IB Economics 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).