Factors that Change Supply and Demand

For most goods, referred to as “normal goods,” an increase in consumer income will cause demand to increase, which shifts the demand curve to the right. Normal goods include

most products, such as gasoline, coffee and clothing.

• Change in consumer income

• Change in consumer tastes and preferences

• Change in prices of related goods

• Change in number of buyers in the market

• Change in consumer expectations

If consumers like a product less based on their experience with the product or negative reports about the product.

• Change in consumer income

• Change in consumer tastes and preferences

• Change in prices of related goods

• Change in number of buyers in the market

• Change in consumer expectations

If personal income tax rates increase, consumers will have less money to spend.

• Change in consumer income

• Change in consumer tastes and preferences

• Change in prices of related goods

• Change in number of buyers in the market

• Change in consumer expectations

If a report states that a particular product causes cancer.

If a report states that a product reduces the risk of cancer.

• Change in consumer income

• Change in consumer tastes and preferences

• Change in prices of related goods

• Change in number of buyers in the market

• Change in consumer expectations

Market demand is derived from individual demands, so the demand for a product increases as the number of consumers in the market for a product increases. As the number of consumers in the market for a product decreases, the demand for the product decreases.

• Change in consumer income

• Change in consumer tastes and preferences

• Change in prices of related goods

• Change in number of buyers in the market

• Change in consumer expectations

For inferior goods, an increase in income will cause a decrease in demand.

Inferior goods include products that consumers purchase less of as their incomes increase.

For example, as your income increases, you might purchase:

🔹more steaks but fewer bologna sandwiches

🔹more SUVs and fewer subcompact cars

🔹more MP3 players and fewer CD players.

• Change in consumer income

• Change in consumer tastes and preferences

• Change in prices of related goods

• Change in number of buyers in the market

• Change in consumer expectations

Ice cream and ice cream cones are goods that “work” or go together. An increase in the price of ice cream will cause consumers to buy fewer gallons of ice cream. As a result the demand for ice cream cones will decrease.

• Change in consumer income

• Change in consumer tastes and preferences

• Change in prices of related goods

• Change in number of buyers in the market

• Change in consumer expectations

If the product is a type of clothing and a famous athlete or actor advertises the product, the advertisement may change consumer tastes and preferences for the product, and the demand for the product may increase.

• Change in consumer income

• Change in consumer tastes and preferences

• Change in prices of related goods

• Change in number of buyers in the market

• Change in consumer expectations

As the population ages, the number of people in the market for nursing home care increases and the demand for nursing home care increases.

• Change in consumer income

• Change in consumer tastes and preferences

• Change in prices of related goods

• Change in number of buyers in the market

• Change in consumer expectations

People’s expectations about the future may affect the demand for a good or service today. If people expect the price of coffee to rise in the future, they may buy more cans/bags of coffee today and store it.

• Change in consumer income

• Change in consumer tastes and preferences

• Change in prices of related goods

• Change in number of buyers in the market

• Change in consumer expectations