2.

3 Non-price Determinants of Demand

Tastes and Preferences
A change in tastes and preferences towards a good will lead to an increase in the
demand and vice versa. Tastes and preferences are affected by a number of factors such as
technological advancements and campaigning. For example, the inventions of smartphones
and tablets have led to a change in tastes and preferences from print publications to digital
publications. Healthy living campaigns have led to a change in tastes and preferences from
non-diet soft drinks to diet soft drinks. These have increased the demand for digital
publications and diet soft drinks and decreased the demand for print publications and non-diet
soft drinks.

Prices of Substitutes and Complements

Substitutes are goods which are consumed in place of one another such as Coke and
Pepsi. A rise in the prices of substitutes for a good will induce consumers to buy less of the
substitutes resulting in an increase in the demand for the good and vice versa. For example, if
the price of Pepsi rises, consumers will buy less Pepsi and more Coke. Complements are
goods which are consumed in conjunction with one another such as car and petrol. A fall in
the prices of complements for a good will induce consumers to buy more of the complements
resulting in an increase in the demand for the good and vice versa. For example, if the prices
of cars fall, consumers will buy more cars and more petrol. Substitutes and complements will
be explained in greater detail in Chapter 3.

Level of Income
When consumers’ income rises, the demand for some goods will increase and these
goods are called normal goods. A normal good is a good whose demand rises when
consumers’ income rises. There are two types of normal goods: necessity and luxury. A
necessity is a good whose demand rises by a smaller proportion when consumers’ income
rises. Examples of necessities include agricultural products and stationery. A luxury is a good
whose demand rises by a larger proportion when consumers’ income rises. Examples of
luxuries include private cars and branded watches. When consumers’ income rises, the
demand for some goods will decrease and these goods are called inferior goods. An inferior
good is a good whose demand falls when consumers’ income rises. Inferior goods are
typically relatively low in quality. Examples of inferior goods include public transport and
Daiso Products.
Distribution of Income
If income is redistributed from the rich to the poor, the demand for luxuries which are
typically consumed by the rich will fall as the rich will become less rich. The demand for
inferior goods which are typically consumed by the poor will also fall as the poor will
become less poor. However, the demand for necessities will increase as both the rich and the
poor will buy more necessities.