Economic and Business Environment · Basics of Demand and Supply and Forms of Market Competition

Determinants of Demand and Shifts in Demand Explained

Updated 11 October 2026 · Fact-checked

Demand depends on the good's own price and on other factors: income, prices of related goods, tastes, expectations and number of buyers. A change in own price causes a movement along the demand curve. A change in any other factor shifts the whole curve. Identify the cause first, then decide movement or shift.

Understand Determinants of Demand and Shifts in Demand

Demand means the quantity of a good a consumer is willing and able to buy at a given price in a given time. The quantity you plan to buy depends on many things, not only price.

The price of the good itself is the main determinant. When the price falls, quantity demanded usually rises, and when it rises, quantity demanded usually falls. This is shown by a single demand curve. A change in price moves you from one point on the same curve to another point.

The other determinants are everything except own price. These are: income of the consumer, prices of related goods (substitutes and complements), tastes and preferences, expectations about future prices or income, number of buyers (population), and distribution of income. When any of these changes, buyers want a different quantity at every price. The whole curve moves. This is a shift.

So there are two ideas. Change in quantity demanded is caused only by own price and is shown as movement along the curve: extension (price falls, quantity rises) or contraction (price rises, quantity falls). Change in demand is caused by other factors and is shown as a shift: increase (curve moves right) or decrease (curve moves left).

Income has a twist. For a normal good, higher income raises demand. For an inferior good, higher income lowers demand, as buyers move to better goods. A rise in the price of a substitute (tea vs coffee) raises demand for the other good. A rise in the price of a complement (car and petrol) lowers demand for the other good.

Key rules to remember

Demand function: Dx = f(Px, Py, Y, T, E, N); Px = own price, Py = price of related goods, Y = income, T = tastes, E = expectations, N = number of buyers. Only a change in Px moves along the curve.
Movement along the curve: Own price ↓ → extension; own price ↑ → contraction; Other factors are assumed constant (ceteris paribus). Also called change in quantity demanded.
Shift of the curve: Any other determinant changes → increase (right shift) or decrease (left shift); Also called change in demand. Quantity changes at every price.
Direction of effects: Normal good: income ↑ → demand ↑. Inferior good: income ↑ → demand ↓. Substitute price ↑ → demand ↑. Complement price ↑ → demand ↓.; Learn these four pairs for MCQ-style and short-answer questions.

How to solve Determinants of Demand and Shifts in Demand questions

Use this method for any question asking what happens to demand when something changes.

1Name the good in the question and find the factor that changed.
2Ask: is the changed factor the good's own price? If yes, it is a movement along the same curve.
3If the factor is anything else (income, related goods, tastes, expectations, population), it is a shift.
4Decide the direction using the good's type: normal or inferior, substitute or complement.
5Use the right term: extension or contraction for movement; increase or decrease for shift.
6Say what happens to the curve: same curve with a new point, or the curve moves right or left.
7Write one line of reason, then add a small diagram description if marks are for explanation.

Quickest way: Own price or not?

When to use it: For MCQs and short questions with little time.

Check if the cause is the good's own price. Yes: movement, so extension or contraction.
No: shift, so increase or decrease.
Substitute price and income of normal goods move demand in the same direction.
Complement price and income of inferior goods move demand in the opposite direction.
Match the answer to the term the options use; do not mix the words.

Common mistakes in Determinants of Demand and Shifts in Demand

Calling a price-driven change an 'increase in demand'.
In daily speech, people say demand rose when they buy more.
Fix: If own price caused it, write 'extension in quantity demanded'. Use 'increase in demand' only for a shift.
Shifting the curve when own price changes.
Students draw a new curve whenever something changes.
Fix: Own price moves you along the same curve. Only other factors shift it.
Treating all goods as normal goods when income rises.
Students remember only 'more income, more demand'.
Fix: Check if the good is inferior, such as coarse grain or a low-quality brand. Demand for it falls.
Mixing up substitutes and complements.
The effects are opposite and easy to reverse under pressure.
Fix: Substitutes compete: tea and coffee. Complements go together: pen and ink. Substitute price up lifts demand; complement price up lowers it.
Saying expectations of a future price rise lower demand today.
Students link a rising price to lower buying.
Fix: If buyers expect prices to rise later, they buy more now, so current demand increases.

Worked examples

Example 1

The price of petrol rises sharply. Explain the effect on the demand for cars, and name the type of change shown on the demand curve for cars.

Show the solution

Petrol and cars are complements, used together.
The changed factor is the price of a related good, not the price of cars.
So this is a shift of the demand curve for cars, not a movement.
A higher petrol price makes running a car costlier, so buyers want fewer cars at every price.
The demand curve for cars moves to the left.

Answer: Demand for cars decreases. The demand curve shifts left because petrol is a complement.

Example 2

The price of a packet of biscuits falls from ₹20 to ₹15, and a student's purchase rises from 4 packets to 6 packets a month. Another month, her pocket money rises and she buys 8 packets at ₹15. Name each change.

Show the solution

First change: the price fell from ₹20 to ₹15 and the quantity rose from 4 to 6 packets.
The cause is own price, so this is a movement along the same demand curve.
Own price fell, so it is an extension of demand (a rise in quantity demanded).
Second change: price stays at ₹15, but quantity rises from 6 to 8 because income rose.
Income is not own price, so this is a shift of the curve.
Biscuits are a normal good, so demand increases and the curve shifts right.

Answer: The first change is an extension in quantity demanded (movement along the curve). The second is an increase in demand (rightward shift).

Exam tips

Write both pairs of terms in your answer: extension/contraction and increase/decrease. Examiners check the correct word.
In a 'distinguish between' question, use a two-column point list covering cause, curve, terms and effect.
Draw a small diagram if asked: one curve with an arrow along it for movement, and two curves for a shift.
For application questions, state the relation first (substitute, complement, normal, inferior) and then the direction.
Keep ceteris paribus in mind. Say 'other factors remaining constant' when explaining movement along the curve.

Practice questions from Basics of Demand and Supply and Forms of Market Competition

Determinants of Demand and Shifts in Demand in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Determinants of Demand and Shifts in Demand: frequently asked questions

What is the difference between change in demand and change in quantity demanded?

Change in quantity demanded is caused only by the good's own price and is a movement along the same demand curve. Change in demand is caused by other determinants such as income or tastes and shifts the whole curve.

What is the difference between extension and increase in demand?

Extension happens when own price falls and buyers purchase more along the same curve. Increase in demand happens when other factors change and buyers want more at every price, shifting the curve right.

What are the main determinants of demand?

They are the price of the good, income of consumers, prices of related goods, tastes and preferences, expectations, and number of buyers. Distribution of income also matters.

How does income affect demand for inferior goods?

When income rises, buyers shift to better goods, so demand for an inferior good falls. When income falls, demand for it may rise.