Question

Explain about this statement "Many influences lie behind the demand schedule for the market as a whole: average family incomes, population, the prices of related goods, tastes, and special influences. When these influences change, the demand curve will shift.

Answer 1

Demand is determined by price as well as non-price factors. Demand curve depicts the inverse relationship between price and quantity demanded, keeping all other factors affecting demand such as average family incomes, population, the prices of related goods, tastes, and special influences constant. When these non-price factors change there will be an increase or decrease in demand at the same price and as a result demand curve will shift to exhibit change in demand when price is held constant. Here the price is not changing, but consumer are demanding more or less due to changes in non-price factors mentioned above, causing shift in demand curve. For example a consumer consumes 3 bars of chocolate at a price of $3 per bar and the income of the consumer is $50. When income increases to $100, the consumer increases her consumption of chocolate to 5 bars at the same price level $3 per bar, as a result demand curve shift to the right to depict increase in demand. Here it is a change in non-price factor that changed the demand even though price remains the same.