The Law of Demand

Shifts in the Demand Curve

Certain factors will cause the demand curve to move. These factors can all be classified as anything which will cause the people in the market to buy a different quantity of a product at the same price. You will explore these in more detail when you look at the goals of the Australian economy, but for now we can consider the following demand factors:

Changes in the level of disposable income
A change to the rate of interest paid on borrowings
Any change to the confidence that consumers or businesses have about their own economic future
Any fluctuation in the value of the Australian dollar
Movements in or out of recession by our trading partners

Let’s consider an example. Imagine that the minimum wage in Australia is increased by 15%. In this case, many workers will find that they have extra money to spend – their disposable income will increase. Some of this income may be saved, but some will also be spent. This represents an increase in the level of consumption spending in the Australian economy. As a result, the demand curve will shift to the right. We can demonstrate this on a graph as follows:

An Increase in Demand

A shift the right is referred to as an increase in demand. *Important point to note! If we move along the demand curve, we refer to this as an increase in the quantity demanded. If the curve itself shifts then we refer to it as an increase in demand. It is very important that you are able to understand the difference between these two things.

When demand decreases, this can be represented by shifting the curve to the left. This is referred to as a decrease in demand.

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