Non-Price Determinants of Demand (DP IB Economics)

Revision Note

Reviewed by: Jenna Quinn

Shifts of the Demand Curve

There are numerous factors that will change the demand for a good/service, irrespective of the price level. Collectively these factors are called the non-price determinants of demand and include
- Changes in real income
- Changes in tastes/preferences
- Changes in the price of related goods (substitutes and complements)
- Changes in the number of consumers
- Future price expectations
Changes to each of the non-price determinants, shifts the entire demand curve (as opposed to a movement along the demand curve)

1-2-2-shifts-in-the-demand-curve_edexcel-al-economics

A graph that shows how changes to any of the non-price determinants shifts the entire demand curve left or right, irrespective of the price level

For example, if a firm increases their Instagram advertising, there will be an increase in demand as more consumers become aware of the product
- This is a shift in demand from D to D₁. The price remains unchanged at £7 but the demand has increased from 15 to 25 units

An Explanation of how each of the Non-Price Determinants of Demand Shifts the Entire Demand Curve at Every Price Level

Non-Price Determinant	Explanation	Condition	Shift	Condition	Shift
Changes in real income	Real Income determines how many goods/services can be enjoyed by consumers There is a direct relationship between income and demand for goods/services	Income Increases	D Increases Shifts Right (D→D₁)	Income Decreases	D Decreases Shifts Left (D→D₂)
Changes in taste/preferences	If goods/services become more preferable then demand for them increases There is a direct relationship between changes in taste/preferences and demand Advertising or branding can change tastes/preferences	Good becomes more preferable	D Increases Shifts Right (D→D₁)	Good becomes less preferable	D Decreases Shifts Left (D→D₂)
Changes in the prices of substitute goods (Related goods)	Changes in the price of substitute goods will influence the demand for a product/service There is a direct relationship between the price of good A and demand for good B E.g. The price of a Sony 60" TV (good A) increases so the demand for LG 60" TV (good B) increases	Price of Good A Increases	D for Good B Increases Shifts Right (D→D₁)	Price of Good A Decreases	D for Good B Decreases Shifts Left (D→D₂)
Changes in the prices of complementary goods (Related goods)	Changes in the price of complementary goods will influence the demand for a product/service There is an inverse relationship between the price of good A and demand for good B For example, the price of printer ink (good A) increases so the demand for ink printers (good B) decreases	Price of Good A Increases	D for Good B Decreases Shifts Left (D→D₂)	Price of Good A Decreases	D for Good B Increases Shifts Right (D→D₁)
Changes in the number of consumers	If the population size of a country changes over time, then the demand for goods/services will also change There is a direct relationship between the changes in population size and demand Demand will also change if there is a change to the age distribution in a country as different ages demand different goods/services e.g an ageing population will buy more hearing aids	Population Increases	D Increases Shifts Right (D→D₁)	Population Decreases	D Decreases Shifts Left (D→D₂)
Future price expectations	If consumers expects the price of a good/service to increase in the future, they will purchase it now and demand will increase If consumers expects the price of a good/service to decrease in the future, they will wait to purchase it later and demand will decrease	Expectations price will rise	D Increases Shifts Right (D→D₁)	Expectations price will fall	D Decreases Shifts Left (D→D₂)

Examiner Tips and Tricks

The difference between a movement along the demand curve and a shift in demand is essential to understand. You will be repeatedly examined on this and it is important that you use the correct language to show that you understand the difference between a change in quantity demanded and a change in demand.

When price changes (ceteris paribus), there is a movement along the demand curve resulting in a change to quantity demanded. When a non-price determinant of demand changes, there is a shift of the entire demand curve resulting in a change to demand.

Last updated: 19 March 2024

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