Demand curves result from the decisions consumers make when deciding which goods and services to buy. Demand is the amount of a good that consumers are willing and able to buy at various prices. But a Demand Curve is a graphic representation of the relationship between the price of a good and the quantity demanded of that good.
So what drives demand? In the real world, there are infinite number of factors that influence each consumer's decision to buy something. Each factor’s impact on demand is unique. When the income of buyer increases, for example, that could also increase demand. The buyer has more money and is more likely to spend it. But when other factors increase – like price of related goods, for example – demand could decrease. The determinants of demand are:
Tastes and preferences
Expectations about future prices
Prices of related goods (substitutes and complements)
Number of consumers
The good’s price is the most important determinant of demand. The quantity of a good demanded varies inversely with the price of the good. This is Law of Demand. But a Demand Curve is a graphic representation of the relationship between the price of a good and the quantity demanded of that good.
There are Movement and Shift in Demand Curve. A change in price will lead to a movement along the demand curve. Any factor other than price that results in a change in demand, will cause a shift in the demand curve. A change in price doesn’t shift the demand – we merely move one point of the demand curve to another.
Changes in income can increase or decrease demand. An increase in income increases ability to buy. But if your income doubles, you won't always buy twice as much of a particular good or service. There are two type goods. Normal goods And Inferior goods
What is nomal goods ? For normal goods an increasein income leads to an increasein demand
Changes in tastes and preferences will affect demand, as they affect consumers’ desires to purchase goods and services. And The demand curve because of changes in tastes. When the public’s desires, emotions, or preferences change in favor of a product, so does the quantity demanded. Likewise, when tastes go against it, that depresses the amount demanded. Brand advertising tries to increase the desire for consumer goods. There are factors that identifiy tastes and preferences: social, cultural factors, effect of advertising
When people expect that the value of something will rise, they demand more of it.
An expectation that future prices will decrease may lead to a decrease in demand today as consumers’ postpone consumption till later
Prices of related goods or services
Consumers’ goods may have two kinds of relationships: substitutes and complements.
Substitutes Products that can be used to replace each other. A good that causes an increase in the demand for another good when its price increases is called a “substitute good.”
Complements Products that complement each other and are often purchased in conjunction with each other. A good that causes a decrease in the demand for another good when its price increases is called a “complementary good.”