Reading: Summary of Factors That Change Demand

Three paper cylinders. The top of each has been diagonally cut and shifted slightly to the left.

Six factors that can shift demand curves are summarized in Figure 1, below. The direction of the arrows indicates whether the demand curve shifts represent an increase in demand or a decrease in demand. Notice that a change in the price of the good or service itself is not listed among the factors that can shift a demand curve. A change in the price of a good or service causes a movement along a specific demand curve, and it typically leads to some change in the quantity demanded, but it does not shift the demand curve.

The graph on the left lists events that could lead to increased demand. These include taste shift to greater popularity, population likely to buy rises, income rises (for a normal good), price of substitution rises, price of complements falls, and future expectations encourage buying. The graph on the right lists events that could lead to decreased demand. These include a taste shift to lesser popularity, population likely to buy drops, income drops (for a normal good), the price of substitutes falls, the price of complements rises, future expectations discourage buying.

Figure 1. Factors That Shift Demand Curves (a) A list of factors that can cause an increase in demand from D0 to D1. (b) The same factors, if their direction is reversed, can cause a decrease in demand from D0 to D1.

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