Determinants of Demand

Consumers Tastes and Preferences

Favorable change leads to an increase in demand, unfavorable change lead to a decrease.

Consumer Incomes

A rise in a person's income will lead to an increase in demand (shift demand curve to the right), a fall will lead to a decrease in demand for normal goods. Goods whose demand varies inversely with income are called inferior goods (e.g. Hamburger Helper).

Change In Population

As the population increases, So does the demand. As the population decreases, So does the demand.

The Price of Complementary Goods

Complement goods (those that can be used together): price of complement and demand for the other good are inversely related. Example: if the price of ice cream rises, the demand for ice-cream toppings will decrease.

The Price of Substitutes

Substitute goods (those that can be used to replace each other): price of substitute and demand for the other good are directly related. Example: If the price of coffee rises, the demand for tea should increase.

Consumer Expectations About Price and Income

a. Future price: consumers' current demand will increase if they expect higher future prices; their demand will decrease if they expect lower future prices. b. Future income: consumers' current demand will increase if they expect higher future income; their demand will decrease if they expect lower future income.