Shifts in the Demand Curve - Online Tutor, Practice Problems & Exam Prep

Demand shifts occur based on various factors, such as consumer income, preferences, and the number of consumers. An increase in consumer income typically raises demand for normal goods while decreasing demand for inferior goods. Substitute goods exhibit a directly proportional relationship; if the price of one rises, demand for the other increases. Consumer expectations about future prices can also drive current demand. Additionally, an increase in the number of consumers directly boosts demand. Understanding these dynamics is crucial for analyzing market behavior and demand curves.

Shifting Right and Shifting Left

Alright. So let's continue here. One more note I want to make about when we're shifting, we're either going to shift to the right or to the left on the graph, okay, and I like to think of it because a lot of this when we're looking at these shifts, a lot of it is very logical and you just kind of have to think about is it a good thing that's happening for the product or a bad thing that's happening for the product, right? When you think of it like that, I think it makes it a little easier to know whether you should shift right or left. So, you shift right when it's a good thing. Something good happened, we're going to shift to the right. Okay. So we would have something like this. Let me go to blue. We'd have our new demand curve shifting to the right. We would shift to the right here. Cool? I'll do that in a different color. Alright. And when we have a bad thing happen for the product, something unfavorable for the product, we're going to shift to the left. So we'll have our new demand curve out here. Cool. So we will have from there we go this way this time. Alright, and we've shifted to the left. That's the only note I wanted to make here. I'll just get out of the way so you see that text. Yeah, so let's try and think of it as good things and bad things. So good things are going to shift to the right, bad things to the left. Cool. Let's go ahead and try that in our first example here.

Consumer Income:Normal Goods and Inferior Goods

So a factor that could cause demand to shift for a product is the income of the consumer. Let's check it out. As a consumer's income changes, the types of goods that they buy are also going to change. So let's think about when you're living back at mom's house, right? You come home, have a nice steak dinner, and go to bed in a nice queen-size bed. Life was good. And now you're in a dorm room. What do you get here? Ramen noodles every night, and I'm assuming this is what I picture you as. I'm assuming you're all just, like, sharing bunk beds with strangers right now. Kind of a downgrade from mom's house, but you'll see that the types of goods here are different. At mom's house, we could say that things were a little better. So let's go ahead and define what those are. We'll say that people buy more of what are called normal goods when they have more money, and just the opposite, people buy more inferior goods when they have less money. So you can kind of follow the logic here, right? Normal goods could be things like what you had at mom's house, or what I've listed here we've got organic food, new furniture, or even going on vacation we could count as a normal good. When we compare it to these inferior goods like buying canned soup or buying used furniture off Craigslist or a staycation where you just take your days off and stay home because you've got no money. Cool, so that's the idea here. We're going to have our normal goods and our inferior goods and when we think of the consumer income, if that changes, we gotta think is our product a normal good or an inferior good and how is this income change going to affect the demand for the product. I've got an example coming up, let's try it out.

Consumer Income Shifting Demand

Alright, let's see this example. If craft beer is a normal good, what happens to demand when consumer income rises? What if it decreases? So let's handle these one at a time, and I want to make a quick point here about these types of problems. They're generally going to have to tell you whether a product is a normal good or an inferior good because it's kind of hard to assume that you would be able to guess on the test. So I would expect on the test, they're going to be telling you when things are normal goods and inferior goods. Alright. So in this question, they do tell us that craft beer is a normal good, and what happens to normal goods when income rises, right? When income rises, we buy more normal goods. So the income rising causes the demand to shift to the right. It's a good thing, right? Income rising is a good thing for a normal good. That's how I like to think about it. So the increased income is going to increase our demand. So let's go ahead and label our axis here. I just want to get in that habit. We got our price on our y-axis and quantity on our x-axis, right, alphabetical order left to right, and we are going to draw our new demand curve right here. Let's go ahead and draw it as income increases. Remember, normal good demand is going to increase because of the income increase. So I'm going to draw a new demand curve out here, and we'll call that D2. So we've got this one was D1 over here, and this will be D2, our shift to the right. Right. And what does this mean? This means that at a certain price, if I were to say our price was right here, P1. Remember, the price isn't changing, it's the people's demand that's changing here. So at the same price, we're actually demanding a higher quantity, right? This was where we were originally demanding, and now we're demanding somewhere out here at quantity 2, right. So it increased from quantity 1 to quantity 2 at that same price. Cool, and that's because income increased, and normal good demand increases with income increases. Alright. Let's look at the opposite. I'm going to get out of the way here. So if income decreases and craft beer is a normal good, right, so we got to think. People buy more normal goods when they have more money; they have less money now, so they're going to buy less normal goods. So we are going to draw a new demand curve here to the left of our original one, and when you draw them, especially when we don't have numbers and stuff, I don't mind going out of the graph like that just to keep it consistent, you know, keep them even. So there we go. That is our shift to the left where we had demand curve here, demand 1, and now we are in demand 2 because income is lower, And we see the same thing happening, right? We've got the same price. Let's say this was our price right here, and notice what happened. We were originally demanding about this much, quantity 1, but now we're over here demanding this much at the same price, quantity 2. So we're demanding much less at the same price. Cool. So that is how income, consumer income can affect the demand for a good based on it being a normal good or an inferior good. Cool. Let's move on now.

Substitute Goods

So now we can see how the price of another good, in this case, a substitute good, can affect the demand for our product. There are other goods related to our product that can affect our demand. The first one we want to talk about here are substitute goods. We define those by saying that when there's an increase in the price of Good X, it's going to cause the demand for Good Y to increase. Alright, this sounds a little complicated, so let's think about it a little bit. This is the idea that one product's price is going up which causes the demand for another product to increase. They are actually substituting their demand for this new product, right? The idea is that since the price went up on this first product, we're going to buy this other thing instead.

So I want to make a note, when two things go up together, when we have variables that are increasing together, so in this case, the price of Good X is going up and the demand for Good Y is going up as well, we call this relationship directly proportional, right? They are going up and up together and vice versa. If they went down together, it also holds true. So if there was a decrease in the price of Good X, there would be a decrease in the demand for Good Y, right? All of these things are vice versa. And one more note is that we are not talking about a change in price here. I know we did say that there was an increase in the price of Good X, right? So you're thinking this could be a change in price, but we are analyzing the demand of Good Y. We're not worried about the demand of Good X in this situation, okay? So the idea here is that we're looking at how the price change of Good X is affecting the demand for Good Y. Our focus is on Y. There has not been a price change to Good Y, right. There was only a price change to Good X.

Sounds a bit technical, but I think once we do a couple of examples here, it'll make more sense. So let's go ahead and look at some of these example substitute goods. Alright, so a great example here is Coke and Pepsi. So if we were to see that the price of Coke were to increase, what's going to happen to Pepsi? We're going to see the demand for Pepsi increase, and that makes sense, right, because people are going to switch their consumption. They are no longer going to be buying Coke. They do not really see a difference between the two; they're just going to buy Pepsi instead. Yes, I know some of you are like, "no, I only buy Coke blah blah blah". We're not talking about you. You would probably stay with Coke, but there are going to be other people that are switching their demand, right. So we are going to see the demand for Pepsi going up there.

Same thing here with margarine and butter. Let's say that the price of margarine goes down in this situation. What's going to happen to the market for butter? Now people are going to buy margarine instead of butter, right, that's the idea. So the demand for butter is going to decrease. Cool. I've got one more example here, apples and oranges. Yes, we are able to compare apples and oranges in a sense here. Let's do a similar example. So let's say the price of apples was to go up, what's going to happen to the demand for oranges? Well, assuming that people will substitute an apple for an orange in their fruit consumption, we are going to say that the demand for oranges is going to go up because people will buy these oranges instead of the higher-priced apples. Cool?

So let's go ahead and try one of these examples on the graph, so you can see that in the next video.

Consumer Expectations

Now let's see how consumer expectations about future prices can affect the demand for a good today. So, if consumers are expecting prices to increase in the future, then you could expect them to want to buy the good today at the cheaper price, right? Therefore, the demand for the good today is going to increase. Let me stick to red here. It's going to increase. Alright, so here we have a directly proportional relationship, right? They're both going up together. The future expected price is going up and the demand is going up, right? And notice again this one's a little tricky because we are talking about prices of our product, but it is not a change in the price, right? Because the price didn't change; it's only the expectations about the price that changed. So again, we've got another little technicality here, but it's not the price changing. We're just expecting a different price in the future. Cool.

So here are some examples of things that could change customer expectations, consumer expectations. The first one here being inclement weather. So if there's going to be some sort of shortage of a product because of a hurricane or because there's been a dry spell or whatever, you could expect them to kind of panic and want to buy more of it now before there's some sort of shortage in the future, right? So that would increase the demand now. How about future income? A lot of people count their eggs before they hatch, right? They're like, "Hey, I'm getting a raise next year so maybe I could spend a little more now." Not the best logic, but it still holds true in practice. And another one here, just expected price changes in general. How about the release of a new iPhone? Right? So let's say you were about to go buy the latest iPhone 12 or whatever it is and you just heard that Apple is going to be putting out iPhone 13. Well, then, if you really wanted iPhone 12, you'll probably wait until iPhone 13 comes out because you're expecting the price of iPhone 12 to go down, so you'll wait and not demand an iPhone 12 today and get it once the price decreases. Alright, let's go ahead and try an example here.

Consumer Expectations

Alright, so let's try this example here. As a hurricane approaches Brazil, fear of a shortage of coffee spreads. What happens to the demand for coffee beans? So hurricane, I don't even know if Brazil gets hurricanes, but you know, whatever. The idea here is that consumers are going to be expecting the price to increase, right. Their fear of a shortage of coffee, they're expecting the future price of coffee to be higher, right. So we're going to say expected, I'll put expected price up. That means the demand now is going to go up, right? People are going to want to buy it now because they're expecting it to be more expensive in the future. So this is a good thing for our demand right because they want to buy more of it now, so we are going to shift it to the right. Cool. So our demand curve moved from d_1 here to d_2. Price axis, quantity axis. Cool. So that's pretty simple, pretty straightforward one, just their expected future price increase, so they're going to want to buy more of it now. Alright. Great. Let's move on.

Number of Consumers

Now let's see how the number of consumers in a market can affect demand. So this one's pretty straightforward. If the amount of consumers in a market increases, then the demand for a good is going to increase as well, right? So there's just more people that want to buy it, then the demand is going to increase, right? There's just more people buying it. So here we see a directly proportional relationship as well, right? We've got the amount of customers increasing and the demand also increasing.

Here are some good examples of how the number of consumers could change. We could have immigration, right. If immigration is happening to our country, we're going to see a rise in our population, a rise in the number of consumers. Same with birth rate, right. If there's an increased birth rate, there are going to be more consumers or decreased birth rate, fewer consumers, right?

And the last one here, pretty interesting, is the effects of advertising. So advertising can go ahead and turn someone who is not a consumer of your product, right? They had no demand for your product; you advertise to them, now they do demand your product. So you're actually bringing in consumers to your product that before didn't want to buy it. Advertising is another thing that could increase the number of consumers in a market. Alright. Let's go ahead and do an example.

Number of Consumers

Alright. Let's check out this example. After Clutchtopia introduced its free pizza for everybody policy, immigration to the awesome country skyrocketed, doubling its population. What happens to the demand for bar soap in Clutchtopia? So it seems kind of random, but the idea here is there are more consumers. The population of Clutchtopia doubled, so you can imagine that people are going to be buying more bar soap just because there are more people there. So, you're seeing the number of consumers increasing; therefore, the demand is increasing. So there are more consumers, and the demand is going to increase. Alright, so this was d₁ right here, our price and quantity axes in alphabetical order, and let's go ahead and shift this demand curve to the right. So which way are we going to shift? This was a good thing for bar soap, right? The number of consumers increased for bar soap, so it's a good thing for bar soap. Let's go ahead and draw this graph to the right. So we have shifted to the right here to demand d₂, and you can see that we've moved to the right.

Cool. Pretty easy, right? This one is easy. It's straightforward. The number of consumers goes up, the demand is going to go up. Alright. Cool. Let's move on.

Demand Shift Summary

Alright, so last I included this summary sheet that includes all the shifts in demand that we've covered so far, as well as information about changes in price. So first, I listed all of the ones that are directly proportional. That means that the determinant is going to go up as well as the demand is going to go up, and it makes this neat little acronym here in spec. I know some of you do well with acronyms and stuff like that, so I included it in here, although I would really think that it's better to focus on the logic and the intuition when it comes to deciding which way things are going to shift, but nonetheless, this could be helpful for you as well so I included it in here.

So here we've got all our directly proportional shifts, income and normal goods, right? So if consumer income rises, demand for a normal good rises. Substitute products, if the price of a substitute goes up, the demand for our good is going to go up. Preferences for a good, so if the preferences, if consumers prefer this good for some reason, the demand for that good is going to increase. Consumer expectations, so if the expected future price in the consumer's mind is going to be higher, then they're going to demand the good now more. So you're going to see an increase in current demand there. And lastly, the number of consumers. So if you see the number of consumers in a market go up, you're also going to see the demand for that product go up.

Next, let's cover these inversely proportional ones. We've got this one, unfortunately, there's only 2 so I couldn't really make an acronym here, but that's why there's only 2. It should be easy to remember. So we've got income with inferior goods, so when consumer income rises, demand for inferior goods is going to fall, right, and complements, when the price of a complement goes up, a complementary product, then the demand for our good is going to fall.

And last, I wanted to include this note about changes in price. Remember when we have a change in price, it's only going to change the quantity demanded, right? We're not going to draw a new demand curve. I know you see 2 curves there foreshadowing a little bit, the other one's going to be the supply curve and we're going to get into that in a minute, but what you see here is that we've moved on the demand curve say from this point here in the middle, we've moved up to that other point. Okay, so we've only moved along the line and not drawn an entirely new demand curve.

Alright, cool. So I hope this sheet is really valuable to you and I think you should use it especially while you're still getting comfortable with the shifts, while you're doing practice problems, try and use this sheet to help you guide, to the correct answers. Cool? Alright, one more thing. You see all this empty space here on the right side of the page? I wonder what's going to fill that up later. We'll have to see. Alright. Let's go.

What happens in the market for blenders if consumers decide that juicing their vegetables is better than blending their vegetables?

• A. Demand shifts to the left
• B. Demand shifts to the right
• C. Supply shifts to the left
• D. Supply shifts to the right

What happens in the market for beef jerky if customers expect a price increase in the future?

• A. Demand shifts to the left
• B. Demand shifts to the right
• C. Supply shifts to the left
• D. Supply shifts to the right

If cheese in a can is an inferior good, what happens to its market when consumer income increases?

• A. Demand shifts to the left
• B. Demand shifts to the right
• C. Supply shifts to the left
• D. Supply shifts to the right

Here’s what students ask on this topic:

What causes a demand curve to shift to the right?

A demand curve shifts to the right when there is an increase in demand for a product. This can happen due to several factors: an increase in consumer income (for normal goods), a rise in the price of substitute goods, a positive change in consumer preferences, an increase in the number of consumers, or favorable consumer expectations about future prices. For example, if consumers expect prices to rise in the future, they may buy more now, increasing current demand. Each of these factors makes the product more desirable or accessible, leading to a higher quantity demanded at every price point.

How does consumer income affect the demand for normal and inferior goods?

Consumer income has a significant impact on the demand for normal and inferior goods. For normal goods, an increase in consumer income leads to an increase in demand. Examples of normal goods include organic food, new furniture, and vacations. Conversely, for inferior goods, an increase in consumer income results in a decrease in demand. Inferior goods are typically lower-quality or less expensive alternatives, such as canned soup or used furniture. When consumers have more income, they tend to buy fewer inferior goods and more normal goods, shifting the demand curves accordingly.

What is the relationship between substitute goods and demand shifts?

Substitute goods have a directly proportional relationship with demand shifts. When the price of one good (Good X) increases, the demand for its substitute (Good Y) also increases. This happens because consumers switch their consumption to the cheaper alternative. For example, if the price of Coke rises, the demand for Pepsi will increase as consumers opt for the less expensive option. Conversely, if the price of Good X decreases, the demand for Good Y will decrease as well. This relationship helps explain how changes in the market for one product can affect the demand for another.

How do consumer expectations about future prices influence current demand?

Consumer expectations about future prices can significantly influence current demand. If consumers expect prices to increase in the future, they are likely to purchase more of the product now to avoid paying higher prices later. This leads to an increase in current demand. For example, if there is news about an upcoming shortage of a product due to inclement weather, consumers might rush to buy the product now, increasing its current demand. Similarly, if consumers expect a new model of a product to be released soon, they might delay their purchase, decreasing current demand for the existing model.

How does the number of consumers in a market affect demand?

The number of consumers in a market directly affects demand. An increase in the number of consumers leads to an increase in demand for a product, as more people are willing to buy it. This can happen due to factors like immigration, a higher birth rate, or effective advertising that attracts new consumers. For example, if a country experiences a surge in immigration, the demand for various goods and services will increase as the new population begins to consume these products. Similarly, successful advertising campaigns can convert non-consumers into consumers, thereby increasing demand.