How does demand change?

To answer this, we first have to understand what demand is.  Demand is defined as the amount of a good or service that consumers are willing and able to buy at each potential price.  In other words, demand is represented by a line or a curve, not by a single point on a graph.  In order for demand to change, consumers have to come to be willing and able to buy more or less of...

To answer this, we first have to understand what demand is.  Demand is defined as the amount of a good or service that consumers are willing and able to buy at each potential price.  In other words, demand is represented by a line or a curve, not by a single point on a graph.  In order for demand to change, consumers have to come to be willing and able to buy more or less of a product at a given price. 

So, what could cause consumers to want a product more or less if the product’s price does not change?  There are a number of factors that can do this.  I will list them and discuss them briefly.

1. Consumer incomes.  This affects how much people are able to buy (as opposed to how much they are willing to buy).  For example, as the income of consumers in a country rises, they will tend to demand more cars, more meat, and more luxury goods.  These are things that they might always have wanted, but have been unable to afford.  When their income rises, they are able to afford more of these goods.


2. Number of consumers.  If there are more people in a given market, there will be more demand for any particular good.


3. Price of competing goods.  Let us say that a person likes Pepsi a little better than they like Coke.  Now let us imagine that the price of Pepsi goes up while the price of Coke does not.  The person might be more likely to buy Coke more often because it has become less expensive relative to its competitor, Pepsi.  So, the demand for a good can rise when the price of a competing good rises.


4. Price of complementary goods.  Some goods are often used together.  Tennis rackets and tennis balls, for example, must generally be used together.  A change in the price of one can affect demand for the other.  Imagine that tennis rackets become much more expensive.  Fewer people purchase rackets and play tennis.  This leads to a decrease in the demand for tennis balls.


5. Consumer expectations. This affects exactly when buyers are likely to buy a product.  Therefore, it tends to cause short term changes in demand.  For example, if you think that the price of houses is going to go down next year, you will be less likely to buy a house today and demand for houses will go down.  Conversely, if a company that uses iron ore thinks the price of ore will soon increase, they will buy more of it now while the price is low.


6. Consumer tastes.  In short, this one says that demand will change based on what people like.  If people decide that meat is healthier than grains, demand for grains will drop and demand for meat will rise. If people decide that Manchester United is a cooler team than Barcelona, demand for Barcelona shirts will decline and demand for United shirts will increase.

These are the factors that can cause demand to change.