What Is Change in Demand?

A change in demand describes a shift in consumer desire to purchase a particular good or service, irrespective of a variation in its price. The change could be triggered by a shift in income levels, consumer tastes, or a different price being charged for a related product.

Key Takeaways

  • A change in demand represents a shift in consumer desire to purchase a particular good or service, irrespective of a variation in its price.
  • The change could be triggered by a shift in income levels, consumer tastes, or a different price being charged for a related product.
  • An increase and decrease in total market demand is represented graphically in the demand curve.

Understanding Change In Demand

Demand is an economic principle referring to a consumer's desire to buy things. There are a number of factors that influence market demand for a particularly good or service. The main determinants are:

  • Income: How much consumers have to spend.
  • Consumer preferences: What types of products are popular at any given moment.
  • Buyer expectations: Does the consumer expect the price to rise in the future, perhaps due to limited supply?
  • Price: How much does the good or service cost?
  • Prices of related items: Are there any substitute goods or services of similar value that cost a lot less?

A change in demand occurs when appetite for goods and services shifts, even though prices remain constant. When the economy is flourishing and incomes are rising, consumers could feasibly purchase more of everything. Prices will remain the same, at least in the short-term, while the quantity sold increases.

In contrast, demand could be expected to drop at every price during a recession. When economic growth abates, jobs tend to get cut, incomes fall, and people get nervous, refraining from making discretionary expenses and only buying essentials.

Recording Change in Demand

An increase and decrease in total market demand is illustrated in the demand curve, a graphical representation of the relationship between the price of a good or service and the quantity demanded for a given period of time. Typically, the price will appear on the left vertical y-axis, while the quantity demanded is shown on the horizontal x-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.

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Image by Julie Bang © Investopedia 2019

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. Alternatively, a negative change in demand shifts the curve left, leading price and quantity to both fall.

Change in Demand vs. Quantity Demanded

It is important not to confuse change in demand with quantity demanded. Quantity demanded describes the total amount of goods or services demanded at any given point in time, depending on the price being charged for them in the marketplace. Change in demand, on the other hand, focuses on all determinants of demand other than price changes.

Example of Change of Demand

When an item becomes fashionable, perhaps due to smart advertising, consumers clamor to buy it. For instance, Apple Inc.'s iPhone sales have remained fairly constant, despite undergoing various price increases over the years, as many consumers view it as the number one smartphone in the market and are locked into Apple's ecosystem. In various parts of the world, the Apple iPhone has also become a status symbol, illustrating inelastic demand just as Nokia Corp.'s cellphones did in the early 2000s.

Technological advancements and fashion trends aren't the only factors that can trigger a change in demand. For example, during the mad cow disease scare, consumers started buying chicken rather than beef, even though the latter's price had not changed.

Chicken could also find itself in favor if the price of another competing poultry products rises significantly. In such a scenario, demand for chicken rockets, despite still costing the same at the supermarket. Alternatively, if there is a perceived increase in the price of gasoline, then there could feasibly be a decrease in the demand for gas-guzzling SUVs, ceteris paribus