Determinants of DemandDeterminants of Demand

• NON-price factors that change demand for a product.

• Shifts the demand curve (left or right)

Consumer Tastes and PreferencesConsumer Tastes and Preferences

• Popularity, “cool factor”

• When a product becomes more popular, demand increases

• When a product becomes less popular, demand decreases

Market SizeMarket 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

IncomeIncome• The money a person earns affect his/her demand

for goods/services

• When income increases, demand increases

• When income decreases, demand decreases

Substitute GoodsSubstitute 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 GoodsComplementary 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 ExpectationsConsumer 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.