Demand curve graphs are a great tool that can be used to show how much/little the demand for a specific item has changed over time or with an increase/decrease in price - supply of that product can then be adjusted accordingly.
There are several key factors that will cause a shift of the demand curve:
- Consumer preferences: often include ridiculous fads such as fluorescent clothing - it wasn't cool the first time!
- Prices of preferred goods
- Consumer incomes: consider the recent recession - I imagine the demand for Apple products dropped drastically!
- Expectation of future prices: if you knew the price of beer was going up at midnight, you probably wouldn't be sitting there reading this, thus creating a larger demand.
On the graph to the left, there are two different demand curve lines (red) on the graph, D1 & D2. The S line (blue) represents the supply curve. The "Y" axis is showing the price of the product while the "X" axis is showing the quantity. Let's say line D1 is starting at a price of $10 with only 1 purchased - meanwhile, there is an increase in supply which causes the price to come down and in turn, creates a larger demand and more are purchased. Line D2 starts at the same price, but with more purchases at this price. This could be due to the larger supply, or that particular item gaining popularity - both of which are factors of a demand increase. Where red meets blue is known as the market equilibrium - supply and demand are in harmony!
