The demand curve shows the relationship between the price of an item and the quantity demanded over a period of time. There are two reasons why more is demanded as price falls.

Income effect - as the price increases of a good, then this takes up a large proportion of income and so the demand decreases.
Substitution effect - when the price of a good falls, consumers are less likely to switch to a substitute.

What causes shifts in the demand curve?

Changes in the prices of substitute goods - increase in price of substitute good A then there is an increase in demand for substitute good B because it is cheaper than A. (EV ease of substitution)
Changes in the price of complementary goods - increase in price of complement A means decrease in demand for good B.
Changes in the real income of consumers - if real incomes increase then they can demand more goods and services so demand increases (EV inferior goods, income elasticity)
Effects of marketing and advertising
Interest rates and demand - low IR means cheaper to borrow so demand for borrowing increases.

	Criado por Hannah Nad aproximadamente 7 anos atrás

demand, supply, PED, PES, XED, YED, consumer and producer surplus and the price mechanism