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Demand Curve - Essay Example
The determinants that cause a shift in the demand curve are disposable income, substitute goods, complementary goods, tastes and preferences, advertisements, distribution of income, new goods, government, size of population, changing age structure of the population, and expectations about future relative prices.
This is a very important determinant. Generally, a rise in income is associated with an increase in demand for most goods (normal goods) (Sloman, 1994). Examples are cars and other durable goods. Demand for some goods is unaffected by a change in income. For example, demand for salt and furniture is satiated above a certain level of income. Demand for some goods will fall as income rises (inferior goods) (Sloman, 1994). These are often the less expensive substitutes of another better quality good. For example, consumers reduce their demand for cheap televisions with fewer gadgets and increase their demand for expensive televisions with more gadgets when income rises. The ability to afford a good, especially expensive durable goods, will depend also on the availability of credit facilities.
Another determinant that causes a shift in the demand curve is substitute goods (Dominick, 2003; Sloman, 1994). These are goods that can be used to replace one another to satisfy a particular want. Consumers choose among substitutes partly on the basis of their relative prices. Examples of substitute goods are butter and margarine, tea and coffee, and apples and oranges. These goods are in competitive demand fulfilling the same kind of want. A rise in the price of Good Y will tend to increase the demand for Good X that has become relatively cheaper. ...