Demand

We've seen most aspects of Supply & Demand , the only thing that's left is to talk about what factors influence Demand.

Visualizing a change in Demand

If Demand increases, then, for any price, the Quantity Demanded increases. The blue line moves to the right, as shown in the image below:

If Demand decreases, the reverse process happens.

Demand Shifters

The forces that affect Demand are called Demand Shifters. There are 5 main Demand Shifters:

• Number of Consumers: More Consumers = More Demand.
• Tastes and Preferences: If Consumers start liking a product more, the Demand for that product increases.
• Price of Related Goods:
  • If the price for a Substitute of this product decreases, some people will buy the Substitute instead, decreasing Demand.
  • If the price of a Complement decreases, Demand for both products will increase, because this product complements the other one, and vice-versa (Example: Milk and Cereal are Complements)
• Salaries: Generally, higher salaries lead to higher Demand
  • The only exception is in the case of Inferior Goods, which are bought less as people get wealthier.
• Expectations / Speculation: A consumer can choose to buy later if it thinks prices are going to drop, decreasing the current Demand.

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