Causes of decreases and increases in demand
The Allocation of Resources – Demand
What is Demand?
Demand is the amount of a good that consumers are willing and able to buy at various prices. 📈 The law of demand says that, all else equal, as the price falls, quantity demanded rises, and vice‑versa.
$Q_d = a - bP$
Factors That Increase Demand
- ↑ Consumer income (normal goods)
- ↑ Price of substitutes (e.g., if the price of coffee rises, tea demand rises)
- ↓ Price of complements (e.g., if the price of printers falls, demand for ink cartridges rises)
- Positive expectations (e.g., expecting a price rise in the future)
- Population growth or demographic shifts
- Changes in tastes, fashions, or advertising campaigns 💡
Factors That Decrease Demand
- ↓ Consumer income (inferior goods)
- ↓ Price of substitutes (e.g., if the price of coffee falls, tea demand falls)
- ↑ Price of complements (e.g., if the price of printers rises, demand for ink cartridges falls)
- Negative expectations (e.g., expecting a price drop)
- Population decline or demographic shifts
- Changes in tastes or negative advertising
Illustrative Example
Imagine a new smartphone model is released. The price of its main substitute, the older model, drops. According to the law of demand, the quantity demanded for the older model will fall, while the demand for the new model will rise. 📱
Demand Shift Diagram (Table)
| Price ($) | Quantity Demanded (Before) | Quantity Demanded (After) |
|---|---|---|
| 10 | 50 | 70 |
| 20 | 30 | 45 |
| 30 | 10 | 15 |
The table shows a rightward shift in the demand curve (increase in quantity demanded at each price).
Exam Tips 📑
- Always identify the cause of the shift before drawing the diagram.
- Use the correct direction of the shift: rightward for an increase, leftward for a decrease.
- When explaining, mention at least two factors that could lead to the shift.
- Remember the law of demand – price moves opposite to quantity demanded.
- Practice with real‑world examples (e.g., price changes in food, tech, or fashion).
Quick Summary
Demand is driven by price, income, prices of related goods, expectations, population, and preferences. Understanding how each factor shifts the demand curve helps you predict market changes and answer exam questions confidently. 🚀
Revision
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