AP® Microeconomics · Unit 2 · Topic 2.1
What Shifts the Demand Curve
The demand curve shifts when something other than the good's own price changes buyers' willingness to buy, like income, tastes, prices of related goods, expectations, or the number of buyers.
A demand curve shows how much of a good people want to buy at each possible price, holding everything else fixed. That 'everything else' is exactly what shifts it. Five things do the job: income (more income usually means more demand, unless the good is inferior), tastes (a craze pushes demand up), the price of related goods (substitutes and complements), expectations about the future, and the number of buyers in the market. When any of these changes, buyers want a different amount at every price, not just the current one, so the whole curve moves. That is how a pizza market can get busier at the same price: more buyers showed up, or incomes rose, or tastes shifted toward pizza night.
Related goods split into two cases worth knowing cold. Butter and margarine are substitutes, so when margarine gets cheaper, people buy more margarine and less butter at every price of butter, shifting butter's demand curve left. Complements work the other way: if gasoline gets cheaper, demand for cars (used with gasoline) shifts right, since driving gets cheaper too. Expectations work through timing, not current price: if buyers expect a price jump next month, they buy more now, shifting today's demand curve right, even though nothing about today's price changed.
This sets up the other half of the unit: once you know what shifts demand, you compare it to what shifts supply, and together they explain why equilibrium price and quantity move the way they do. Keeping shifts (demand curve moves) separate from movements along the curve (price changes) is the foundation for everything that follows, including taxes and price controls.
Key terms
- Demand curve
- A line showing the quantity of a good buyers want at each possible price, other factors held constant.
- Shift
- A move of the entire demand curve left or right caused by a change in something other than the good's own price.
- Substitute good
- A good that buyers use in place of another, so a price drop in one lowers demand for the other.
- Complement good
- A good used together with another, so a price drop in one raises demand for the other.
- Movement along the curve
- A change in quantity demanded caused only by a change in the good's own price, not a shift.
Watch it explained
- How it worksHow do income, tastes, related goods, expectations, and buyers each move the demand curve?
- How it worksWalk me through what happens to the demand for butter when margarine gets cheaper.
- Going furtherWhat happens to demand today when everyone expects the price to jump next month?
- Common mistakeWhy doesn't a fall in the good's own price shift the demand curve?
Check yourself
End of topic.