Factors Affecting Demand
A number of factors can cause demand to increase or decrease.
The demand curve is just a graphical representation of how much of a product people are willing and/or able to buy at all possible market prices. However, something might happen to change people's willingness and/or ability to buy. These changes are usually of two types:
1. A change in the quantity demanded.
2. A change in demand.
Change Quantity Demanded
The change in quantity demanded shows a change in how much of a product is purchased when the price of the product changes.
The income effect means as prices drop, consumers are left with extra real income and are able to purchase more goods/services. The substitute effect means price can cause consumers to substitute one product with another similar but cheaper item.
Look at the graph to the right. Notice that as price goes down, quantity demanded goes up.
Change in Demand
A change in demand occurs when people buy different amounts of the product at the same prices. A change in demand can be caused by:
- a change in income,
- a change in taste,
- a price change in a related product (a substitute or complement),
- consumer expectations, or
- the number of buyers.
Substitute Example
In economic terms, a substitute is...
Complement Example
In economic terms, a complement is...
Review
1. Explain the difference between a change in quantity demanded and a change in demand.
2. Explain how a change in price affects the demand for a product's substitute(s).