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Glossary
What Causes the Demand Curve to Shift?

 

There are several reasons a demand curve might shift to the left or the right. In our example, the expectation of rising chocolate bar prices in the future caused demand to increase now—shifting the demand curve to the right.

Expectation of higher future chocolate bar prices Demand curve

Click on each tab below to learn about the other factors that can shift the demand curve. As you consider each example, imagine that the price of chocolate bars remains constant but that the noted factor causes demand to change.

  • A Change in Consumer Expectations
  • A Change in Consumer Tastes or Preferences
  • A Change in the Number of Consumers in the Market
  • A Change in Income
  • A Change in the Price of a Substitute Good
  • A Change in the Price of a Complementary Good

A Change in Consumer Expectations

The fear of a chocolate bar shortage and rising prices in the future is a good example of a change in consumer expectations. Chocolate lovers would buy more chocolate bars now in an attempt to avoid possible higher prices in the future. And because people would buy more chocolate bars at each possible price now, the demand curve would shift to the right. This is called an increase in demand.

So, let's say that before the demand curve shifted to the right, chocolate lovers demanded 300 chocolate bars at $1.20 per bar (D1) but then demanded 400 chocolate bars at that same price (D2). This increase in quantity would hold for every price on the demand curve.

A Change in Consumer Tastes or Preferences

If scientists discovered some new health benefits from eating chocolate, you can bet people would buy more chocolate bars at each possible price and the demand curve would shift to the right, indicating an increase in demand. Of course, if scientists discovered that chocolate is harmful to our health, people would buy fewer chocolate bars at each possible price and the demand curve would shift to the left, indicating a decrease in demand.

A Change in the Number of Consumers in the Market

If a huge convention of candy lovers came to town, those people would want chocolate bars now and the demand curve would shift to the right, indicating an increase in demand.

A Change in Income

During recessions people have smaller incomes and can't buy as many goods, including chocolate bars, at any price. This means that the demand curve for chocolate bars would shift to the left as people buy fewer chocolate bars.

In this example, a chocolate bar is a normal good because a decrease in income results in a decrease in demand.

Normal good
Income
Demand

Likewise, we can assume that an increase in income would lead to an increase in demand for chocolate bars. This means that the demand curve for chocolate bars would shift to the right as people buy more chocolate.

Normal good
Income
Demand

For some other goods, called inferior goods, however, the opposite is true.  Inferior goods are a less expensive alternative to normal goods.  So, demand for inferior goods increases as income decreases, and demand for inferior goods decreases as income increases. 

Inferior good
Income
Demand
Inferior good
Income
Demand

For example, consider two types of potato chips: a generic brand and a name brand.

Let's say you and many others normally buy the name-brand chip, but if incomes decreased, many of you would buy the generic brand instead. In this case, the demand curve for the generic brand of chips would shift to the right.

Inferior good
Income
Demand

Likewise, if incomes increased in the future, you and many others might return to the name brand. In this case, the demand for the generic brand would decrease, shifting the demand curve to the left.

Inferior good
Income
Demand

Other examples of inferior goods might be used cars (which you might buy instead of new cars), macaroni and cheese (which you might buy instead of fettuccine Alfredo), and ground beef (which you might buy instead of steak). Of course, some of these choices are personal preferences. A normal good for one person might be an inferior good for someone else.

A Change in the Price of a Substitute Good

Imagine that licorice prices fall by half while chocolate bar prices remain the same. You can bet more than a few chocolate lovers would start eating licorice.

As a result, the demand curve for chocolate bars would shift to the left as people substitute licorice for chocolate because licorice is cheaper. So a change in the price of a substitute—say, licorice—would change the demand for chocolate bars.

A Change in the Price of a Complementary Good

A complementary good is one that is used with another good. Imagine that the prices of graham crackers and marshmallows—your two favorite chocolate bar complements—have doubled. You and lots of other s'mores lovers would buy fewer boxes of graham crackers and bags of marshmallows. You and others would likely buy fewer chocolate bars as well, which would shift the chocolate bar demand curve to the left.

So a change in the price of a good changes the demand for its complementary goods. In this case, a change in the prices of graham crackers and marshmallows would change the demand for chocolate bars.