Tuesday, February 5, 2013

Shifts of the Demand Curve

Demand is not affected exclusively by price changes. There are a multitude of other factors which will affect demand. When studying the affects of price on a demand curve, we assume that all other external factors are not changing or that they are ceteris paribus. Ceteris paribus is a latin phrase that economists use that translates to, "all other things are held constant." Or in other words all things aside from the price have not changed. In reality, however, things change in the market all of the time. For example, clothes go out of style, new soft drinks become available, old services are replaced by other services, apples spoil, and transportation costs fluctuate. As a result, the demand curve will shift based upon external factors that change the level of demand for any good or service.

Income affects levels of demand. When consumers are being paid more in a prosperous economy then more money is available to be spent on goods and services. This example helps to support the claim that demand can change outside of the price of a good or service. Another example of a factor that will shift the demand curve is consumer expectations. When consumers have expectations about a good or service then the demand curve will shift in one direction or another.

Furthermore, changes in population will similarly affect the positioning of the demand curve. Examples of changes in population can range from active consumers in a given demographic to the amount of smokers who quit because of the availability of health education materials. The consumer population can shift the demand curve.

Finally, demand curves shift because of trends and advertising. When certain fads become less popular then the demand curve will shift. In addition, advertising will also have an affect on demand. If advertising is successful then demand becomes strengthened. Either way the demand curve shifts all of the time due to factors other than pricing.

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