What is a Change in Demand?

//What is a Change in Demand?
What is a Change in Demand? 2017-10-01T07:11:47+00:00

Definition: A change in demand is when the market changes a determinate of demand and shifts the entire demand curve either downward or upward. In other words, this is the market changing its preferences for a good or service and either increasing or decreasing the total demand for that product or service. Note that this has nothing to do with a change in price. A price change affects the quantity demanded of a good or a service. Therefore, demand and quantity demanded are two different things.

What Does Change in Demand Mean?

What is the definition of change in demand? A change in demand is the result of a change in any of the demand determinants, such as consumer preferences, consumer expectations, consumer income, the price of related products and the number of buyers. When consumer income decreases, consumer spending decreases; therefore, consumers spend less on any given price level.

Similarly, if consumers expect that the prices of goods will increase in the short-term, they spend more today to avoid higher prices later. All these changes in quantity demanded are related to changes in prices. Therefore, a change in demand is the result of some other factor than price. A change in demand is the sum of all the changes in quantities demanded that consumers can buy at a specified price level.

Let’s look at an example.

Example

John earns $3,000 per month working as a sales assistant at a luxury department store. Recently, he has increased his sales of luxury products, and his manager considers promoting him to sales manager in the store.

If John gets the promotion he will earn $5,000 per month allowing him to spend more money on basic goods, but also on luxury goods. The increase in his income will expand his budget, thus being able to accommodate for a larger number of highly priced commodities than before. On a national level, if consumer income increases, the demand for goods and services will increase, thereby shifting the demand curveupwards.

On the other hand, if John got laid off, his income would decrease. A decrease in income would contract his spending, allowing for a limited quantity of goods. On a national level, if consumer income decreases, the demand for goods and services will decrease, thereby shifting the demand curve downwards.

Summary Definition

Define Change in Demand: A change in demand is an economic term that describes when the entire demand curve shifts upward or downward because the market changes the quantity it demanded.