15 Aug Change in Demand
What is a Change in Demand?
Definition: A change in demand is an increase or a decrease in demand that is not caused by a variation in price. The change could be a result of shifting consumer preferences, a variation in income levels, or a change in the price of a related good.
What does a change in demand mean?
A change in demand should not be confused with an expansion in demand because of a decrease in price.
When a change in demand takes place, the entire demand curve shifts. The demand curve will shift to the right if there is an increase in demand. It will move to the left if there is a decrease.
Let us consider a situation where there is a positive change in demand. This can be represented in the following diagram:
In this diagram, the Y-axis represents the price, and the X-axis represents quantity demanded. The demand curve is represented by line D.
When the demand curve is at line D, a quantity Q is demanded at price P.
But, when there is a positive change in demand and the demand curve shifts to the right to position D1, the quantity demanded increases to Q1 at the same price P. Note that the demand goes up without a drop in price. This is due to a change in demand.
Example of a change in demand
Let us consider two different scenarios in which there could be a positive change in demand:
⇨ Imagine a country where soccer is not very popular. However, when the FIFA World Cup is held in Russia, the sport gets broad coverage on TV. This generates a lot of interest, and an increasing number of schools introduce soccer for their students. Consequently, the demand for soccer equipment rises sharply and the demand curve for soccer-related products shifts to the right.
⇨ In certain parts of the world, tea is not a preferred drink. In these places, coffee is more popular. Tea companies could get together and launch an advertising campaign that extols the virtues of tea. This could lead to a positive change in demand with the demand curve for tea shifting to the right.
A change in demand could be caused by changing consumer preferences, increased income levels, or other factors that are unrelated to price. A change in demand should not be confused with an expansion or contraction in demand due to a price movement.