Other determinants of demand

Six factors other than prices which affect the quantity demanded

1. Tastes
2. The number and price of substitute goods (i.e. competitive goods)
3. The number and price of complimentary goods
4. Income
5. Distribution of income
6. Expectations of future price changes

1. Tastes:
The more desirable people find the product, the more they will demand
Tastes are affected by,
advertising
fashion
observing other consumers
consideration of health
the experiences from consuming the good on previous occasions

2. The number and price of substitute goods (i.e. competitive

goods)
Suppose we have a Product A and it is having its substitute as Product B and Product
C then if the prices of substitute products (Product B & C) are higher then it will lead to
increase in the demand of Product A since people switch from substitutes
For example, the demand for coffee will depend on the price of tea. If tea goes up in
price, the demand for coffee will rise

Substitute goods: A pair of goods which are considered by consumers to be

alternatives to each other. As the prices of one goes up, the demand for the other rises

3. The number and price of complimentary goods

Complementary goods are those that are consumed together like car & petrol, shoes &
polish.
The higher the price of complementary goods, the fewer of them will be bought and
hence the less will be the demand of this good
For example, the demand of cars will decrease if the prices of petrol increases
significantly
 Complementary goods: A pair of goods consumed together. As the price of one goes
up, the demand for both the goods will fall

4. Income
As consumer income increase, the demand for the normal goods will rise
However, as people get richer, they spend less on inferior goods

Normal goods: A good whose demand rises as people's income rise

Inferior goods: A good whose demand falls as people's income rise. Examples of
inferior goods are frozen food, instant noodles, canned food

5. Distribution of income
If national income were redistributed from the poor to the rich, the demand for luxury
goods would rise
At the same time, as the poor got poorer they will have to look for more cheaper
options (inferior goods), hence the demand for inferior goods will also increase

6. Expectation of future price changes

If people think that prices are going to rise in the future, they are likely to but more now
before the prices go up

Note:
If an exam question asks for factors affecting the demand for a particular product, say a
sports car, we should try to think of specific factors that would affect our
willingness and ability to buy a sports car, eg rather than saying ‘the number and
price of complementary goods’, we could specify ‘the availability of credit to buy a sports
car and the cost of insuring a sports car’, and then we could go further and suggest
alternative (non-bookwork) factors, such as the weather.