This post was updated in September 2018 with new information and examples.
One of the things to do when analyzing a supply and demand graph is shift the demand curve. When we consider what factors will shift a demand curve, we need to make a distinction between the endogenous factors (those contained in the model) and exogenous factors (those occurring outside of the model). The easiest way to tell the difference between endogenous and exogenous factors is to look at the graph. You can see from the graph to the right that both quantity and price are on the axis, which means they are controlled for within the model, or they are endogenous. Every other factor that is not controlled for would therefore be exogenous, (which means that it is determined outside of the model and held constant).
One of the things to do when analyzing a supply and demand graph is shift the demand curve. When we consider what factors will shift a demand curve, we need to make a distinction between the endogenous factors (those contained in the model) and exogenous factors (those occurring outside of the model). The easiest way to tell the difference between endogenous and exogenous factors is to look at the graph. You can see from the graph to the right that both quantity and price are on the axis, which means they are controlled for within the model, or they are endogenous. Every other factor that is not controlled for would therefore be exogenous, (which means that it is determined outside of the model and held constant).
Some determinants of demand include income, tastes and preferences, and number of buyers. If one of these exogenous factors change, such as income or preferences, then we would need to shift the demand curve because that factor is not accounted for on the axes of the graph. In this example, demand shifted right, so we would need to see an increase in income (assuming a normal good/not an inferior good), or a change in preferences towards more positive feelings toward the good or service being studied.
Let’s look at another example using math.