economic factors other than price.

Prices of related goods

There are two types of related goods: substitutes and complementary goods.

Substitutes are goods that fulfill the same need or desire for consumers as another good, thus serving as an alternative for consumers to purchase instead.

Complementary goods are products or services that consumers tend to purchase along with other goods that are usually jointly demanded.

Shifts in demand for goods and services may be brought on by fluctuations in prices of both their substitutes and complements.

In the case of substitute goods, if the price of a good that constitutes a substitute for another good decrease, consumers may see the substitute as the more preferable option and forego the other good due to the change in price. Consequently, the quantity demanded of the good that is substituted decreases, and the demand curve for it shifts leftward.

Changes in prices of complementary goods have an opposite effect on shifts in demand for the goods that they complement. If prices of the complements decrease and thus become a favorable purchase, consumers are likely to purchase the goods that they complement alongside more. Hence, the quantity demanded of the goods that are complemented will increase, and the demand curve will shift rightward.

On the other hand, if consumers experience a significant rise in their income, normal goods may see a rightward shift in demand, as these consumers may feel more comfortable purchasing higher quantities of such goods when receiving a higher income.

Following the same example from above, if consumers were to see an increase in their income, they might start taking taxis more often, thus increasing the quantity of taxi services demanded and shifting the demand curve rightward.

Notice how these changes do not include changes in price for the discussed goods and services, as shifts in demand are brought on by economic factors other than price.

Prices of related goods

There are two types of related goods: substitutes and complementary goods. Substitutes are goods that fulfill the same need or desire for consumers as another good, thus serving as an alternative for consumers to purchase instead. Complementary goods are products or services that consumers tend to purchase along with other goods that serve them as complements.

Shifts in demand for goods and services may be brought on by fluctuations in prices of both their substitutes and complements.

In the case of substitute goods, if the price of a good that constitutes a substitute for another good decrease, consumers may see the substitute as the more preferable option and forego the other good due to the change in price. Consequently, the quantity of the good that is substituted decreases, and the demand curve shifts leftward.

Changes in prices of complementary goods have an opposite effect on shifts in demand of the goods that they complement. If prices of the complements decrease and thus become a favorable purchase, consumers are likely to purchase the goods that they complement alongside. Hence, the quantity demanded of the goods that are complemented will increase, and the demand curve will shift rightward.

This concept applies as long as the price of the original good at focus remains constant and thus does not play a role in changes in quantities of that good by consumers. In both hypothetical situations described above, the price of the good that is being either substituted or complemented does not change – only the quantity demanded changes, hence shifting the demand curve sidewards.

Consumers’ taste

Changes in trends and preferences will likely lead to respective changes in quantities of various products/services demanded without the price of these goods necessarily changing as well.

Consumers may seek out higher quantities of products and services that become more fashionable even though the price for them may remain the same, thus causing a rightward shift in demand. Alternatively, as various goods and services go out of trend, the quantities of these that consumers desire may also decrease, even though there are no immediate price changes at play. Such falls in popularity would cause a leftward shift in demand.

Think of the following example: a jewelry brand with a distinctive style pays for product placement in a popular tv show, so that one of the main characters appears wearing their earrings. Compelled by the portrayal in the tv show, consumers may purchase more of the same or similar earrings of that same brand. In turn, the quantity demanded of this brand's products increases, and this favorable change in consumers' taste shifts their demand curve rightward.

Consumers’ tastes may also change with the natural progression of time and change in generations, whose preferences for various goods and services may change irrespective of price.

For instance, a certain style of skirt may decrease in popularity as time goes by and the style becomes outdated. Fewer consumers maintain interest in purchasing such skirts, which means that any brands that produce them will see a decrease in the quantity of such skirts demanded. Correspondingly, the demand curve will shift leftward.

Consumers’ expectations

One way that consumers may try to save more money or prepare themselves for any future circumstances is by making their anticipations for the future, which do play a role in their current purchases.

For instance, if consumers expect the price of a certain product to rise in the future, they may seek to stock up on that product in the present in order to reduce their expenses down the road. This increase in current demand in terms of quantity would lead to a rightward shift of the demand curve.

Keep in mind that when accounting for the effect of consumers’ expectations on shifts in demand, we assume that the current price of the product or service at focus is constant or plays no role in the change of quantities demanded, even though consumers may expect such change in price in the future.

Examples of shifts in demand influenced by consumer expectations include increases in demand for housing in anticipation of future rises in price in the real estate market, stocking up on essential items prior to extreme weather conditions or foreseeable shortages, and investing in stocks that consumers predict to gain significant value in the future.

Population

With the natural progression of time, the proportions of different groups of consumers in the population change, which then leads to changes in quantities of various goods demanded.

For example, at different points in time, the number of college-age individuals in a given population may periodically increase or decrease. If the number of individuals of that age group rises, this would likely cause an increase in demand for spots in higher education. Thus, higher education institutions would experience a rightward shift in the demand for their courses.

On the other hand, if the number of individuals in this age group decreases, the quantity of spots in academic institutions demanded will likely follow the same trend and the demand curve will shift leftward.

Multiple Factor Shifts in Demand

Keep in mind that in the real world, the cause and effect of distinct separate factors are rarely isolated, nor is it commonly realistic for one single factor to be solely responsible for the change in the quantity of various goods and services demanded. Most likely, in any case of a shift in demand, more than one factor as well as other possible causes can be linked to the change.

When thinking of the shifts that the economic factors may lead to in demand for various products and services, you may wonder to what extent these factors would induce any change in quantity demanded. This partially depends on how elastic demand for any given good or service is, meaning how sensitive the demand is to variations in other economic factors.

Learn more about this in our explanation on Demand, Price Elasticity of Demand, Income Elasticity of Demand, and Cross Elasticity of Demand.

Shifts in Demand - Key Takeaways

  • Shift in demand is a representation of a change in the quantity of a good or service demanded at every price level due to various economic factors.
  • If the quantity demanded at each price level increases, the new points of quantity will move rightward on the graph to reflect an increase.
  • If the quantity demanded at each price level decreases, the new points of quantity will move leftward on the graph, hence shifting the demand curve leftward.
  • The factors that may cause shifts in demand are: consumers’ income, prices of related goods, consumers’ tastes and preferences, expectations for the future, and changes in population.
  • While the price for any given good may change at various points in time, it is not a factor that will play a role in shifts in demand as such shifts only require changes in quantity demanded while keeping price constant.

Shifts in Demand

Shifts in demand are a reflection of a change in quantity of a good/product demanded at any price level, due to economic factors other than price. 

Shifts in demand curve are caused by economic factors other than the price of the good/service at hand, such as consumers' income, trends, etc.

The factors that may cause shifts of the demand curve are:

  • Change in consumers' income
  • Prices of related goods
  • Consumers' taste and preferences
  • Consumers' expectations for the future
  • Changes in population (generational, migration, etc.)

A leftward shift in demand means that consumers are seeking less/fewer quantities of a good at every price point, thus shifting the demand curve to the left.

Some examples of shifts in demand include:

  • Higher quantities demanded of certain clothing items due to them becoming more fashionable and thus shifting the demand curve to the right. Alternatively, items going out of fashion and the demand curve for them shifting to the left.
  • A significant proportion of the population reaching an age where they start families and seek properties of their own, thus increasing quantity of single-family houses demanded and shifting the demand curve to the right. Alternatively, an economy experiencing a sudden downturn and people no longer feeling comfortable buying properties, thus shifting the demand curve to the left.

Final Shifts in Demand Quiz

Question

Which of the following is NOT a factor that may cause.a shift in demand for a good or service?

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Answer

Price of the good or service

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Question

An increase in quantity demanded at every price level will translate on a graph as:

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Answer

Rightward shift of the demand curve

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Question

A leftward shift of the demand curve means:

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Answer

Decrease in quantity demanded at each price level

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Question

Shifts of the demand curve are described as:

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Answer

Leftward / rightward

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Question

When the demand curve shifts rightward, all else held constant the price of the equilibrium point:

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Answer

Increases

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Question

Which of the following is not an example of normal goods?

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Answer

Luxury cars

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Question

If consumers' income falls, quantity demanded of normal goods will:

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Answer

Decrease

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Question

Which of the following is NOT a category of related goods?

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Answer

Dependent goods

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Question

If the price of a complement increases, the demand curve for a good that it complements will:

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Answer

Shift leftward

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Question

What are substitute goods?

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Answer

Substitute goods or substitutes are goods that satisfy the same desires or needs for consumers as another good, thus serving as an alternative to the latter.

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Question

Product B is a substitute for product A. Suppose that the price of product B falls below the price of product A. How will this affect the demand curve for product A?

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Answer

The demand curve for product A will shift leftward as the quantity demanded will decrease, since consumers will be more inclined to purchase product B instead.

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Question

Which of the following is the best example of consumers' taste influencing a rightward shift in demand for a product?

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Answer

Fans of a popular celebrity purchasing a product after an endorsement by the celebrity

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Question

If consumers expect prices for a certain product to decrease due to promises of future subsidies, the demand curve for that product will likely...

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Shift leftward, as consumers may prefer to postpone the purchase of that product in hopes to save money.

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Question

Suppose a college experiences a sharp decrease in the number of students regularly attending classes in person in favor of online learning. Due to this decrease in population, the demand curve for parking spots on campus will:

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Answer

Shift leftward

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Question

The extent to which quantity of any good or service demanded will fluctuate due to changes in any factors of influence depends on the measure of:

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Answer

Elasticity of demand

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