The non-price determinants of market demand include:
- Income in the case of normal goods • . A good is a normal good when demand for it increases in response to an increase in consumer income (demand for the good varies directly with income). Most goods are normal goods. Therefore, an increase in income leads to a rightward shift in the demand curve, and a decrease in income leads to a leftward shift.
- Income in the case of inferior goods. • While most goods are normal, there are some goods where the demand falls as consumer income increases; the good is then an inferior good (the demand for the good varies inversely with income). Examples of inferior goods are second-hand clothes, used cars and bus tickets. As income increases, consumers switch to more expensive alternatives (new clothes, new cars and cars or aeroplanes rather than travelling by bus), and so the demand for the inferior goods falls. Thus an increase in income leads to a leftward shift in the demand curve and a decrease in income produces a rightward shift.
- Preferences and tastes. • If preferences and tastes change in favour of a product (the good becomes more popular), demand increases and the demand curve shifts to the right; if tastes change against the product (it becomes less popular), demand decreases and the demand curve shifts to the left.
- Prices of substitute goods • . Two goods are substitutes (substitute goods) if they satisfy a similar need. An example of substitute goods is Coca-Cola ® and Pepsi ® . A fall in the price of one (say, Coca-Cola) results in a fall in the demand for the other (Pepsi). The reason is that as the price of Coca-Cola falls, some consumers switch from Pepsi to Coca-Cola, and the demand for Pepsi falls. On the other hand, if there is an increase in the price of Coca-Cola, this will result in an increase in the demand for Pepsi as some consumers switch from Coca-Cola to Pepsi. Therefore, for any two substitute goods X and Y, a decrease in the price of X produces a leftward shift in the demand for Y, while an increase in the price of X produces a rightward shift in the demand for Y. In brief, in the case of substitute goods, the price of X and demand for Y change in the same direction (they both increase or they both decrease). Other examples of substitute goods are oranges and apples, Cadbury’s and Nestlé chocolate, and milk and yoghurt.
- Prices of complementary goods. • Two goods are complements (complementary goods) if they tend to be used together. An example of complementary goods is DVDs and DVD players. In this case, a fall in the price of one (say, DVD players) leads to an increase in the demand for the other (DVDs). This is because the fall in the price of DVD players results in a bigger quantity of DVD players being purchased, and the demand for DVDs increases. Therefore, for any two complementary goods X and Y, a fall in the price of X leads to a rightward shift in the demand for Y, and an increase in the price of X leads to a leftward shift in the demand for Y. In the case of complementary goods, the price of X and the demand for Y change in opposite directions (as one increases, the other decreases). More examples of complementary goods are computers and computer software, tennis shoes and tennis rackets, and table-tennis balls and table-tennis rackets. Note that most goods are not related to each other; these are called independent goods. For example, pencils and apples, cars and ice cream, telephones and books are unrelated to one another, and the change in the price of one will have little or no effect on the demand for the other.
- Demographic (population) changes, i.e. • changes in the number of buyers. If there is an increase in the number of buyers (demanders), demand increases and therefore the market demand curve shifts to the right; if the number of buyers decreases, demand decreases and the curve shifts to the left. This follows simply from the fact that market demand is the sum of all individual demands.
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