The demand curve is a graphical representation of consumers’ desire to buy goods and services. The demand curve can shift to the left or the right due to several factors. A shift to the left indicates that demand is decreasing, and a shift to the right indicates that demand is increasing. Shifts in demand are caused by factors not related to the current price of a product or service. The current price of a product or service only causes movement along the demand curve and not a shift.
Changes in prices of related goods cause shifts in demand. Related goods have two categories – substitute and complement goods. A substitute good is defined as any product or service that can adequately substitute for the primary product or service. An example of substitute goods are butter and margarine. As the price of margarine decreases, then the demand for butter decreases. This causes a leftward shift of the demand curve. A complementary good is one that is consumed with another good. An example of this is cereal and milk. As the price of milk decreases, demand for cereal increases. This causes a shift to the right.
Changes in consumers’ income cause a change in the demand for a good or service. When consumers’ income increases, demand for goods also increases, causing the demand curve to shift to the right. This is because consumers spend more money when they have higher incomes. When consumers’ income falls, demand for goods decreases. For example, during times of recession when job layoffs occur, consumer spending and the demand for goods decrease. This results in a shift to the left.
The demand curve shifts as consumer preferences change. For example, when mobile phone technology evolved, the demand for pagers decreased. The result was a leftward shift in the demand curve for pagers. Given the same information, the demand curve for mobile phones shifted to the right because more people were demanding mobile technology. The demand for a product changes when consumer preference changes on a wide scale.
Expected Price of Good
Although the current price of a good does not cause a shift in the demand curve, the future price of a good does cause a shift. If the price of a good is expected to increase, current demand for that good will increase. For example, if a store is having a weekend sale on laptop computers for $200 when they are regularly $500, the demand for laptops will increase because consumers want to take advantage of the lower cost. The demand curve will shift to the right to reflect the increase in demand.