👕 Becoming fashionable
A style of trainers is worn by a famous footballer. Teenagers want them. Demand rises at every price.
Demand, Supply and Equilibrium » What Shifts the Demand Curve
What you'll learn this session
Study time: 30 minutes
Edexcel spec: 1.1.3 (c)
- Why a change in something other than price shifts the whole demand curve
- Six factors that shift demand: advertising, income, fashion and tastes, substitutes, complements and demographic changes
- Which way the curve shifts for each factor
- How to describe the shift on a diagram in the exam
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Unlock This CourseWhy the curve shifts
This topic is examined on Paper 1 (Microeconomics and Business Economics). Remember from Demand and the Demand Curve that a change in the price of the good itself causes a movement along the curve. Everything else that affects buying is different. If something other than the good's own price changes, shoppers want a different quantity at every price. The whole curve moves.
- A shift to the right means more is demanded at every price. This is an increase in demand.
- A shift to the left means less is demanded at every price. This is a decrease in demand.
The spec names six factors you must know. Let us take them one at a time.
Advertising
A big advertising campaign makes more people want to buy at every price, so demand shifts right
Advertising tells people a product exists and tries to persuade them to buy it. A successful campaign makes more people willing to buy at each price, so demand increases and the curve shifts right. A film studio that fills social media with trailers before a new release is a good example. A rival's better campaign can pull customers away and leave demand lower than before.
Key terms:
- Advertising: communication that informs or persuades people to buy a product.
Income
Income is the money people earn. When incomes rise, people can afford to buy more, so demand for most goods increases and the curve shifts right. When incomes fall, for example when many people lose their jobs, demand for most goods decreases and the curve shifts left.
Holidays abroad, restaurant meals and new clothes are all goods where demand usually rises with income. There are exceptions, which come later in the course in Income Elasticity of Demand. For now, learn the general rule: higher income, more demand.
Fashion and tastes
Tastes are what people like. They change over time, often because of trends, celebrities or social media. When a product becomes fashionable, demand increases and the curve shifts right. When it goes out of fashion, demand decreases and the curve shifts left.
📉 Going out of fashion
A toy is everywhere for a few months, then children lose interest. Demand falls at every price.
Health trends work in the same way. If more people decide that sugary drinks are unhealthy, demand for them falls.
Price of substitute goods
Substitutes are goods that do the same job, so a customer can swap one for the other. Tea and coffee are substitutes. So are two rival brands of mobile phone.
If the price of a substitute rises, some customers switch away from it. They buy the other good instead, so demand for that good increases (shift right). If the price of a substitute falls, customers move towards it and demand for the other good decreases (shift left).
Worked example
Bus tickets and train tickets are substitutes for a journey between two towns. The train company raises its fares. Some passengers switch to the bus. Demand for bus tickets increases and the bus demand curve shifts right, even though the bus fare has not changed.
Key terms:
- Substitute goods: goods that can be used in place of each other because they meet the same need.
Price of complementary goods
Printers and ink are complements: if ink gets pricier, demand for printers falls
Complements are goods that are used together. Printers and ink cartridges are complements. So are cars and petrol, and games consoles and video games.
If the price of a complement rises, using the pair becomes more expensive, so demand for the other good decreases (shift left). If the price of a complement falls, demand for the other good increases (shift right). Notice that this is the opposite direction to substitutes.
Key terms:
- Complementary goods: goods that are bought and used together.
Demographic changes
Demography is the study of the make-up of a population. Demographic changes include a change in the number of people, the age structure (how many are young or old) and where people live.
- A rising population means more potential buyers, so demand for most goods increases.
- An ageing population (more older people) increases demand for goods such as mobility aids and care services, and may decrease demand for goods bought mainly by the young, such as school uniforms.
- A rise in the number of babies born increases demand for prams, nappies and baby food.
Key terms:
- Demographic changes: changes in the size or make-up of a population, such as its number of people or its age structure.
Summary table
| Factor | Change | Effect on demand | Curve shifts |
|---|---|---|---|
| Advertising | Successful campaign | Increases | Right |
| Income | Rises | Increases (most goods) | Right |
| Income | Falls | Decreases (most goods) | Left |
| Fashion and tastes | More fashionable | Increases | Right |
| Fashion and tastes | Less fashionable | Decreases | Left |
| Price of a substitute | Rises | Increases | Right |
| Price of a substitute | Falls | Decreases | Left |
| Price of a complement | Rises | Decreases | Left |
| Price of a complement | Falls | Increases | Right |
| Demographic changes | Depends on the change | Increases or decreases | Right or left |
How to show it on a diagram
Examiners like a clear diagram. Draw it in these steps:
- Draw the axes. Label the vertical axis Price and the horizontal axis Quantity.
- Draw a downward-sloping line and label it D.
- Draw a second line to the right of D for an increase in demand, or to the left for a decrease. Label it D1.
- Add an arrow between the two curves to show the direction of the shift.
Do not just slide along D. The good's own price has not changed. Only the factor you are explaining has moved the curve.
Common mistakes
- Writing that a fall in the good's own price shifts the curve. It does not. That is a movement along the curve.
- Mixing up substitutes and complements. A rise in a substitute's price increases demand for the other good. A rise in a complement's price decreases it.
- Forgetting to say which way the curve shifts. Always write left or right, and increase or decrease.
Exam-style question
Delby is a town where more people are choosing to travel by electric bike. Delby Bikes sells electric bikes and also sells helmets.
(a) State two factors, other than the price of electric bikes, that could shift the demand curve for electric bikes. [2 marks]
(b) A rival shop raises the price of its electric bikes. Explain what may happen to demand for Delby Bikes' electric bikes. [3 marks]
(c) The price of helmets falls. Analyse how this may affect demand for electric bikes. [4 marks]
Model answer
(a) Any two of: advertising (1), income (1), fashion and tastes (1), price of a substitute (1), price of a complement (1), demographic changes (1).
(b) The rival's bikes are a substitute for Delby Bikes' bikes (1). Some customers will switch to Delby Bikes because they are now cheaper by comparison (1). Demand for Delby Bikes' electric bikes will increase, shifting the demand curve to the right (1).
(c) Helmets and electric bikes are complements, as they are used together (1). A fall in the price of helmets makes using an electric bike cheaper overall (1). So more people are willing and able to buy electric bikes at each price (1). Demand increases and the curve shifts right from D to D1 (1).
Exam tip
In part (c), the word Analyse asks for a chain of reasoning. Link the cause (cheaper helmets) to the effect (more demand) in steps, and name the type of goods involved.