A curve shows the negative relationship between the price and quantity of a good demanded during a given interval, holding all other influences constant. But what happens if influences on the demand for a good other than its own price change?
If a determinant of demand other than a good's own price changes, there is a change in demand, and a shift in the demand curve.
Most marketing is aimed at tastes and preferences. "Knockoffs" of the latest fashions and the numerous clones of hit TV shows are evidence that firms can react quickly to fads. Kids' lunch boxes, underwear, and toys regularly mirror the latest crazes. Resurgent sales of Star Wars items following the re-release of these films is an example. Media firms often mail novels to reviewers gratis, hoping to swell receipts for best sellers at both book stores and theaters by linking the advertising of their books and films. For example, in Panel B , successful promotion could shift the demand curve rightward from D0 to D1; more books could be sold at every price.
If paperbacks are normal goods, demand will grow if income rises, and vice versa. A drop in income normally shrinks demand—the demand curve in Panel A of Figure 5 shifts toward the origin from D0 to D2. Beginning on D0 in Panel B, pay hikes cause consumers to buy more books at every price, moving demand to D1. Naturally, such effects would be reversed if paperbacks were inferior goods.
Now consider changes in the availability or prices of related goods. Improved cable service, for example, might transform more readers into couch potatoes, shrinking the demand for books (again in Panel A, from D0 to D2). Or if ticket prices for films fell, substitution could squelch demands for novels. Take a moment to consider how demand would shift if illiteracy were eliminated, or if consumers' expectations changed.
Thus, a change in demand means a shift in the demand curve. Shifts to the left show falling demand, while rightwards shifts show growth of demand. These shifts result from changes in tastes, incomes, related prices, numbers of consumers, expectations, or government policies. Demand rises when consumers become willing to purchase more of a good at every price, or to pay a higher demand price for a given quantity of the good, and vice versa.
Changes in Quantity Demanded vs. Changes in Demand
You will spare yourself a lot of grief by learning to carefully differentiate changes in demand from changes in quantity demanded. Changes in the quantity of a good demanded are movements along a demand curve and are caused by only one thing—a change in its price. Changes in demand, on the other hand, involve shifts of demand curves, and occur whenever other determinants of demand change.
A rightwards shift from D0 to D1 in Panel B of Figure 5 reflects an increase in demand. In contrast, quantity demanded increases from the original 400 million to 500 million annually along demand curve D0 when book prices drop from $6 to $4. (If you were a publisher, would you prefer your novels to face growth in demand—say, point a to point c in Panel B—or similar growth in the amount of output sold, but resulting from an increase in quantity demanded—point a to point b? Why?) Why might paperback sales fall? One possibility is a decline in demand, illustrated by the leftward shift from D1 to D0 in Panel A. Another potential reason for falling sales is a price hike from $4 to $6 along demand curve D0, which yields a decrease in quantity demanded—annual sales fall from the original 400 million to 300 million in either of these cases.
In summary, changes in demand reflect changes in influences on purchases other than a good's own price; changes in the quantity demanded follow changes in the price of the good. Thus, a price change for computer disks yields a change in the quantity demanded, but changes in the prices of computer software or in consumers' incomes will change the demand for diskettes. (How various influences shift demand curves is summarized in Figure 6.) The importance of this distinction will become clear after we show how demand and supply are linked in markets.