To explain a demand factor, name the factor, say who changes their buying and why, then state the shift and its direction. A good explanation is a short chain from cause to curve.
This lesson builds on movement versus shift and belongs to demand relationships. Economics practice works well with fictional or neutral markets, so we keep to made-up stalls and towns here.
How do you build the chain?
Use four links every time:
- Factor: what changed (not the good’s own price).
- Buyers: how it changes their ability or wish to buy.
- Quantity at each price: buyers want more or fewer units at the same price.
- Diagram: the demand curve shifts right (increase) or left (decrease).
Worked example
In the fictional town of Bukit Melur, lime tea at the Seri stall has demand Qd = 160 − 20P. A new stall opens selling barley drink, a substitute, and cuts its price from RM3 to RM2.
- Factor: the price of a substitute fell.
- Buyers: some buyers now find barley drink cheaper than lime tea, so they switch.
- Quantity at each price: at the same lime tea price, fewer cups are wanted. Suppose 30 fewer at every price.
- Diagram: the new demand is Qd = 130 − 20P, a shift left.
Check with numbers. At RM4, the old curve gives 160 − 80 = 80 cups. The new curve gives 130 − 80 = 50 cups, which is 30 fewer.
At RM5 the new curve gives 30 cups against 60 before, again 30 fewer. The gap is the same at each price, so it is a true shift.
Written answer: “The price of barley drink, a substitute, fell, so some buyers switch away from lime tea. Fewer cups are wanted at every price, so demand for lime tea decreases and the curve shifts left.”
The mistake to watch for
Mistaken answer: “Income rises, so demand shifts right.”
This names the factor and the direction but misses the middle links. It also assumes lime tea is a normal good. Correction: “Income rises, so buyers can afford more.
For a normal good such as lime tea they want more cups at each price, so demand increases and the curve shifts right.” Add the buyers’ reason, and mention the good type when income is the factor.
Check yourself
1. The fictional Seri stall also sells curry puffs. The price of curry puffs falls. Explain the effect on demand for lime tea if the two are bought together.
Show answer
Curry puffs and lime tea are complements. Cheaper puffs make a puff-and-tea snack cheaper, so buyers want more tea at every price. Demand for lime tea increases and the curve shifts right.
2. A school next to the fictional market closes for the term. State the factor and the shift for lime tea.
Show answer
The factor is the number of buyers. Fewer students pass the stall, so fewer cups are wanted at every price. Demand decreases: the curve shifts left.
3. Buyers read a report saying lime tea prices will rise next month, and buy extra now. Which factor is this, and what happens now?
Show answer
The factor is expectations of future prices. Buyers want more at each current price, so demand increases now (shift right), even though the current price did not change.
Where this leads next
Move on to reading quantity at a stated price. The demand, supply and shift explorer lets you apply a factor and see the table change. For guided practice on writing the chain, see online one-to-one Economics tuition.