Determinants of Demand
• NON-price factors that change demand for a
product.
• Shifts the demand curve (left or right)
Consumer Tastes and Preferences
• Popularity, “cool factor”
• When a product becomes more popular, demand
increases
• When a product becomes less popular, demand
decreases
Market Size
• When more businesses enter an industry, market
size increases and more products become
available.
• When market size increases, demand increases
• When market size decreases, demand decreases
Income
• The money a person earns affect his/her demand
for goods/services
• When income increases, demand increases
• When income decreases, demand decreases
Substitute Goods
• A product that can be substituted for or replace another
• Examples – margarine and butter, chicken and turkey
• When the demand for a substitute good increases,
demand for the original good will decrease.
• When the demand for a substitute good decreases,
demand for the original good will increase.
Complementary Goods
• A product that compliments or “goes with” another
product
• Examples – paint and paint brushes, hot dogs and hot
dog buns
• When demand for a complementary good increases,
demand for the original good also increases.
• When demand for a complementary good decreases,
demand for the original good also decreases.
Consumer Expectations
• Reacting to an expected change in price or quality
(future)
• If consumers believe the price of a product will
decrease tomorrow, their demand today will
decrease.
• If consumers believe the price of a product will
increase tomorrow, their demand today will
increase.