Demand is not just wanting something. It is wanting it and being able to pay for it. A teenager may want a sports car, but that desire does not count as demand unless he has the money or credit to buy one. Economists define demand as the quantity of a good or service consumers are willing and able to purchase at various prices.

The relationship between price and quantity demanded is usually inverse. Lower the price, and more people buy. Raise it, and they buy less. This is the law of demand, and it holds for most goods most of the time. There are exceptions. Luxury watches and designer handbags can become more desirable as they get more expensive, because price signals status.

Demand shifts for reasons other than price. Incomes rise, tastes change, substitute goods get cheaper or pricier, expectations about the future shift. When demand increases, the demand curve moves to the right, and at any given price, buyers want more. Sellers respond by raising prices or increasing output, depending on how competitive the market is.

What shifts demand

• Changes in income
• Prices of substitutes and complements
• Tastes and preferences
• Expectations about future prices
• Number of buyers in the market