Changes other than the good's own price, such as income or the price of related goods, shift the demand curve.
The demand curve shifts when something other than the good's own price changes. An increase in demand shifts the curve right: more is demanded at every price. A decrease shifts it left.
Income: higher incomes usually increase demand. Prices of related goods: if a substitute, such as another brand, becomes dearer, demand for this good increases. If a complement, a good used together with it, becomes dearer, demand for this good decreases.
Tastes and fashion: advertising or a new trend can increase demand. Population: more people, or more people of a certain age, increase demand for the goods they buy.
Expectations: if buyers expect prices to rise soon, they buy more now. Government policy, such as a subsidy to buyers, can also increase demand.
- Increase in demand
- Demand curve shifts right: more demanded at every price.
- Substitutes
- Goods used instead of each other; a dearer substitute raises demand.
- Complements
- Goods used together; a dearer complement lowers demand.
- Main causes of shifts
- Income, related goods' prices, tastes, population, expectations.
Worked example: Shift or movement? Smartphones and data plans
Smartphones and mobile data are complements: people use them together.
- Change: the price of mobile data plans rises.
- Classify it: this is not the price of smartphones, so it shifts the smartphone demand curve.
- Direction: using a smartphone now costs more, so demand for smartphones decreases. D shifts left.
- Contrast: if smartphone prices themselves rose, that would be a contraction along the curve.
Watch out for this
If a substitute becomes more expensive, people buy less of everything.
When a substitute becomes dearer, buyers switch to the cheaper alternative. Demand for the good increases.
Check your understanding
Coffee and tea are substitutes. The price of coffee rises sharply. What happens to the demand for tea?
- Demand for tea increases: the curve shifts right.
- Quantity of tea demanded extends along the curve.
- Demand for tea decreases because drinks are now dearer.