Determinants of Demand

What determines the demand for a good or service in a market?
Demand refers to the amount that consumers are willing and able to buy at any given price. A demand curve shows this relationship between price and quantity demanded. It slopes downwards from left to right, because as price falls, people are more willing to buy a good.
demandcurve

Factors causing demand curve to shift to its right(increase in demand):
• an increase in income (for normal
goods)
• a fall in income (for inferior goods)
• successful advertising
• fall in price of complementary goods
• rise in price of substitute goods
• good becomes more fashionable.

Factors causing demand curve to shift to the left(decrease in demand):
• a fall in income (for normal goods)
• a rise in income (for inferior goods)
• rise in price of complementary goods
• fall in price of substitutes
• good becomes less fashionable.

A very important point: a change in the price of a good does not lead to a movement of the demand curve — it simply leads to a movement along the demand curve, since the demand curve shows the relationship between price and quantity demanded. Therefore, any change other than price will lead to a change of demand or a shift in demand curve.

Key terms:
Normal good — one for which demand increases as income rises.
Inferior good — one for which demand falls as income rises, eg bus travel, own-brand supermarket spaghetti sauce
Complementary good — a good that is bought with another good, ie the two go together well, eg cinema tickets and popcorn.
Substitute good — a good that is bought instead of another good ie consumers choose between one or the other, eg gold engagement rings or platinum engagement rings.

Source: Adapted from Edexel Tutor Support Materials with slight modifications.

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