What Is Change In Demand?
Change in demand describes a change or shift in a market's total demand. Change in demand is represented graphically in a price vs. quantity plane, and it is a result of more or fewer entrants into the market and changes in consumer preferences. The shift can either be parallel or nonparallel.
Understanding Change In Demand
The price vs. quantity plane graphs what happens to the price and quantity of a good based on changes in supply and/or demand. Quantity is represented on the horizontal X-axis, with price represented on the vertical Y-axis. The supply and demand curves form an X on the graph, with supply pointing upward and demand pointing downward. Drawing straight lines from the intersection of these two curves to the X and Y axes yields price and quantity levels based on current supply and demand.
Consequently, a positive change in demand amid constant supply shifts the demand curve to the right, the result being an increase in price and quantity. A negative change in demand shifts the curve left, and price and quantity both fall.
Parallel vs. Nonparallel Change in Demand
A parallel shift in demand means that there is no change in the elasticity of demand for the given market, but a nonparallel shift means there has been a change in elasticity.
For example, if there is a perceived increase in the price of gasoline, then there will be a decrease in the demand for SUVs, ceteris paribus. This shift is likely to be parallel, as those who are still in the market for SUVs are still as sensitive to price increases in the prices of SUVs as before the perceived increase in gasoline prices occurred.
A parallel demand change can also be the case for a good that is price inelastic, such as insulin. Those who are diabetic prioritize the purchase of insulin regardless of its price because the drug is vital to their health and well-being. An uptick in the rate of diabetes results in higher demand for insulin, its price having a negligible effect on the demand equation.
A nonparallel change in demand might occur when, over time, a discretionary good is considered a necessity. This phenomenon occurred for cellphones during the 1990s and 2000s. When the technology was new, consumers were highly sensitive to its price, and most cellphone buyers were affluent. As of 2018, a top-end cellphone costs more than the most expensive models in the 1990s; however, regardless of the price, a typical consumer prioritizes the purchase of a cellphone.