2.1.4 Non-price determinants of demand Notes

Price is not the only factor that affects the demand of an individual consumer or the market. These other factors are referenced to as the non-price determinants of demand.

Note

The most important thing to note in this topic is that:

1. Changes in price changes the quantity of a good or service demanded (causing a movement along the demand curve).
2. Changes in the non-price determinants of demand change the quantity of a good or service demanded in the market at all possible price points (causing a shift of the demand curve).
   1. A rightwards shift means that for all given prices, there is more quantity demanded.
   2. A leftwards shift means that for all given prices, there is less quantity demanded.

The non-price determinants of demand covered in the IB curriculum:

1. Income.
2. Tastes and preferences.
3. Future price expectations.
4. Price of related goods:
   1. Substitutes.
   2. Complements.
5. Number of consumers.

Changes in consumer income

Changes in consumer income for normal goods

Increased consumer income → rightwards shift

1. When consumer income increases, the consumer purchasing power increases (goods and services are now relatively cheaper).
2. This increase in purchasing power increases the quantity of a normal good that consumers are able to buy at all given prices.
3. Therefore, there is a higher demand for the normal good at all possible prices (before not so many could afford it).
4. This shifts the demand curve to the right.

Decreased consumer income → leftwards shift

1. When consumer income increases, the consumer purchasing power decreases (goods and services are now relatively more expensive).
2. This decrease in purchasing power decreases the quantity of a normal good that consumers are able to buy at all given prices.
3. Therefore, there is a lower demand for the normal good at all possible prices (before more could afford it).
4. This shifts the demand curve to the left.

Changes in consumer income for inferior goods

Increased consumer income → leftwards shift

1. When consumer income increases, the consumer purchasing power increases (goods and services are now relatively cheaper).
2. This increase in purchasing power decreases the quantity of an inferior good that consumers are willing to buy at all given prices (since they now can afford better normal goods).
3. Therefore, there is a lower demand for the inferior good at all possible prices (less consumers want to buy it).
4. This shifts the demand curve to the left.

Decreased consumer income → rightwards shift

1. When consumer income decreases, the consumer purchasing power decreases (goods and services are now relatively more expensive).
2. This increase in purchasing power increases the quantity of an inferior good that consumers are willing to buy at all given prices (since they now cannot afford better normal goods).
3. Therefore, there is a greater demand for the inferior good at all possible prices (more consumers want to buy it).
4. This shifts the demand curve to the right.

Tastes and preferences

Preferences and tastes refer to consumer choices influenced by trends, popularity, or other external factors.

Favourable changes in tastes and preferences → rightwards shift

1. When consumer preferences shift in favour of a good, the product becomes more desirable or popular (.
2. This increase in preference also increases the demand for the good at all given prices.
3. As a result, the demand curve shifts to the right.

Unfavourable changes in tastes and preferences → rightwards shift

1. If consumer preferences shift against a good, making it less popular or desirable, the demand for the good decreases.
2. This decline in preference leads to a lower quantity demanded at all possible prices.
3. Consequently, the demand curve shifts to the left.

Future price expectations

Future price expectations are the anticipations consumers have about whether the price of a good or service will rise or fall in the future.

Anticipation of higher future prices → rightwards shift

1. When consumers expect the price of a good to increase in the future, they are likely to want to buy more of it now to avoid paying a higher price later.
2. This leads to an increase in demand for the good at all current prices.
3. As a result, the demand curve shifts to the right.

Anticipation of lower future prices → leftwards shift

1. When consumers expect the price of a good to decrease in the future, they are likely delay purchases (want to buy less now) to take advantage of lower prices later.
2. This causes a decrease in demand for the good at all current prices.
3. Consequently, the demand curve shifts to the left.

Prices of related goods: substitutes and complements

Substitutes

Increased price of a substitute → rightwards shift

1. When the price of a substitute of a related good (or service) increases, consumers find it more expensive to purchase the substitute.
2. As a result, they switch to the related good, increasing its demand at all given prices.
3. This causes the demand curve to shift rightward.

Decreased price of a substitute → leftwards shift

1. If the price of a substitute decreases, it becomes more attractive to consumers.
2. Demand for the related good decreases as consumers now prefer the cheaper substitute.
3. This causes the demand curve to shift leftward.

Complements

Increased price of a substitute → leftwards shift

1. When the price of a complement rises, the combined cost of using both goods increases.
2. Demand for the related good decreases as fewer consumers can afford both goods.
3. This causes a leftward shift of the demand curve.

Decreased price of a substitute → rightwards shift

1. If the price of a complement decreases, it becomes cheaper to purchase both goods together.
2. Therefore, the demand for the related good increases at all given prices.
3. This leads to a rightwards shift of the demand curve.

Number of consumers

The number of consumers in a market directly influences the demand for goods or services.

Increased number of consumers → rightwards shift

• When the number of consumers increases, the market demand for goods or services increases as well.
• More consumers are now willing and able to purchase the good, leading to higher demand at all price levels.
• As a result, the demand curve shifts to the right, reflecting the increase in quantity demanded across all prices.

Decreased number of consumers → leftwards shift

• When the number of consumers decreases, the market demand for goods or services decreases.
• Fewer consumers are willing and able to purchase the good, leading to lower demand at all price levels.
• As a result, the demand curve shifts to the left, reflecting the decrease in quantity demanded across all prices.