Chapter 20.2 Factors Affecting Demand

Changes in Demand Market demand can change when more consumers enter the market; when incomes, tastes and expectations change; and when prices of related goods change.

continued A graph of a market demand curve can show these changes. When demand goes down, people are willing to buy fewer items at all possible prices. In this case, the curve shifts to the left. When demand goes up, the curve shifts to the right. People are willing to buy more of the item at any given price.

continued Demand is related to the number of consumers in the area. When more people move into an area, they buy more goods and services from local businesses. As a result, the demand curve shifts to the right. When many people move away, demand for goods and services in the area decreases. The demand curve shifts to the left.

continued Income changes also affect demand. When the economy is healthy, people receive raises or move to better-paying jobs. With more to spend, they are willing to buy more of a product at any particular price. In hard times, people lose their jobs. With less income, they buy less and demand goes down.

continued Consumers’ tastes change. When a product is popular, the demand curve shifts to the right. When its popularity fades, demand decreases and the curve shifts to the left. Expectations affect demand. If people believe hard times are on the way, they will buy less. If people expect shortages of something, demand increases.

continued Competing products are called substitutes because consumers can use one in place of the other. A change in the price of one good causes the demand for its substitute to move in the same direction. Complements are products that are used together. The demand for one moves in the opposite direction as the price of the other.

Elasticity of Demand When price rises, we know that quantity demanded will go down, but we don’t know by how much. Demand elasticity is the extent to which a change in price causes a change in the quantity demanded for a product. For some goods and services, demand is elastic. Each change in price causes a relatively larger percentage change in quantity demanded. That is, when the price of product changes a little, the quantity demanded changes a lot.

continued Demand for a good or service tends to be elastic if it has an attractive substitute. Demand also tends to be elastic when the purchase can be postponed. For other goods and services, demand is inelastic. Price changes have little effect on the quantity demanded. Demand for goods with few or not substitutes tends to be inelastic.