Factors that Affect the Market Demand Curve

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  • 0:01 Slope & Curve of the…
  • 2:02 Shifts in the Market…
  • 4:01 Finding Equilibrium
  • 5:02 Lesson Summary
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Lesson Transcript
Instructor: Kevin Newton

Kevin has edited encyclopedias, taught middle and high school history, and has a master's degree in Islamic law.

Just like any other demand curve, there are a number of factors that can affect the market demand curve. This lesson introduces many of them and explains how difficult it can be in real life to actually measure equilibrium.

Slope and Curve of the Market Demand Curve

In another lesson, we learned that the market demand curve is formed by adding all the individual demand curves into one massive curve. If this is your first lesson with us, or you skipped that lesson, then that definition of a market demand curve is all you really need to understand this lesson.

While we may focus a great deal on curves and models, they are based on real data. That means we could, in theory, give a specific price for a specific amount of goods. In reality, it's messier than that, because you can't really buy 1.2953 cars, even if you are willing to spend that little bit extra. By combining all this data into one big curve, however, we can make much more accurate predictions because we have so much more data to work with.

That said, the numbers aren't everything. The slope and the curve of the market demand model can tell us a great deal of qualitative information about the state of the market. The standard line or curve that people learn about during economics classes tends to have roughly a 45-degree angle down, like this one:

Standard demand curve
demand curve

Sometimes the book or teacher will throw a curve in there, but typically it does resemble this shape.

However, what if the slope of the line changes? Let's say it looked like this, with a slope that only permits a relatively small change:

Demand curve permitting small change
demand curve with small slope

That would mean that people would be willing to pay pretty fair prices no matter how many items they demand. Bread prices tend to be a good example of this because people will typically want to spend about the same amount of money on loaves of bread, and there is always a large quantity desired.

But what about diamonds? As this graph shows, the demand for diamonds starts off with a small number of people willing to pay astronomical prices:

Demand curve for diamonds
demand curve diamonds

After that, however, the graph nosedives, because the price falls as more diamonds are demanded. Diamonds are supposed to be exclusive, after all.

Shifts in the Market Demand Curve

No model in economics stays still for long, however. Market demand curves are no exception, and they are constantly shifting with respect to price paid and quantity demanded. These shifts can come as a result of a few consumers suddenly deciding to abandon all demand for a given product, or as a result of many consumers deciding to cut back on their consumption of a given good. Let's say that your community made an attempt to limit their consumption of fossil fuels. For some people, this could mean simply carpooling. For others, it could mean the decision to bike to work, eliminating their consumption of fossil fuels. In both cases, the market demand curve for fossil fuels shifts to the left, meaning that the demand has decreased. Again, notice how some people completely gave up the good, whereas others simply limited their consumption.

Demand curve shifted to the left
demand curve shifted to left

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