When price changes, quantity demanded will change. That is a movement
along the same demand curve. When factors other than price changes,
demand curve will shift. These are the determinants of the demand curve.
1. Income: A rise in a person’s income will lead to an
increase in demand (shift demand curve to the right), a fall will lead
to a decrease in demand for normal goods. Goods whose demand varies
inversely with income are called inferior goods (e.g. Hamburger Helper).
2. Consumer Preferences: Favorable change leads to an
increase in demand, unfavorable change lead to a decrease.
3. Number of Buyers: the more buyers lead to an increase
in demand; fewer buyers lead to decrease.
4. Price of related goods:
a. Substitute goods (those that can be used to replace each other):
price of substitute and demand for the other good are directly related.
Example: If the price of coffee rises, the demand for tea should
increase.
b. Complement goods (those that can be used together): price of
complement and demand for the other good are inversely related.
Example: if the price of ice cream rises, the demand for ice-cream
toppings will decrease.
5. Expectation of future:
a. Future price: consumers’ current demand will increase if they
expect higher future prices; their demand will decrease if they expect
lower future prices.
b. Future income: consumers’ current demand will increase if they
expect higher future income; their demand will decrease if they expect
lower future income.
