Change In Demand
Categories: Econ, International
The world of economists operates on little tiny ornate models highlighting the principles of supply and demand. So, any major change in aggregate demand (meaning the total amount of stuff consumers want to get) can affect everything from stock prices to manufacturing to the Gross Domestic Product (GDP).
A change in demand officially means the market is changing its preference for a product or service. The change can go either way...up or down. Causes of a change could be consumer income, the number of buyers, the price of a related product, or the product is no longer the “in” thing such as Cabbage Patch dolls or Beanie Babies.
When Peter Principal does great at his sales job, his commissions should go up. Therefore, he will have a lot more money to spend...not only on necessities, but on luxury goods such as an expensive car and a big flat screen TV. If you multiply consumers like Peter by the thousands (or millions), there will be an upward change in demand. They have more to spend, so they are likely to want to spend it on more stuff (they could save it, but what fun is that?).
However, if Peter loses his job, he will have to scale back on his spending, even for necessities such as food and clothing. When an entire country is in a recession (such as the Great Recession of 2008), demand goes down for many products and services.