Changes in Demand

Consumers are difficult to understand. Our demands change, constantly and often. As a consumer with 32 years of experience, I can honestly say ‘Good luck trying to figure ME out, Suppliers!’. On behalf of all consumers the world over, one thing is certain – if THEY are willing to lower the price, then WE will buy a higher quantity of the product. I’d love to have more video games, but they’re $60 each, so all I can afford, without the wife strangling me with the joystick cord, is 2 per year. If they lower the price to $30 each, then I could easily afford 4 per year. If they raised the price to $90, i’d only buy one per year. Graphically, it would look something like this:

As you can see, my demand is what it is, but I will buy more at lower prices. That’s the law of demand.

BUT, let’s say something happens and all of a sudden I just start to buy twice as many video games at the current price? Did the suppliers just get lucky? Did my wife suddenly lose her mind? NO, my demand itself changed at ALL prices.

I will call this effect FRIPP, because it helps me remember it. What in the FRIPPIN’ FRIPP is FRIPP?? Well, it’s a simple acronym for changes in demand.

It stands for Future expectations, Related goods, Incomes, Preferences, and Population. These 5 determinants can change my demand without any change to the price.

Future expectations are our predictions about what may happen that may cause us to want to stockpile a product, or buy less, depending on the outlook. If things start going bad for me at work, and I am worried I might lose my job, I will stop buying nonessential items, such as video games, even at lower prices.

Related goods means that the price has changed for complementary or substitute products. If the price of Xbox games goes down, then the demand for Playstation games goes down. If the price of electricity goes way up, I will have to play less video games.

Incomes rise and fall. If I got a raise at work, I might have more real income leftover which I could use to buy more video games. In times of recession, our incomes will be lower, so the demand for home video gaming will go down. However, I would probably go to an arcade and spend a few quarters to play an inferior video game instead.

Preferences are based on influences around us, such as advertising, or even weather. If I moved to a warmer climate, I would prefer to spend more time outside, so I wouldn’t want to buy video games. If I read an article about how video games can help my daughter learn the alphabet, I would buy more. Or, maybe I just lost interest in video games, with no reason necessary. I’m 32!

Population size, income, or age composition of the market can also effect demand. Mostly it will effect market demand. If there was a large boom of baby boys born 12 years previously, then all of a sudden a large new crop of consumers has suddenly opened their eyes to video games, and  caused a huge increase in the market demand. My individual demand was much higher when I was 12 too, and if I had an income I would have bought a LOT more of them (there’s a reason 12 year old boys can’t have credit cards!).

A shift in market demand can also cause a change in price. If the market demand goes up, the suppliers will likely raise the price they sell for, and vice versa. For example, if a news report claimed that video games can help elderly people stay mentally active, then the market demand will increase (displayed graphically as a rightward shift). Suppliers will take note that people are buying more games, and will likely cause an increase in the price, because they can. They don’t care if the games are helping the elderly, but they know they can sell it now at a higher price.