Shifts in demand can be to the right or to the left. A shift in the demand curve to the right is due to an increase in demand, while a decrease in demand shifts the curve to the left.
Shifts in the demand curve to the right or to the left are explained by variations in a factor other than the price of the good or service itself. See the following graph:
As can be seen in the graph, an increase in demand causes a movement of the original demand curve D 0 to position D 1 . Similarly, a reduction in demand causes a movement of the demand curve from D 0 to position D 2.
It must be borne in mind that, when the movements of the demand curve occur on the same curve, they are due to variations in price. Therefore, changes in the price of a good or service explain movements along the demand curve. Changes in quantities in quantities demanded refer to shifts within the same demand curve. Whereas changes in demand shift the entire demand curve, either to the left or to the right.
Shifts in the demand curve are due to a number of factors. Economic science has managed to identify and study these fundamental elements or factors that cause such displacements.
When economists perform these price analyzes they use the assumption ceteris paribus, which means "everything else remains constant." Shifts in the demand curve reflect a change in any of the factors influencing consumer demand and, consequently, other than price.
Shift of the demand curve to the right
An increase in demand occurs when said curve shifts upwards, that is, to the right. This increase may be due to the following factors:
- An increase in the income level of consumers. Given that consumers use their income to purchase goods and services. When they receive more money, they will spend more. This results in an increase in demand.
- An increase in the price of substitute goods. With the existence of two substitute goods, if the price of one rises, it is possible that consumers shift their demand towards the other good. This results in an increase in demand for this good.
- Decrease in the price of complementary goods. When the situation presents two complementary goods. Lowering the price of one reduces the cost of the set of goods. As a result, consumers buy more of both.
- Modification in the taste and preferences of consumers. The taste and preference of consumers changes over time. When these are modified in favor of a good, the demand for it increases.
- Increase the population level. When the number of people grows, with it the demand for certain goods increases.
Example of shift to the right in the demand curve
Of the factors mentioned above we are going to take one as an example, to graphically see its displacement. Let’s say that the total population of Spain has increased. However, the consumption of rice has changed slightly.
Notice that a change in the population level has changed the demand for rice. At the price of 0.94 euro per kilo, at the level of the original population, the demand for rice is 230,000 tons. Meanwhile, with its new population level, the demand for rice has gone from 230,000 tons to 245,000 tons. Therefore, the demand curve for rice shifts to the right. As indicated in the previous figure.
Shift of the demand curve to the left
A decrease in demand occurs when said curve shifts downwards, that is, to the left. This decrease may be due to the following factors:
- A decrease in the income level of consumers. Given that consumers use their income to purchase goods and services. When they receive less money, they will spend less. This results in a decrease in demand.
- A decrease in the price of substitute goods. With the existence of two substitute goods, it happens that when the price of one goes down, it makes the price of the other more expensive. Thus, if the price of coffee goes down, it makes the price of tea more expensive, which leads to consumers demanding less tea.
- An increase in the price of complementary goods. When the situation arises in which two goods are complementary. The increase in the price of one reduces the consumption of its complementary. If the price of electricity increases, it will reduce the use of the computer.
- Modification in the taste and preferences of consumers. The taste and preference of consumers change over time. When these are modified against a good or service, there is a decrease in its demand.
- Decrease in the population level. When the number of people is reduced, the demand for certain goods decreases.
Example of a shift to the left in the demand curve
For this example, let’s take one of the factors that causes the demand curve to shift to the left. Let’s say that a change in people’s income level reduces meat consumption.
Notice that a change in income changes the demand for meat. At the price of 9 euros per kilos, with their original income, the demand for meat per person is 50 kilos per year. Meanwhile, with its new, lower income, the demand for meat is reduced from 50 kilos to 46 kilos per person. Therefore, the demand curve for meat shifts to the left. As indicated in the previous figure.