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What is a Change in Demand?

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  • Written By: James Doehring
  • Edited By: Lauren Fritsky
  • Last Modified Date: 29 October 2016
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A change in demand, or shift in the demand curve, occurs when consumers desire less or more of a product for some reason other than its price. This can be contrasted with a movement along a demand curve, which is a direct result of a product’s price. A change in demand can be caused by fluctuations in personal tastes and social fashions, which can result from preferences that are not easily predictable. It can also be caused by market conditions, such as the prices of related goods and the availability of credit.

A demand curve relates the desired quantity of an item to its price. In general, consumers desire more of a good when its price decreases. An exception to this rule can include products that are status symbols, such as luxury cars. Occasionally, more of these items are desired when their prices increase slightly. Regardless of consumers’ behavior, a demand curve plots their responses to a change in an item’s price.

While changes in the price of a good can move consumers along its demand curve, other external factors can shift the demand curve itself. Goods often become unfashionable for somewhat arbitrary reasons, and this can cause consumers to demand fewer of them. Popular singers, for example, can enjoy strong sales at the peak of their careers but weaker sales at other times. This change in demand for their albums is not primarily a result of changing prices, but rather a result of evolving tastes.

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Another factor that can result in a change in demand is the availability of related goods. The demand for a good can increase when the price of substitute goods increase. If the prices for televisions of a particular brand increase, televisions of another brand may experience an increase in demand. The demand for a good can decrease, however, when the prices of complementary goods increase. If the prices of movies increase, televisions may see a drop in demand.

The availability of credit can also trigger a change in demand. Credit is a form of lending money whose availability and cost generally fluctuate based on market conditions. Car dealerships make extensive use of credit by offering to sell cars with extended payment plans. When availability credit falls, therefore, the demand for new cars tends to fall because consumers find themselves unable to pay upfront. The demand curve for cars is shifted even though there may be no change in a car’s final price.

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oasis11
Post 4

@Crispety - I think that that is sad, because I love book stores. I also notice that when the price of gasoline goes up sales of cars with the best fuel economy standards go up too.

This also causes sales of SUV’s to go down. I also wanted to say that if a product receives a lot of negative press it could also see a decrease in demand. A few years ago Toyota experienced a public relations nightmare when it was reported that many of their vehicles had sudden acceleration problems along with problems with the brake system.

An entire family was even killed as a result of these problems and it caused Toyota its reputation not to mention the monetary damages from many lawsuits and product recalls. Now the supply of these cars is plentiful because many people are scared of driving these cars again.

Crispety
Post 3

@Moldolva - I agree and I think that the advent of Red Box kiosks in many grocery stores that offer DVD rentals for $1 has also shifted the demand for DVD rentals in a video store because the DVD’s are more convenient in a grocery store where a customer can take care of their grocery and entertainment needs in the same place. I think that convenience does raise the demand curve.

I also think that technological advances make the demand curve go up for some products and cause other products to become obsolete. The VCR was replaced by the DVD player and the reader tablets are shifting the demand from tangible books that you would once buy in a book store, to downloadable books on a tablet.

This has caused Borders to file for bankruptcy and Barnes and Nobles has also closed a lot of stores as a result of this shift in demand.

Moldova
Post 2

@Sunshine31 - I know that this happened in a lot of real estate markets and there were condo buildings that were black listed by many lenders.

I wanted to add that demand for a product or service can also make another product or service obsolete. For example, when Netflix introduced their monthly DVD rental program for about $8 a month, a lot of people preferred to rent DVD’s this way instead of going to a video store because it was so convenient.

This business model was so successful that it caused companies like Blockbuster to close a lot of stores because the shift in demand was more in the mail order format and not with individual retail stores.

sunshine31
Post 1

I know that the lack of available credit was negatively affecting the housing market and causing homes to sit on the market for longer periods of time. However, this lack of available credit has shifted the demographics of the traditional buyers.

In periods like this you usually see more investors purchasing homes than traditional home buyers because they have the capital to buy these homes and are not dependent on financing from a bank.

This is what happened to my condo building. Banks would not extend loans on purchases for this building because there was a high rate of foreclosure. This made the building essentially a cash building and excluded all traditional buyers from the market.

The investors bought up about 90% of the available units because the lack of available financing also caused a huge drop in unit prices which resulted in a buying frenzy among investors.

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