2.1.2 Non-Price Determinants of Demand

Explanation

Changes in real income

• Real Income determines how many goods/services can be enjoyed by consumers
• There is a direct relationship between income and demand for goods/services 

Income
Increases

D Increases
Shifts Right
(D→D₁)

Income
Decreases

D Decreases
Shifts Left
(D→D₂)

Changes in taste/preferences

• If goods/services become more preferable then demand for them increases
• There is a direct relationship between changes in taste/preferences and demand
• Advertising or branding can change tastes/preferences

Good becomes more preferable

D Increases
Shifts Right
(D→D₁)

Good becomes less preferable

D Decreases
Shifts Left
(D→D₂)

Changes in the prices of substitute goods

(Related goods)

• Changes in the price of substitute goods will influence the demand for a product/service
• There is a direct relationship between the price of good A and demand for good B
• E.g. The price of a Sony 60" TV (good A) increases so the demand for LG 60" TV (good B) increases

Price of Good A Increases

D for
Good B
Increases
Shifts Right
(D→D₁)

Price of Good A Decreases

D for
Good B Decreases
Shifts Left
(D→D₂)

Changes in the prices of complementary goods

(Related goods)

• Changes in the price of complementary goods will influence the demand for a product/service
• There is an inverse relationship between the price of good A and demand for good B
• For example, the price of printer ink (good A) increases so the demand for ink printers (good B) decreases

Price of Good A Increases

D for
Good B Decreases
Shifts Left
(D→D₂)

Price of Good A Decreases

D for
Good B
Increases
Shifts Right
(D→D₁)

Changes in the number of consumers

• If the population size of a country changes over time, then the demand for goods/services will also change
• There is a direct relationship between the changes in population size and demand
• Demand will also change if there is a change to the age distribution in a country as different ages demand different goods/services e.g an ageing population will buy more hearing aids

Population Increases

D Increases
Shifts Right
(D→D₁)

Population Decreases

 D Decreases
Shifts Left
(D→D₂)

Future price expectations

• If consumers expects the price of a good/service to increase in the future, they will purchase it now and demand will increase
• If consumers expects the price of a good/service to decrease in the future, they will wait to purchase it later and demand will decrease

Expectations price will rise

D Increases
Shifts Right
(D→D₁)

Expectations price will fall

 D Decreases
Shifts Left
(D→D₂)