Shifts in the Demand Curve
The demand curve shifts when there is a change in a variable that is not on the axes of the graph, meaning any change other than price and quantity demanded, which alters the amount consumers are willing and able to buy at each given price.
Graph: Shifts in the Demand Curve
When graphing the demand curve, it is assumed that all other factors affecting the quantity demanded, apart from price, remain constant. However, we can use the demand curve to represent changes in these other factors through shifts in the curve. In the following graph, curve D1 is the original demand curve, curve D2 represents a shift to the left, and curve D3 represents a shift to the right.
Any change that causes consumers to reduce the quantity they want to buy at each price shifts the curve to the left, moving from D1 to D2. Conversely, any change that causes consumers to increase the quantity they want to buy at each price shifts the curve to the right, from D1 to D3. Alternatively, if we keep the quantity constant, for example at 600, the graph shows that initially, for this quantity, consumers are willing to pay a price of 20. When the demand curve shifts to the right, consumers are now willing to pay a price of 50 for the same quantity, indicating an upward shift in the demand curve.
The graph demonstrates that at a price of 20, if the demand curve shifts to the left, consumers are now willing to buy only 300 units compared to the initial 600 units. Conversely, when the demand curve shifts to the right, at a price of 20, consumers are now willing to buy 900 units of the good compared to the initial 600 units.
Notice also that at a price of 90, before the demand curve shifts to the right, the quantity demanded is zero. However, after the demand curve shifts to the right, there is demand at this price that did not exist before. The opposite occurs when the curve shifts to the left; for example, at a price of 60, consumers initially demand a certain quantity, but when the demand curve shifts to the left, the quantity demanded at the price of 60 becomes zero.
Factors that Shift the Demand Curve
The demand curve can shift due to many factors, but the main ones are consumer income and the prices of related goods. Additionally, other factors like tastes, expectations, or the number of buyers in a market can also cause shifts. In general, any significant factor that affects the quantity demanded and is not represented on the axes, i.e., different from price and quantity, causes a shift in the demand curve.
When consumer income increases, if goods behave normally, the quantity consumers want to buy at each price increases because they have more disposable income and can now buy more of the same good or acquire goods they previously could not afford, causing the demand curve to shift to the right.
The prices of related goods, substitutes, and complements also have a significant impact. A change in the price of a substitute good can shift the demand curve to the right if the price of the substitute good increases and to the left if the price of the substitute good decreases. Similarly, if the price of a complementary good increases, the demand curve shifts to the left, but if the price of a complementary good decreases, the demand curve shifts to the right.
Consumer expectations about the future can also affect the quantity demanded of a good at each price. A scenario of uncertainty makes consumers want to spend less. On the other hand, personal preferences also affect demand; a greater preference for a good can increase the price the consumer is willing to pay. Finally, the larger the number of buyers in a market, the greater the quantity demanded of the good at each price.