The demand curve is a graphical diagram that shows the relationship between the price and quantity if a particular good or service that consumers are willing to buy. There are many factors which affect demand and thus make changes in the demand curve. A shift in the demand curve is caused by a factor affecting demand more than just a change in price. If any of these factors change then the amount consumers wish to purchase changes whatever the price.

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There are many variables that can shift the demand curve. The shift in the demand curve is referred to as an increase or decrease in demand, a movement along the demand curve occurs when there is a change in price or other factors such as income, population, tastes, prices if substitutes and complements and expected future prices.

The demand curve for soft drinks, for example, shows how much soft drink people are willing to buy at any given price, holding ceterus paribus everything that influences consumers’ buying decisions beyond price. As a result this demand curved will not be stable over time and if something happens to alter the quantity demanded at any given price the demand curve will shift. For example, if soft drinks were to rise in price, this will cause more buyers will want to purchase more soft drinks and therefore a larger quantity of soft drinks sold and the demand curve for soft drinks would shift, and cause a expansion in demand. With this expansion in demand to the soft drinks the demand curve with shift to the right and this is a increase in demand. Any change that reduces the quantity demanded at any price range will shift the demand curve to the left causing a contraction and this is a decrease in demand.

As income can easily vary so therefore this will cause changes to the demand curve also. If unemployment rate is high and income falls then the quantity of the product will lower as they will have lower marginal propensity to consume, and they are likely to spend

Page 2 Explain how the factors affecting demand create movements in the demand curve Essay

less on wants such as soft drinks and focus more on the needs. On the other hand if income rises and unemployment rate is low then people will have more have more income coming in and therefore a larger amount of funds in the hands that they are likely to spend on their wants such as soft drinks.

One of the big elements of demand changes is tastes and fashions, because if people like the product they will buy more of it and if they don’t them wont. This affects the demand as one product gains popularity it will have a large quantity rise and the curve will shift to the right to represent this increase in demand. On the other hand when the product loses popularity it will have a fall in quantity and the curve will shift to the left to show its decrease in demand.

If the prices of orange juice fall then the law of demand suggests that people will buy more orange juice. At the same people will probably buy less soft drink as a result the quantity of the soft drink will fall and create a decrease in demand. Because soft drinks and orange juices satisfy similar desires they are sometimes called substitutes, so when a fall in the price of one good then it will reduce the demand for another good. Additionally the law of demand also suggests that if the price of straws fall, more people will purchase soft drinks and the quantity of the good will rise and cause an increase in demand. As these two goods are often a pair used together, and are called complements.

In conclusion there are many factors that affect movements in the demand curve, these factors create rises and falls of quantity of goods and because of the changes demand will subsequently increase or decrease, therefore this will shift the demand curve.a

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