Question

List and describe 4 of the 6 factors (other than the price of the good) that would change demand for a good. + -B I y S Ix E = := = 2 3 × x Ins

Answer 1

1) Taste and preference of the consumer - as consumers taste and preference for a goods increase, the demand for the same increase and vise versa. The demand for a good and its taste and preference is directly related. Consider demand for smart phones and land phones. As time progressed, peoples preference for land phones decreased and smart phones increased. This lead to an increase in demand for smart phones and decrease in demand for land phones.

2) Income of the consumer - more the income people has more will people consume. As income increases demand for goods and services increases and vise versa. More income would mean more purchasing power. For example as the economic slow down in India gather momentum the demand for cars fell significantly. Slower growth means lower income, low purchasing power, lower demand for cars.

3) Price of related goods - related goods include both substitute and complimentary goods.

Substitute goods are those goods which can be used in place of another good. For example Apple and samsung phones. As the price of substitute goods increases the demand for that good falls and vise versa. In the above example, suppose the price of apple phones increase, the demand for samsung phones will increase. (direct relation with price of substitute good)

Complimentary goods are those goods which used together with another good. Higher the price of complimentary good, lower the will its demand. i.e there exist inverse relation with price of complimentary goods. For example consider, tea powder and milk. Both are used together to make tea. Suppose the price of milk increases, it would make mean that tea has become more expensive. So people would consume less tea now. Lower demand for tea, lower demand for milk. Therefore price increase in tea powder has lead to a fall in demand for milk.  

4) Inflationary expectations - higher the inflationary expectations, higher will be the demand for goods and services and vise versa. Higher inflationary expectation means higher prices levels in future. People would have to pay more for goods and services in future than now. So people would consume more now and consume less in future. The opposite happens when inflationary expectations are low in future.