Shifts In Demand

As economic life evolves, demand changes incessantly. Demand curves sit still only in textbooks.

 

The prices of computer and peripheral devices such as printers are measured in terms of the cost of purchasing a given bundle of characteristics (such as memory or speed of calculation. The price of computer power has fallen more than a hundred-fold since 1972.Falling prices along with higher incomes anti a growing variety of uses has led to a 500().fold growth in the quantity of computers produced. (Source: Department of Commerce estimates of real output and prices. Note that the data are plotted on ratio scales.)

 

THE DEMAND CURVE

Why does the demand curve shift? Because influences other than the good’s price change. Let’s work through an example of how a change in a non price variable shifts the demand curve. We know that the average income of Americans rose sharply during the long economic boom of the 19905.Because there is a powerful income effect on the demand for automobiles, this means that the quantity of automobiles demanded’ at each price will rise. For example, if average incomes rose by 10 percent, the quantity demanded at a price of $10,000 might rise from 10 million to 12 million units. This would be a shift in the demand curve because the increase in quantity demanded reflects factors other .than the good’s own price.

The net .effect of the changes in underlying influences is what we call an increase in demarcate An increase in the. demand for automobiles is illustrated in Figure 3-4 as a rightward shift in the demand curve. Note that the shift means that more cars will be bought at every price.

 

As elements underlying demand change, the demand for automobiles is affected. Here we see the effect of rising average. income, increased population, and lower gas0 line prices on the demand for automobiles. We call this shift in the demand curve an increase in demand.

You can test yourself by answering the following questions: Will a warm winter shift the demand curve for heating oil leftward or rightward? Why? What will happen to the demand for baseball tickets if young people .lose interest in baseball and watch basketball instead? What will a sharp fall in the price of personal computers do to the demand for typewriters? What happens to the demand for a college education if wages are falling for blue-collar jobs while salaries for college-educated investment bankers and computer scientists are rising rapidly?

When there are changes in factors other than a good’s own price which affect the quantity purchased, we call these changes shifts in demand. Demand increases (or decreases) when the quantity demanded at each price increases (or decreases).

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