Shifts in demand and market demand

Demand depends not only on the good's own price, but also on income, the prices of related goods, and tastes.

Income:

• Normal goods: demand rises when income rises.
• Inferior goods (such as coarse cereals): demand falls when income rises, because people switch to better goods.

Related goods:

• Substitutes (tea and coffee): if coffee becomes dearer, demand for tea rises.
• Complements (tea and sugar, used together): if sugar becomes dearer, demand for tea falls.

Remember the difference:

• A change in the good's own price causes a movement along the demand curve.
• A change in anything else (income, related prices, tastes) shifts the whole demand curve.

Market demand at each price is the sum of all the individual demands at that price (horizontal summation). Example: d1 = 12 − p (for p ≤ 12) and d2 = 18 − 2p (for p ≤ 9). At p = 6, d1 = 6 and d2 = 6, so market demand = 12. Above p = 9, only the first consumer buys.