In the previous section, we dealt with the relationship between the price and quantity demanded and we presented this relationship as a demand curve. In this section, we start looking at what happens when a non-price factors changes and the impact it has on the demand curve.
After you have worked through this section of the learning unit, you should be able to:
- identify the non-price factors of demand
As you know, it is not only the price of the product that influences the demand for it. There are also other factors, which are referred to as the non-price determinants. A non-price factor or determinant of demand is any factor other than the price of the good or service that influences the demand for it.
These are factors such as:
- tastes and preferences (T)
- income (Y)
- the number of potential buyers (N)
- the price of related goods, such as substitutes and complements
- the weather
- the expected price
- income distribution.
We will now expand our analysis by including the impact of these non-price factors on the demand for goods and services
A change in a non-price factor can either increase or decrease the demand for a good or service. When it increases the demand for a good or service, we say that a positive relationship exists between the factor and the demand for goods. When it decreases the demand for a good or service, a negative relationship exists.
Watch the following video clip on the factors that influence demand:
Do the following activity to see if you understand the concept of non-price factors of demand:
A non-price factor of demand is ____
Think again.
Non-price factors are any factor other than the price of the good or service that influences demand. These are factors such as:
- tastes and preferences (T)
- income (Y)
- the number of potential buyers (N)
- the price of related goods, such as substitutes and complements
- the weather
- the expected price
- income distribution
Correct.
Non-price factors are any factor other than the price of the good or service that influences demand. These are factors such as:
- tastes and preferences (T)
- income (Y)
- the number of potential buyers (N)
- the price of related goods, such as substitutes and complements
- the weather
- the expected price
- income distribution
Think again
The price is not a non-price factor.
Non-price factors are any factor other than the price of the good or service that influences demand. These are factors such as:
- tastes and preferences (T)
- income (Y)
- the number of potential buyers (N)
- the price of related goods, such as substitutes and complements
- the weather
- the expected price
- income distribution
Which of the following factors can be regarded as non-price factors for the demand for coffee?
The price of a substitute product such as tea
Correct.
Non-price factors are any factor other than the price of the good or service that influences demand. It includes the price of a substitute good.
Think again.
Non-price factors are any factor other than the price of the good or service that influences demand. It includes the price of a substitute good.
The price of coffee
Think again. The price of coffee is a price factor for coffee.
Correct: The price of coffee is indeed a price factor for coffee.
The income of households
Correct.
Non-price factors are any factor other than the price of the good or service that influences demand. It includes the income of households.
Think again.
Non-price factors are any factor other than the price of the good or service that influences demand. It includes the income of households.
The taste and preference of households
Correct.
Non-price factors are any factor other than the price of the good or service that influences demand. It includes the taste and preferences of households.
Think again.
Non-price factors are any factor other than the price of the good or service that influences demand. It includes the taste and preferences of households.