A2.01.03: The Non-Price Determinants of Demand

Question 1

Income and how it affects the 2 different types of goods

Answer 1

• normal goods: as income increases, demand increases
• inferior goods: as income increases, demand decreases leading to higher priced substitutes being bought

Question 2

Trends

Answer 2

Trends influence quantity demanded which means there will be a decrease in quantity if a popular is less popular.
- This can be affected by media, marketing and peer pressure

Question 3

Future Price Expectations

Answer 3

If consumers think that the price will increase in the future, demand will increase NOW

Question 4

Number of consumers (using Ads)

Answer 4

If there’s an increase in the number of consumers, demand increases although strategies would depend on the age of populations.

For example, number of senior citizens increases hence, ads will be targeted at them

Question 5

Population

Answer 5

As the population increases due to immigrants increasing as a result of governments raising the limit of immigrants, demand for goods and services will increase

Question 6

Substitutes

Answer 6

• If prices of a substitute good goes down, the demand for that good increases. A change in the price of one substitute good causes a change in the price of the other

Question 7

Interest Rates

Answer 7

• As interest rates increase, demand decreases as it becomes more expensive to borrow money

Question 8

Compliments

Answer 8

• As prices of complimentary goods decreases, demand increases. These are usually purchased together hence, if one’s price changes, the other’s does too

Question 9

Acronym to remember Non price determinants of demand (PASIFIC-F)

Answer 9

P - population
A- advertisements
S - price of substitute goods
I - Incomes
F - Fashion Trends
I - Interest rates
C - price of complimentary goods (inverse relationship w/ demand)
-
F - Future price expectations

Question 10

Define Substitute

Answer 10

Substitute goods are two alternative goods that could be used for the same purpose