IB DP Economics - Unit 2 - Non-price determinants of demand-Study Notes - New Syllabus

Non-Price Determinants of Demand

Non-price determinants of demand are factors other than the price of the good itself that cause the demand curve to shift. These factors influence how much consumers are willing and able to buy at all price levels.

Change in non-price factor → Shift of demand curve

Income

Income is one of the most important determinants of demand, as it affects consumers’ purchasing power.

• For normal goods:
•  
  • An increase in income leads to an increase in demand.
  • A decrease in income leads to a decrease in demand.
• For inferior goods:
•  
  • An increase in income leads to a decrease in demand.
  • A decrease in income leads to an increase in demand.

Explanation:

• Higher income allows consumers to buy more goods.
• Consumers may switch from inferior to superior goods as income rises.

Income ↑ → Demand ↑ (normal goods)

Tastes and Preferences

Changes in consumer tastes, fashion, trends, and preferences directly affect demand.

• Positive changes (e.g. trends, advertising) increase demand.
• Negative changes (e.g. bad reviews, health concerns) decrease demand.
• Strongly influenced by advertising, social media, and cultural factors.

Explanation:

• If a product becomes fashionable, more consumers want it.
• If preferences shift away, demand falls even if price remains unchanged.

Better preferences → Demand increases

Future Price Expectations

Consumer expectations about future prices can influence current demand.

• If prices are expected to rise in the future, demand increases now.
• If prices are expected to fall, consumers delay purchases, reducing current demand.

Explanation:

• Consumers try to avoid higher future prices by buying earlier.
• Expectations create temporary shifts in demand.

Expected price ↑ → Current demand ↑

Price of Related Goods

The demand for a good depends on the prices of substitutes and complements.

Substitutes:

• Goods that can replace each other (e.g. tea and coffee).
• If price of a substitute increases, demand for the good increases.
• If price of a substitute decreases, demand for the good decreases.

Complements:

• Goods used together (e.g. cars and fuel).
• If price of a complement increases, demand for the good decreases.
• If price of a complement decreases, demand for the good increases.

Substitute price ↑ → Demand ↑
Complement price ↑ → Demand ↓

Number of Consumers

The size of the market affects total demand.

• An increase in population increases demand.
• A decrease in population reduces demand.
• Includes factors like migration, demographics, and market expansion.

Explanation:

• More consumers mean higher total demand at every price level.
• New markets increase overall demand.

More consumers → Demand increases

Summary of Non-Price Determinants: