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Demand Curve - Essay Example

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Demand Curve

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. The two goods are substitutes if an increase in the price of one leads to an increase in the demand for the other. For example, if the price of tea increases it is expected that the demand for coffee will increase. The quantity demanded for tea is expected to fall.
The third determinant that causes a shift in the demand curve is complementary goods (Dominick, 2003; Sloman, 1994). A good is a complement to another good to the extent that it is used jointly. The goods are consumed together (in combination) to satisfy some particular want. Examples are car and petrol, toothbrush and toothpaste, mechanical pencil and lead, and camera and film. When goods are complementary, a change in the price of one good will cause a change in demand for the other. Thus the demand for goods will change with a price change in its complementary good. For example, when the price of cameras falls, the demand for films will rise.
The fourth determinant that causes a shift in the demand curve is tastes and preferences (Dominick, 2003; Ken, 2001; Sloman, 1994). Demand is affected by consumer's willingness to purchase different goods. Tastes and preferences affect this willingness. Consumer's tastes and preferences change over time and this disturbs the conditions of demand. Examples are fashion goods, karaoke sets, and health foods. There are many factors that influence tastes such as medical research and singers. Any change in favor of a good will experience an increase in demand which will shift the demand curve to the right; while those that lose popularity will experience a fall in demand.
The fifth determinant that causes a shift in the demand curve is advertisements (Nelson, 1975). Promotion campaigns are important in influencing demand. Taste and preferences can be affected by advertising. Advertisements result in the demonstration effect (keeping up with the Joneses). A successful advertising campaign obviously increases the demand for a product. Advertising may also be aimed at making the demand for a ...Show more

Summary

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.
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Demand Curve essay example
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