Our wants become a demand when we have the money to back up our desires. We call this effective demand, i.e., how much consumers will be prepared to buy at a particular price. 

Assuming ceteris paribus, as price increases demand will fall and as prices decreases demand will rise. This leads to a downward sloping demand curve. 

A change in price will lead to a movement along the demand curve. An increase in price will lead to demand contracting and a decrease in price will cause demand to expand

A number of factors will cause the demand curve to shift, either to the right (increase in demand) or left (decrease in demand):

·        Income - when income rises demand for a normal good will also rise.

·        The price of other goods - if the price of a substitute good falls then demand will fall (e.g., Coca-Cola and Pepsi). If the price of a complement good falls then demand will rise (e.g., computers and computer games).

·        Population - an increase in population is likely to lead to an increase in demand.

·        Changes in fashion - as goods go out of fashion demand for them will fall.

·        Changes in legislation - e.g., demand for gun in the UK decreased after it became illegal to own one.

·        Advertising - this aims to influence consumer choice.

The time of the year - e.g., demand for holidays in Spain will be lower in the winter and demand for gas will be higher during the winter.

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Demand curve assignment
The Demand Curve
Written by Robert Schenk
The Demand Curve
The Demand Curve