This section of the syllabus requires students to understand the conditions of demand, i.e., the causes of shifts in a demand curve with appropriate terminology, for example increase and decrease in demand.

Although the analysis above shows the relationship between the price of a product and its quantity demanded, there are non-price factors that also impact on demand for goods and services. These factors can cause the demand curve to change, even if the price remains unchanged. These factors, or reasons, are sometimes referred to as the conditions of demand.

For example, during a period of hot weather that is above the seasonal norm, there is likely to be an increase in demand for ice cream irrespective of the price. This means the market demand for ice cream products will rise at each and every given price.

Warmer weather tends to increase people's willingness to buy ice cream products

Changes in conditions of demand (non-price factors affecting the demand for a product) will cause a shift in the demand curve. There are two shifts that can occur: rightwards shift or leftwards shift.

A rightward shift (or outward shift) of the demand curve is caused by favourable changes in conditions of demand. For example, warmer weather might increase the demand for ice cream and higher consumer incomes might increase the demand for overseas holidays. The diagram below shows that despite the price remaining the same at P₁, a favourable change in a non-price factor has shifted the demand curve from D₁ to D₂ thereby increasing the quantity demanded from Q₁ to Q₂, ceteris paribus.

By contrast, a leftward shift (or inward shift) of the demand curve is caused by adverse changes in conditions of demand, such as a fall in the price of a substitute product or lower average household incomes.  The diagram below shows that despite the price remaining the same at P₁, an adverse change in a non-price factor has shifted the demand curve inwards from D₁ to D₂ thereby reducing the quantity demanded from Q₁ to Q₂, ceteris paribus.

The conditions of demand (favourable and adverse factors that can affect the demand for a product) include changes in:

• Income - An increase in average consumer real incomes will lead to greater ability to buy more goods and services. Hence, this will tend to shift the demand curve for a normal good to the right, ceteris paribus. The opposite applies in the case of falling real incomes.

• The price of substitute and complementary products - Substitutes are goods or services that can be used in place of each other. Complements are goods and services that are in joint demand, so customers purchase these together.

1. In the case of substitutes, such as Nike and Adidas sports shoes or McDonald's and Burger King fast food products, if the price of one good falls, then the demand for the substitute product will also fall as consumers switch to the relatively cheaper rival product.

2. In the case of complements, such as cars and fuel or tortilla chips and salsa dips, if the price of one product goes up, then the demand for the complementary product will fall. This is because the demand for both products, in joint demand, will decline with an increase in the price of any of the complementary goods.

Cinema movies and popcorn are complements

• Marketing - The use of promotional and advertising strategies help to inform, remind, and persuade customers to buy a firm’s goods or services. If successful, these marketing campaigns help to increase the demand for the firm's products. By contrast, negative news about a firm's product will tend to shift its demand curve to the left.
• Trends - This refers to changes in habits, fashions, and tastes for a particular product. For example, products that become unfashionable will result in an inward shift of the demand curve, whereas those that become highly fashionable will result in an outwards shift of the demand curve.

• Government regulation - The purchase of certain products is regulated by the government. Examples include  minimum age laws on the purchase of tobacco, alcohol, petroleum, gambling, and fireworks. Some of these products are taxed to discourage consumption, so regulations will influence the demand for such products. By contrast, the government could also provide subsidies to encourage demand for some essential goods and services, such as baby milk powder, educational services, and the adoption of green energy sources.

• The state of the economy - The business cycle refers to the periodical fluctuations in economic activity, from an economic boom to a recession. Hence, the state of the economy has a large impact on the consumer and business confidence levels. This will directly impact the spending behaviour of individuals, households, firms, and the government. The prolonged COVID-19 global pandemic has undoubtedly decreased the demand for almost every product in all parts of the world.

• Seasonality and weather - Changes in seasonal climates and festivals can also impact the level of demand for certain goods and services. This includes the demand for a huge range of products from sun screen and summer holidays to umbrellas and winter jackets.

Back to school season increases the demand for stationery products