Determinants of Demand
Tastes – Preferences for a product – a change that makes the product more desirable –
means that more of it will be demanded at each price. Demand will increase and
demand curve will shift rightward
o Unfavorable change in consumer preferences will decrease demand, shifting
demand curve to left
o New products may affect consumer tastes; the introduction of compact discs
greatly decreased demand for cassette tapes
o Concern over health hazards, etc.
Number of Buyers – Increase or decrease in number of buyers in market.
o Improvements in communications have given financial markets international
range and have thus increased demand for stocks and bonds
o Baby boom after WWII in creased demand for baby diapers
Income – a rise in income causes an in crease in demand
o Consumers typically buy more steaks, furniture, electronic equip as income
increases
o Conversely, demand for such products declines as their incomes fall
Products whose demand varies directly with money income are called
superior goods or normal goods
Most products are normal goods, but exceptions include demand for
used clothing deceases as incomes go up also retread tires and used
autos
Prices of related goods – substitute or compliment
o Substitute – one that can be used in place of another good –
The price of one and the demand for the other move in the same
direction
o Complimentary good – one that is used together with another good
The price of one good and the demand of the other good move in
opposite directions.
o Related goods – Vast majority of goods that are not related are called
independent goods – examples are butter and golf balls; potatoes and
automobiles. A change in the price of one has little or not effect on demand for
other.
Expectations – Consumer expectations - a newly formed expectation of higher future
prices may cause consumers to buy now in order to “beat” the anticipated price rises;
thus, increasing current demand. Example: freezing weather destroys much of Florida’s
cirrus crop, consumers may reason that he price of orange juice will rise
