D2 Influences on Demand
Demand refers the willingness and ability of consumers to purchase a product at different prices. With normal products, demand will reduce as price increases. You can see on the diagram to the left, at $100 the demand is 70 and at $700, the demand is 10. Firms will use this theory to support their decision in setting a price.
Right Shift in Demand
Favourable external factors may increase the level of demand at each price. This causes the demand curve to shift to the right.
As you can see in the diagram to the right, at $300, demand has shifted from 50 to 70 and at $700, demand has shifted from 10 to 30.
Factors that may cause a right shift in demand include a rise in incomes, increased population, change in tastes in favour of this product, lower prices of complimentary goods and fewer substitute goods available.
Left Shift in Demand
Unfavourable factors may decrease the level of demand at each price. This causes the demand curve to shift to the left.
As you can see in the diagram to the left, at $100, demand has shifted from 70 to 50. At $500, demand has shifted from 30 to 10.
Factors that may cause a left shift in demand include lower incomes, rising unemployment, recession, changes in consumer tastes against this product, increased prices of complimentary goods and more substitute goods available.
