The main determinants for changes in demand are:
·
Changes in income;
·
Changes in tastes and preferences;
·
Changes in prices for related products (substitutes
and complimentary products);
·
Changes in future expectations;
·
Changes in market population, age and income
distribution.
All these changes can shift the demand curve AD right to AD1
or left to AD2. The main difference from simple movements along the curve is
that the price and quantity are shifting and with the same price the quantity Q
will change from A to D and Q1 if the demand decrease or to E and Q2 if the
demand increase. The same we can do with price. With change in demand the price
P for the same quantity Q will increase to B and P2 if demand increase or
decrease to C and P1 if demand decrease.
For example I like quality shoes. They cost a lot and when I
moved to Calgary the salary I got was not sufficient to buy the shoes I wanted.
I switched rightward to AD1 curve from AD and started buying the discount shoes
from postdated collections. The determinant was the decrease in income. After a
few months I found a better job and switched back to my comfortable level. The Demand
curve shifted leftwards from curve AD1 to AD as a result of increase in income.
After some time my favorite shoe company introduced new line of more expensive
shoes with improved quality. I decided to buy them. My demand curve switched
again leftward from AD to AD2 as a result of change in preferences. Please note
that I was buying the same quantity but the price changed from P to P1, back to
P and to P2 as a result of change in demand determinants.
No comments:
Post a Comment