๐ Understanding the Demand Curve: A Quick Intro
The demand curve is a visual representation of how much of a good or service consumers are willing and able to buy at different prices, during a specific time period. It slopes downward because, generally, as the price increases, the quantity demanded decreases (the law of demand). But, sometimes the entire curve shifts, and sometimes we just move along the curve. Let's clarify why!
๐ค What are Determinants of Demand?
Determinants of demand (also known as demand shifters) are factors that can cause the entire demand curve to shift either to the left (decrease in demand) or to the right (increase in demand). These are factors other than the price of the good itself.
- ๐จโ๐ฉโ๐งโ๐ฆ Consumer Tastes/Preferences: Changes in preferences can increase or decrease the desire for a product. For example, a new health study showing the benefits of organic food could shift the demand curve for organic food to the right.
- ๐ฐ Consumer Income: For most goods (normal goods), an increase in income leads to an increase in demand. However, for inferior goods (like generic brands), an increase in income might lead to a decrease in demand as people switch to higher-quality alternatives.
- ๐ Prices of Related Goods:
- ๐ Substitute Goods: If the price of a substitute good (e.g., tea for coffee) increases, the demand for the original good (coffee) may increase.
- ๐ค Complementary Goods: If the price of a complementary good (e.g., sugar for coffee) increases, the demand for the original good (coffee) may decrease.
- ๐ฎ Consumer Expectations: Expectations about future prices, income, or availability can influence current demand. If consumers expect the price of gasoline to rise next week, they might increase their demand for gasoline today.
- ๐ช Number of Buyers: An increase in the number of consumers in the market will generally increase the overall demand for a good or service.
๐ What is a Change in Quantity Demanded?
A change in quantity demanded refers to a movement *along* the demand curve. This movement is caused solely by a change in the price of the good itself. When the price changes, consumers buy more or less of the good, but the underlying demand curve itself does not shift.
- โฌ๏ธ Price Decrease: A decrease in price leads to an increase in quantity demanded (movement down the demand curve).
- โฌ๏ธ Price Increase: An increase in price leads to a decrease in quantity demanded (movement up the demand curve).
๐ Determinants of Demand vs. Change in Quantity Demanded: The Key Differences
| Feature |
Determinants of Demand |
Change in Quantity Demanded |
| Cause |
Factors other than the price of the good itself (e.g., income, tastes, prices of related goods). |
Change in the price of the good itself. |
| Effect on Demand Curve |
Shifts the entire demand curve (left or right). |
Causes a movement along the existing demand curve. |
| Graphical Representation |
A new demand curve is drawn. |
Movement from one point to another on the same demand curve. |
| Example |
An increase in consumer income leading to higher demand for luxury cars. |
A decrease in the price of apples leading to consumers buying more apples. |
๐ Key Takeaways
- ๐ฏ Focus: Determinants of Demand focus on *why* the entire demand changes, while change in quantity demanded focuses on *how* much the quantity changes due to price.
- ๐ Curve Shift vs. Movement: Determinants cause the demand curve to *shift*, change in quantity demanded causes *movement along* the curve.
- ๐ก Price is Key: Price is the *only* factor affecting change in quantity demanded. All other factors are determinants of demand.