š What Shifts the Demand Curve?
The Core Idea: A change in price moves you along the existing demand curve. But a change in any non-price factor shifts the entire curve to a new position.
The big five determinants
Five main factors can shift the demand curve. A handy way to remember them is TIRES:
- T ā Tastes and preferences
- I ā Income of consumers
- R ā Related goods (substitutes and complements)
- E ā Expectations about future prices or income
- S ā Size of the population (number of buyers)
Right shift vs left shift
- Right shift (Dā ā Dā) = INCREASE in demand ā more is demanded at every price
- This happens when a determinant changes in a way that makes people want to buy more
- Left shift (Dā ā Dā) = DECREASE in demand ā less is demanded at every price
- This happens when a determinant changes in a way that makes people want to buy less
In the exam, always name the specific determinant causing the shift and explain WHY it shifts demand right or left. Do not just say 'demand increased' ā explain the cause.
š° Income and Related Goods
Income changes
When people earn more, what happens to demand? It depends on the type of good:
- Normal goods ā demand RISES when income rises (shift right)
- Examples: restaurant meals, new clothes, holidays, organic food
- Inferior goods ā demand FALLS when income rises (shift left)
- Examples: instant noodles, second-hand clothing, budget brands
Whether a good is normal or inferior depends on the consumer. For a student, instant noodles might be a staple. For a high earner, they are an inferior good.
Substitutes and complements
Related goods come in two types, and they affect demand in opposite ways:
- Substitutes ā if the price of Good A rises, demand for Good B rises (consumers switch)
- Example: Coke and Pepsi, butter and margarine, bus and train
- Complements ā if the price of Good A rises, demand for Good B falls (you buy less of both)
- Example: phones and phone cases, cars and petrol, printers and ink
Exam questions love substitutes and complements. When you see a price change in one good affecting the demand for another good, ask: are they substitutes or complements?
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š Other Factors That Shift Demand
Tastes and preferences
If a product becomes more popular ā through advertising, trends, health studies, or social media ā demand shifts right. If it falls out of favour, demand shifts left.
- Successful advertising campaign ā demand shifts right
- Health scare about a food product ā demand shifts left
- A celebrity endorsement ā demand shifts right
Population size
More buyers in the market means more demand at every price. Population growth, immigration, or a new demographic entering the market all shift demand right.
Expectations
What people expect to happen affects what they do today:
- If consumers expect prices to RISE soon ā they buy more now (demand shifts right today)
- If consumers expect their income to FALL ā they buy less now (demand shifts left today)
- If consumers expect a NEW model to launch ā they delay buying (demand shifts left today)
In the exam, always identify WHICH determinant is causing the shift. 'Demand increased because of a change in tastes' is stronger than just 'demand increased'. Name the cause.