Determinants of Demand

· A decrease in demand will shift the demand curve to the RIGHT
· An increase in demand will shift the demand curve to the LEFT

1. Number Of Buyers
· Example: If more people want to buy chairs then the demand will increase.
· A decrease in the number of buyers will DECREASE demand
· An increase in the number of buyers will INCRESE demand
2. Change In Preferences
· Example: If people decide they don’t like chocolate ice-cream then the demand will decrease.
· A decrease in preference for good will DECREASE demand
· An increase in preference for good will INCREASE demand
3. Price Of Related Goods
a. Substitute
· Example: If you like both Pepsi and Coke the exact same, and the price of Pepsi increases, you will buy Coke. Therefore the demand for Coke will increase.
· A decrease in the price of a substitute good will DECREASE demand for the other good
· An increase in the price of a substitute good will INCREASE demand for the other good
b. Complements
· Example: If the price of computers increases then the demand for keyboards will decrease.
· A decrease in the price of a complement good will INCREASE demand for the other good
· An increase in the price of a complement good will DECREASE demand for the other good
4. Change in Income
· Example: If the income, buying power, of the consumer increases then demand will increase.
· A decrease in consumer income will DECREASE demand
· An increase in consumer income will INCREASE demand
5. Expectations of Future Changes (Income and Prices)
· Example: If the consumer expects the prices of gas to increase, demand will increase right now.
· An expectation of LOW future prices will DECREASE demand at present time
· An expectation of HIGH future prices will INCREASE demand at present time
6. Change in Quality
· Example: If the quality of the iPhone increases, then the demand curve will also increase.
· A decrease in quality will DECREASE demand
· An increase in quality will INCREASE demand

The graph below shows both an increase and decrease in demand. The shift from D1 to D2 is a decrease in demand. The shift from D1 to D3 shows an increase in demand.
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References:
http://tutor2u.net/economics/revision-notes/as-markets-demand.html
Principles of Microeconomics McGraw-Hill Ryerson Pg. 48
Class Notes