Change in Demand
Change in demand refers to a shift in the entire demand curve for a particular good or service. This shift can occur due to various factors such as changes in consumer preferences, income, prices of related goods, or expectations about the future. When there is a change in demand, the quantity demanded at each price level will be different from the original demand curve.
8 Key excerpts on "Change in Demand"
eBook - ePubContemporary Economics
An Applications Approach
- Robert Carbaugh(Author)
- 2016(Publication Date)
- Routledge(Publisher)
...An increase in demand for a product can be caused by: • A favorable change in consumer tastes • A rise in incomes if the product is a normal good; a fall in incomes if the product is an inferior good • An increase in the price of a substitute good; a decrease in the price of a complementary good • Consumer expectations of higher future prices • A rise in the number of buyers served by the market Consumer Tastes Changing consumer tastes can have important effects on demand. A change in consumer tastes that makes a product more popular will shift the demand curve to the right. For example, as the popularity of Faith Hill (a country music singer) increases, consumers tend to demand more of her CDs. Conversely, if the New York Yankees have a losing season and become less popular with their fans, demand for tickets to their baseball games will shift to the left. Number of Buyers Recall that the market demand is the sum of the individual demands of all consumers in the market. If the number of consumers in the market increases, market demand will shift to the right; a decrease in the number of consumers will cause market demand to shift to the left. In Eugene, Oregon, for example, local merchants are pleased to see student consumers attending the University of Oregon in September. This causes an increase in the demand for their products. When many students return to their homes in other cities over the December holidays, the demand for these products in Eugene decreases. Consumer Income College students are well aware that changes in income affect demand. We classify products into two broad categories, depending on how demand for the product responds to changes in income. The demand for normal goods increases as income rises and falls as income decreases. Most goods, such as ski trips or new cars, are normal goods. People enjoy these goods and tend to buy more of them as their income rises...
eBook - ePub- Rob Dransfield(Author)
- 2013(Publication Date)
- Routledge(Publisher)
...The relative strength of demand and supply determines the market prices of goods. Market prices act as signals to producers about the strength of demand for the products they supply. Rising prices act as an incentive for producers to produce more of certain types of goods. In contrast, falling prices will encourage consumers to buy more goods as they become relatively cheaper. Gaining a clear understanding of the four laws of demand and supply will enable you to have a good grasp of how the market works. Key Term Changes in demand and shifts in demand – economists distinguish between a ‘change’ in ‘demand’ (where the whole demand curve changes its position, e.g. as a result of a change in tastes or incomes), and ‘changes’ in ‘quantity demanded’ (i.e. movements along a given demand curve). Changes in quantity demanded result from a change in the price of the good whose demand is being examined. 3.4 The construction of demand and supply curves Demand and supply curves A demand curve is used by economists to illustrate the relationship between price and quantity demanded. It shows demand and changes in quantity demanded. It is useful for business organizations trying to predict the effect of different prices on demand for their products. It helps them to decide how much of a good to make in order to meet quantity demanded. Common sense and personal experience explain the shape of the demand curve. The curve slopes down from left to right because more people can afford to buy goods at lower rather than at higher prices...
eBook - ePubMedia Economics
Applying Economics to New and Traditional Media
- Colin Hoskins, Stuart M. McFadyen, Adam Finn(Authors)
- 2004(Publication Date)
- SAGE Publications, Inc(Publisher)
...An increase in demand shifts the demand curve to the right and causes price and quantity to rise. A decrease in demand shifts the demand curve to the left and causes price and quantity to fall. Thus the change in price and quantity are in the same direction as the Change in Demand. Changes in demand are caused by a change in a determinant of demand, such as the price of a demand-related good, income per capita, the number of potential buyers, the expected future price, and consumer tastes. Demand-related goods are either substitutes or complements. A substitute is a good that fulfils the same need. The cross elasticity of demand, defined as (percentage Change in Demand for product X) / (percentage change in the price of Z), is positive if X and Z are substitutes. Complementary goods are those that are used in conjunction with one another. The cross elasticity of demand for complementary goods is negative. Demand is positively related to income per capita for normal goods and negatively related for inferior goods. Income elasticity of demand, defined as (percentage Change in Demand) / (percentage change in income) is thus positive for normal goods and negative for inferior goods. A change in supply occurs when there is a change in a determinant of supply other than own price. Whatever direction supply changes, the equilibrium quantity changes in the same direction and the equilibrium price changes in the opposite direction. A change in supply is typically caused by a change in an input price, technology, or the number of suppliers. There are a host of applications of supply and demand analysis and of the elasticity concept in the media industries. Those examined in this chapter included the effect of permitting the BBC to advertise, the Principle of Relative Constancy, the recent trend to auction the electromagnetic spectrum, and the market for subsidies....
eBook - ePub- Andrew Barkley, Paul W. Barkley(Authors)
- 2016(Publication Date)
- Routledge(Publisher)
...This topic is further explored in Chapter 16. 9.4.5 Population Although the list could be expanded, population is the final determinant of demand mentioned here. Population growth has a direct and important impact on consumption. More people will buy more goods, particularly necessities such as food. The result is similar to an increase in income in low-income nations. If the population of Ethiopia increases, then Ethiopia’s demand for wheat will increase: if the population of Ethiopia increases, the country’s demand for food will rise. The last few pages have dealt with the determinants of demand. Chapter 10 uses much of this information to explain how markets operate. The supply and demand curves from Chapter 8 and this chapter merge into one graph, to aid the study of the interaction between producers and consumers. 9.5 Summary Demand is the consumer willingness and ability to pay for a good. The demand curve is a function connecting all combinations of prices and quantities consumed for a good, ceteris paribus. The demand schedule presents information on price and quantities purchased. The market demand curve is the horizontal summation of all individual demand curves. The law of demand states that the quantity of a good demanded varies inversely with the price of a good, ceteris paribus. The price elasticity of demand relates how responsive quantity demanded is to changes in price [E d = %ΔQ d /%ΔP]. An inelastic demand curve is one where a percentage change in price results in a relatively smaller percentage change in quantity demanded (|E d | < 1). An elastic demand is one where a percentage change in price results in a larger percentage change in quantity demanded (|E d | > 1)...
eBook - ePubMicroeconomics
A Global Text
- Judy Whitehead(Author)
- 2014(Publication Date)
- Routledge(Publisher)
...These other factors being held constant are referred to as shift factors. Changes in price are reflected in movements along the demand curve. Changes in the other factors which affect demand, such as income, taste or preferences and the price of other goods, are reflected in a shift in the demand curve. These shift factors affect the position of the demand curve. Demand is also affected inter alia by: The availability of credit The nature of the distribution of income Market size Accumulated wealth or affluence of the population Cultural habits and behaviour External influences from foreign media such as television and the internet (demonstration effect) The consumption behaviour of others in the market (see Bandwagon, Snob and Veblen effects in Chapter 4). 3.1.1 Derivation of market demand The market demand for a given commodity is simply the horizontal summation of the demands of the individual consumers. Consider a market with n consumers. The market demand is the horizontal summation of the demand curves of all n consumers. This is illustrated for two consumers (A and B) in Figure 3.1. It should be recognized that, although for one consumer a good may be a Giffen good (i.e. with a positively sloped demand curve), the market demand will still have the normal negative slope unless it is a Giffen good for a large enough number of consumers in that market. Figure 3.1 Horizontal summation of individual demands to give market demand 3.1.2 Shape of the demand curve The demand curve is usually drawn as a straight line (linear demand curve). However, it may also take the form of a curve, usually one that is convex to the origin. The linear demand curve The linear demand function, expressing the relationship between the quantity demanded (Q) and the price (P) of a commodity may be written as: where, It is important to understand that, while the demand function is written with quantity (Q) as a function of price (P), it is drawn with price (P) as a function of quantity (Q)...
eBook - ePub- Enrico Colombatto(Author)
- 2016(Publication Date)
- Routledge(Publisher)
...But if these points belong to two different demand curves/regions (i.e. each of the dashed lines refers to a different country), then a price increase might well lead to more revenues and higher profits. Similar comments can be made when, rather than two countries, we are examining two different moments in time or two different groups of consumers. The upshot, however, remains the same: our understanding of consumer behaviour differs, depending on whether the observations are generated by the same demand locus, or by two different loci. Figure 2.4 Movements along/of the demand curve 2.5 Preliminary conclusions The discerning reader should thus be on guard and avoid being deceived by the seeming simplicity of this popular analytical tool. Certainly, the demand curve tends to slope downwards, because if the price of X drops, the sacrifice we have to make to consume X is smaller and we might be ready to buy more of it. Yet, in a dynamic economy populated by imperfect and changing individuals, all prices vary at the same time. Incomes, expenditure budgets and preferences also change. As a result, one should be careful not to confuse a movement along the curve with a movement of the curve. Likewise, one should not fail to differentiate between a movement of the curve and a horizontal movement within the region, perhaps as a response to a mistake. All in all, although it is difficult to quantify the various effects, it is fair to concede that demand analysis adds relatively little to what the reader already knows from Chapter 1 or the layman could infer using his intuition and common sense. The business expert will also look at the analysis of demand with prudence and some scepticism. Entrepreneurs are very much aware that they operate in an ever-changing environment, in which constant product innovation means that the information one can get from estimating the shape and position of demand frequently lands on their desks too late to be useful...
eBook - ePubEconomics for Investment Decision Makers
Micro, Macro, and International Economics
- Christopher D. Piros, Jerald E. Pinto(Authors)
- 2013(Publication Date)
- Wiley(Publisher)
...A change in the value of any other variable will shift the entire demand curve. The former is referred to as a change in quantity demanded, and the latter is referred to as a Change in Demand. More importantly, the shift in demand was both a vertical shift upward and a horizontal shift to the right. That is to say, for any given quantity, the household is now willing to pay a higher price; and at any given price, the household is now willing to buy a greater quantity. Both interpretations of the shift in demand are valid. EXAMPLE 1-2 Representing Consumer Buying Behavior with a Demand Function and Demand Curve An individual consumer’s monthly demand for downloadable e-books is given by the equation where equals the number of e-books demanded each month, P eb equals the price of e-books, I equals the household monthly income, and P hb equals the price of hardbound books, per unit. Notice that the sign on the price of hardbound books is positive, indicating that when hardbound books increase in price, more e-books are purchased; thus, according to this equation, the two types of books are substitutes. Assume that the price of each e-book is €10.68, household income is €2,300, and the price of each hardbound book is €21.40. 1. Determine the number of e-books demanded by this household each month. 2. Given the values for I and P hb, determine the inverse demand function. 3. Determine the slope of the demand curve for e-books. 4. Calculate the vertical intercept (price-axis intercept) of the demand curve if income increases to €3,000 per month. Solution to 1: Insert given values into the demand function and calculate quantity: Hence, the household will demand e-books at the rate of 2.088 books per month. Note that this rate is a flow, so there is no contradiction in there being a noninteger quantity...
eBook - ePub- Tom Craig, David Campbell(Authors)
- 2012(Publication Date)
- Routledge(Publisher)
...If financial issues determine the consumer’s ability to buy, preferences concern the consumer’s willingness to buy. It is obvious that people change over time in what they want to buy. It may be that one type of product is in demand 1 year, but not the next. Preference can be influenced in several ways: It can be subject to fashion, as is the case with clothes, some forms of art, furniture, music and many other things. It may be influenced by increasing or decreasing trends, such as a decline in the consumption of cigarettes or an increase in the use of condoms. It may be influenced by advertising, where a producer persuades people to increase consumption of its products. Some goods are subject to seasonal variation in demand. We might, for example, expect more ice cream to be sold in hot weather whilst we would collectively demand more duffel coats in the winter. Consumption is sometimes informed by expert opinion. If an eminent doctor announces that the use of sun-lamps contributes to skin cancer, we might expect a downturn in demand for the purchase and hire of sun-lamps. Conversely, announcements about the cholesterol-reducing properties of bran fibre and red grape juice would tend to stimulate demand for these items. Prices of Other Products The third determinant of demand is the price of other products. This concerns the nature of a product in question and how it relates to other products. A product can be related to other products in one of two ways: it can be a complementary or substitute product: Complementary products are related inasmuch as you will need to buy product A if you buy product B. It follows that an increase in demand for product A will stimulate an increase in the demand for product B. For example, if you buy a petrol-driven car, you will need to buy petrol for it. An increase in the number of cars sold will tend to also increase the volume of petrol sold by oil companies. Cars and petrol are therefore said to be complementary goods...
