The following factors tend to influence demand and will cause the demand curve to shift either to the right or to the left. Here the price of the good is assumed to remain unchanged.
- Changes in Consumer's income: An increase in a consumer's income increases the demand for a normal good while a decrease in income will lead to a decrease in demand. An increase in income will shift the demand curve to the right while a decrease in income will shift the demand curve to the left, everything being equal. This is because people would have a greater desire and ability to pay for a good when the income increases and vice versa. See also the real income effect.
- Changes in tastes and fashion: Tastes refer to the general appeal of goods to consumers, while fashion refers to the various styles of clothing, footwear, hair-do amongst others. An increase in tastes and/or fashion will lead to an increase in the demand for such goods. The reverse is true for out dated products that are considered not to be in taste and fashion. For example, the demand for long laying records has decreased in recent years as consumers have a greater appeal for the superior sound quality of USBs, cassettes and CDs.
- Changes in population: Changes in population and its structure are likely to cause changes in the demand for goods and services. Thus an increase in population will lead to an increase in demand for goods and services and vice versa. Similarly, changes in the structure of population in terms of age and sex distribution will lead to changes in the demand for the mix of goods and services produced within the economy.
- Changes in advertisement: A positive change in the advertisement of goods and services will increase demand for them and vice versa. In a highly competitive market, a successful and persuasive advertisement for a product will lead to an outward shift in its demand curve and the demand curves for competing products will move inwards at the same time.
- Changes in the prices of other goods: Consumers are always influenced by the relative prices of competing goods especially for goods with close substitutes. For example, a fall in the price of butter will lead to a decrease in the demand for margarine and an increase in the demand for butter, since they are closed substitutes. Similarly, an increase in the price of meat will increase the demand for fish and a decrease in the demand for meat.
- The demand for a good can also be influenced by a change in the price of its complements: Complements are goods that are used together to enhance the satisfaction of a consumer. Examples would include car and petrol, lamp and kerosene, mobile phone and SIM card, pen and ink, tea and sugar amongst others. A decrease in the price of cars is likely to increase the demand for petrol because these two goods complement each other, and vice versa.
- Expectation of future price changes: The demand for a good also depends on the expectations consumers have about changes in the price in the future. For example, if a consumer expects that the price of a good will increase next week such consumer is likely to buy more of the good this week irrespective of the price. Similarly, expectations of a decrease in the price of a good next week will tend to decrease current demand for the good.
- Availability of hire purchase facilities: This factor is more common in developed countries where demand for consumer durables depends more on the provision or hire purchase facilities. For example, the demand for housing, cars, furniture amongst others will decrease if there is a shortage of loans from the building societies. Similarly, changes in the terms of hire purchase facilities will affect the demand for such durables. For example, a negative change in the terms of hire purchase facilities will lead to a fall in demand and vice versa.
- Government policy: Government policy on taxation and subsidy equally influences demand for taxable goods and services. When the government imposes a tax on some goods and services, the prices of such items will be increased. Note that the extent of the increase in the prices of such goods depends so much on the degree of elasticity of demand of the goods. When this happens, demand decreases in response to the increase in the price of the good. The reverse is true in the case of a government subsidy on goods and services.
- Changes in weather: A cold weather will increase the demand for sweaters and blankets while frequent rains will increase the demand for raincoats and umbrellas. The demand will decrease when the weather is hot and there are no rains.
