Change in Demand

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Definition of Change in Demand:

A change In demand results in a shift in the entire demand curve as opposed to a change in the quantity demanded where there is movement along the demand curve.

Detailed Explanation:

Anything that impacts the quantity demanded of a good or service, except its price, causes a change in the demand for the product. Many variables affect a good or service's demand. A price change of one product will influence the demand for all its related products. For example, if a local gas station lowers its price, other gas stations would have to match it or see a drop in their demand. This is because the gas stations offer substitute products. A drop in the price of cigarettes would increase the demand for medical services because an increase in smoking will harm many smokers' health. Cigarettes and medical services are complements. A change in consumer income also affects the demand for a product. An increase in income increases the demand for normal goods, (new vehicles) but decreases the demand for inferior goods (used vehicles). Companies spend enormous sums of money in advertising to build customer loyalty or preferences for their products. This is another way to say they are increasing their demand. The demand for a product may change if expectations change. Rave reviews heighten expectations of enjoying a play and will increase the demand for tickets. Finally, an increase in the number of potential buyers increases the demand for a good or service. Restaurants expand to new communities to increase their demand. An increase in demand causes the entire demand curve to shift to the right. The demand curve shifts to the left when there is a decrease in the demand.

A change in the quantity demanded only results when there is a change in the price of the good or service. Let's use an example of babysitting and theater tickets to illustrate the relationship and differences between a change in demand and a change in the quantity demanded by using the graphs below. The Smith's love the theater and are thrilled to learn the local theater recently dropped its price from $40 to $25 per ticket. The Smith's demand curve shows us that they would increase the quantity of tickets they purchase from four to ten per season. This increase in the quantity demanded is illustrated by a movement along the demand curve.

The Smiths have a three year old daughter and use Jane to babysit when they attend plays. Their demand for Jane's services just increased as a result of the drop in ticket prices. Theater tickets and babysitting are complements. Note that Jane has not changed her pricing. The demand for her services increased at all prices. This increase in demand is illustrated by a rightward shift in the demand curve for babysitting from Demand curve A to Demand curve B.

change in demand chart

Here is a brief video explaining the Change in Demand.

Dig Deeper With These Free Lessons:

Changes in Demand – When Consumer Tastes Change
Demand – The Consumer's Perspective
Price Elasticity of Demand – How Consumers Respond to Price Changes
Supply and Demand – When Producers and Consumers Reach Agreement

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