Demand changes can effect on quantity of supply in both positive and negative ways. For this time, we will look at 5 factors of demand shifters and how they affect on price and quantity of products in the market.
Five Demand Shifter Factors are as follows;
- Number of potential buyers in the market – increase or decrease of buyers wanting to buy product in the market
- Buyers’ taste and preferences – fashion products as jeans may be in trend this season, the buyers want to buy them so the price goes up. For next season, the same model of jeans may not be a fashion trend so buyers don’t want to buy them. The price will drastically drop.
- Buyers’ income – Increase in buyers’ income will have a great purchasing power. Conversely, decrease in buyers’ income will badly affect on demand to buy things.
- Buyers’ expectation – This is the expectation of buyers of future market conditions and it will impact on the economy outlook if there are a lot of buyers having the same expectations.
- Price of substitute and complementary goods – Substitute goods are products that can be use in place of one another such as potatoes and rice. Complementary goods are products the used together such car and fuel.
Increase in Demand
An increase in demand is when the buyers want to buy more product than before so the demand curve moves to the right. This will result in a new equilibrium point which indicates an increase in both price and quantity of good supplied. There is no effect on the supply curve because of demand change. Sellers are attracted to produce more quantity to supply needs. According to the graphic shown in Figure 1, the positive demand shifting results in a new equilibrium supply of 74 units and a new equilibrium price of 36$.
Figure 1 – Demand Increases
Decrease in Demand
A decrease in demand means that buyers will buy less of product than before so the demand curve moves to the left. The new equilibrium price and supply decrease. There is no effect on the supply curve because of demand change. Sellers are not attracted to produce more quantity due to low demand. According to the graphic shown in Figure 2, the negative demand shifting results in a new equilibrium supply of approximately 48 units and a new equilibrium price of 24$.
Figure 2 – Demand Decreases
Reference Books
Thomas Sowell (2007) Basic economics: A Common Sense Guide to the Economy, New York, New York, USA: Basic Books.
