Demand Factors and Changes

Change in Quantity Demanded vs. Change in Demand

  • Quantity Demanded: Changes only in response to the price of the good itself.

  • Demand: Changes due to factors other than price, known as non-price determinants.

    • Movement along a demand curve indicates a change in quantity demanded due to price change.

    • Shifting of a demand curve signifies a change in demand due to non-price determinants.

Non-Price Determinants of Demand

  • Examples: ies with price.

Impact of Non-Price Determinants on Demand Curve

  • Example: Income Change:

    1. An increase in household income results in an increased ability to buy goods.

    2. This leads to an increase in demand (shift from D1 to D2) for goods.

    3. Demand curve shifts right, indicating higher quantity demanded at each price level.

Graphical Representation of Demand Changes

  • Demand Curve Shifts:

    • Rightward shift indicates an increase in demand (more quantity demanded at all prices).

    • Leftward shift indicates a decrease in demand (less quantity demanded at all prices).

Factors Influencing Consumers' Purchase Decisions

  • Price Determinants: Changes in the price of the good itself influence quantity demanded (movement along the curve).

  • Non-Price Factors: Changes in income, preferences, expectations, etc., lead to shifts in the demand curve.

Key Non-Price Determinants (EGYPTWIPE)

  • Expectations of future prices

  • Government regulation

  • Income of households (Y)

  • Prices of related goods (substitutes & complements)

  • Taste and preferences

  • Weather

  • Interest rates

  • Population/demographic changes

  • Exchange rates

Expectations of Future Prices

  • Influence of Expected Price Changes:

    • If consumers expect higher future prices, current demand increases (e.g., gasoline demand before an anticipated price rise).

    • Speculative demand increases current demand for goods expected to rise in price.

Government Regulations and Demand

  • Government Policies:

    1. Pro-ICT legislation can increase demand for tech products (shift right).

    2. Age regulations can decrease demand for products like cigarettes (shift left).

Income Effects on Demand

  • Normal Goods: Demand rises with income.

    • Increased purchasing power leads to increased demand for higher-quality products.

  • Inferior Goods: Demand falls as income rises.

    • Consumers switch to preferable goods as income increases, leading to decreased demand for lower-quality items.

Summary of Goods Based on Income Changes

  • Normal Goods: Demand positively related to income increases.

  • Inferior Goods: Demand negatively related to income increases.

  • Examples:

    • Normal goods: smartphones, brand-name clothing

    • Inferior goods: low-quality food items like poor-quality rice.