Business owners can analyze consumer buying behavior by studying a demand curve, which is plotted on two axes: price and quantity demanded. Demand curves always slope downward, because consumers are willing to buy more of any product when it is priced lower than usual. As the price increases for beef, for example, fewer sales occur. Price changes affect quantity sold, but they don’t move the demand curve itself, because fundamental desire for beef remains constant.
Other changes besides price shifts can shift the demand curve, according to the book “Economics: Principles and Policy,” by William J. Baumol and Alan S. Blinder. For example, a decrease in consumer demand for beef results in a leftward shift of the demand curve. If nutritionists advised consumers to avoid red meat, for instance, consumers might opt for chicken or fish instead of beef. Or if beef providers announced a large-scale recall of beef due to safety concerns, consumer demand will plummet. The key element of a leftward shift is that consumers demand less beef at every possible price point.
An increase in consumer demand for beef leads to a rightward shift of the demand curve. In other words, at any given price point, more consumers are willing to buy beef. Generally, a rightward shift of the demand curve would follow the release of any information that made beef more appealing to consumers. For example, if nutritionists advised the public that beef was the most healthful meat available, or if chicken and fish manufacturers announced large-scale safety recalls, consumer demand for beef would increase at every possible price point.
Significant shifts in demand in one market can have ripple effects in many other markets. For example, suppose consumer demand for beef drops precipitously. Producers of cattle feed will be next to experience a drop in demand as cattle raisers scale down operations. Farmers who grow grain used in cattle feed will then experience lower demand. In theory, the effects will continue to reverberate through an economy until the situation equalizes.
In reality, a simple graph can’t represent the full complexity of a market. For instance, beef isn't a uniform product. Some cuts are more prized than others, and rearing methods might matter more to some consumers than others. Business owners should view demand curves as no more than rough guidelines for analyzing consumer buying behavior.
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