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You are expected to be able to explain/analyze (AO2) the non-price determinants of demand (SL+HL)
Non-price determinants of demand are all the factors that affect demand for a good or service, except for the price. The IB Syllabus lists 5:
- Income
Higher levels of income mean consumers are able to buy more products. This increases demand even when the price remains the same.
This is only the case with normal goods (goods that consumers tend to buy more of when their income increases). With inferior goods, consumers will buy less of them when their income increases.
- Tastes and Preferences
Some products become fashionable/trendy, while others are uncool, despite possibly being a better option.
- Future Price Expectations
If a product is going to be worth more in the future, many will buy it now, and vice versa.
- Number of Consumers
The more consumers are in a market, the more demand.
- Prices of Related Goods
Complementary Goods: Goods jointly demanded, such as phones and phone cases, cars and tires, etc. When the price of one increases, the demand for the other will also go down, despite not changing its price.
The shift in demand in the second diagram is explained later.
Substitute Goods: Goods competing against each other for demand, such as iPhones and Samsungs, Taco Bell and McDonald's, etc. When the price of one increases, the demand for the other will go up.
The shift in demand in the second diagram is explained later.
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