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Determinants of Demand

Determinants of Demand. Non price factors that can change (increase or decrease) an entire demand curve for a good or service. Taste. You demand products that you like. Ex. Type of music, clothing, or gas (b/c now you have a car). Income . How much money you make influences your demand

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Determinants of Demand

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  1. Determinants of Demand Non price factors that can change (increase or decrease) an entire demand curve for a good or service.

  2. Taste • You demand products that you like. • Ex. Type of music, clothing, or gas (b/c now you have a car)

  3. Income • How much money you make influences your demand • Ex. If you win the lottery, your demand for all products will increase • Mo money = mo demand • No money– decrease in demand

  4. Consumer expectations • What we foresee or expect to happen in our near future influences our demand • Ex. If you expect to get a bonus from work, demand increases • If you expect to lose your job, demand will probably will decrease

  5. Market Size • Market size is how many consumers buy the product • Ex. MS goes up = Demand goes up • MS goes down = demand goes down • Ex. New coke • Advertisements, government can influence MS

  6. Price of Related goods • 2 kinds • Complimentary goods = go together, the demand is linked • Ex. Shampoo and conditioner = if you buy one, you usually buy the other. So if the demand for one increases it will increase the demand for the other • Substitute goods = replacements • Kroger vs. Mayfield

  7. Demand curve can change when the determinants change demand! • increase = right

  8. Decrease = left

  9. All 5 Determinants • Taste • Income • Expectations • Market size • Price of related goods (comps and subs)

  10. Law of Demand • Substitution Effect • Replace higher priced goods for lower priced goods • Ex. Mayfield Ice cream for Kroger Ice Cream • Income Effect • When your purchasing power increases or decreases due to a change in a product’s price, the demand will increase or decrease • Ex. Old Navy • Law of Diminishing Marginal Utility • With each additional unit consumed, demand (utility) decreases with each unit. Ex. Tacos

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