Shift of the Demand Curve
The Law of Demand states that there is an inverse relationship between price and quantity demanded. In the real world, factors other than price affect consumers’ demand for goods and services. The Law of Demand still holds true, but a new demand curve is now drawn to show the change in consumer desire for the good or service.
When a factor other than price affects the demand for a good or service, it is called a change in demand, and that change is reflected in a shift of the demand curve. Consumers demand more or less of a given product at every price, and the demand curve shifts left or right to reflect the change. The next screen shows examples of factors that can affect consumer demand.
Move the slider to change demand. Watch how it affects the relationship between price and quantity demanded.
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Why Demand Curves Shift?
There are many factors other than price that affect the demand for a good or service and cause a shift in the demand curve for a product.
View these examples of factors that can shift demand.
Tastes: Consumer perception of what is fashionable or stylish affects the demand for some goods. Consumers demand more of goods they feel are stylish, and less of goods that are seen as less fashionable.
Examine the effect that each of the following has on the demand for milk.
Dairy farmers run a successful advertising campaign in which a popular music star endorses drinking more milk.
The American Medical Association releases a study relating drinking too much milk to increased incidence of heart disease.
Ice cream sales soar in hot weather, and ice cream makers require more milk to meet the demand for ice cream.
Poor sanitation at one dairy leads to many people becoming ill with listeria from contaminated milk; the incident is widely reported in the press.
Did You Get It?
What remains constant if there is movement on a
demand curve?
If the demand curve shifts?
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Movement Along the Demand Curve
The Law of Demand says that consumers demand a greater quantity of a good or service at lower prices, and a lower quantity at higher prices. Thus a demand curve usually slopes downward, from the upper left to the lower right.
Economists use the Latin term ceteris paribus, meaning “all else equal,” to indicate that they are only considering a change in one variable. The Law of Demand only considers how quantity demanded responds to a change in price. A change in quantity demanded in response to changes in price is referred to as a movement along the demand curve.
A change in price changes the quantity demanded, shown by movement along an existing demand curve. This is due to a change in price within a specific demand schedule.
Move the slider to change price. Watch how it affects the quantity demanded.
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Examine the effect of each change in price on the quantity of milk that is demanded.
Better foreign relations with oil-producing nations lowers the price of diesel fuel used to transport milk to market, decreasing the price of milk.
Drought in the Midwest raises the price of feed corn used to feed dairy cows, increasing the price of milk.
New government regulations require dairy farmers to purchase expensive sanitizing equipment, increasing the price of milk.
Farmers widely adopt a breed of cattle that produces more milk and consumes less feed, decreasing the price of milk.
Did You Get It?
The quantity demanded changes in the
direction of a change in price.
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Wrap Up
A shift of the demand curve means that at every price, the amount people are willing and able to buy has changed.
For more information on shifts of the demand curve, read Chapter 4, Module 11 of Explorations in Economics and study the Module 11 Review and Assessment. You can also test yourself with the Module 11 online quiz here on the BCS.