3.3. Changes in Demand

The relationship between price and the quantity of an item people will purchase is one aspect of demand. But sometimes things happen that change the demand for an item at each and every price. When this occurs, economists say demand changes-it increases or decreases. What are some of the fac­tors that would cause the demand for T-shirts, or any other product, to increase or decrease?

• Prices of Substitutes. What will happen to the demand for sweatshirts if the price of T-shirts increases? When two goods satisfy similar needs, they are described as substitutes. A change in the price of one item will result in a shift in the demand for a substitute. Tapes and CDs are close substitutes. If the price of CDs goes up dramati­cally, people will tend to substitute audiotapes for CDs, and the demand for audiotapes will increase at every price.

• Prices of Complementary Goods. What will happen to the demand for T-shirts when the price of jeans falls? Goods that often are purchased together, like T-shirts and jeans, are complemen­tary. According to the law of demand, if the price of jeans falls, the number of jeans purchased will increase. Since people often buy jeans and T-shirts together, demand for T-shirts should increase.

What are some other factors that might cause the demand for these friends' T-shirts to increase or decrease at each and every price? The following is a brief list of factors that might affect the demand:

• Change in the weather or season. The demand for a "spring break" T-shirt may be much greater than a homecoming shirt. Why?

• Change in income. If the economy improves and most people have more money to spend, they are often willing to pay higher prices for the same quantities. During a recession the opposite is true. Economists describe this as the income effect of demand.

• Number of Buyers. The quantity of an item demanded also is affected by the size of the popu­lation a market serves. The demand for popcorn inside a movie theater is greater than outside because popcorn and movies go together.

• Change in styles, tastes, habits. Obviously, fashions change. It's possible that T-shirts—like bell bottoms and platform shoes—will disappear, only to return in 2015.

• Future Expectations. Will the price go up or down in the future? Future expectations will not impact the

demand for T-shirts much. However, expectations

about prices for goods such as computers, VCRs, houses, and automobiles affect demand. For example, how would the belief that computer prices will fall 25

percent next year affect the demand today?

If any of these events occur, the demand schedule and the demand curve will change so that the quan­tity demanded at any particular price would be more or less than in the original demand schedule. If the demand increases, the curve shifts to the right, not "up" (Figure 3-3). If demand decreases, the curve shifts to the left, not "down."