Apart from its own price, what makes consumers want more or less of a good?
Identify the factors that shift the demand curve and explain how each changes demand
A clear O-Level answer on the factors that shift demand. How income, the prices of substitutes and complements, tastes, population and expectations move the whole demand curve, and why these differ from a change in the good's own price.
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What this dot point is asking
The syllabus wants you to identify the factors, other than the good's own price, that affect demand, and to explain how each one shifts the whole demand curve. The big idea is that the demand curve is drawn assuming everything except price stays the same; when one of those other things changes, the whole curve moves left or right.
The answer
Conditions of demand versus price
The demand curve shows how quantity demanded changes as the good's own price changes, holding everything else constant. The other things being held constant are called the conditions of demand or the determinants of demand. When one of them changes, the whole curve shifts:
- A rightward shift means more is demanded at every price (an increase in demand).
- A leftward shift means less is demanded at every price (a decrease in demand).
Income
When consumer income rises, demand usually rises. But it depends on the type of good:
- For a normal good, demand rises as income rises (and falls as income falls). Most goods are normal.
- For an inferior good, demand falls as income rises, because consumers switch to better alternatives. An example is instant noodles, which people buy less of as they get richer.
Prices of related goods
Two goods can be related in two ways:
- Substitutes are goods used instead of each other, such as tea and coffee. If the price of one substitute rises, demand for the other rises (consumers switch to it).
- Complements are goods used together, such as cars and petrol. If the price of one complement rises, demand for the other falls (both are bought together, so dearer cars mean less petrol demanded).
Tastes and preferences
If a good becomes more fashionable or is shown to be healthier, tastes shift toward it and demand rises. If it falls out of favour or is found to be harmful, demand falls. Advertising and health news work mainly through tastes.
Population and its make-up
A larger population means more buyers, so demand rises. The make-up matters too: an ageing population raises demand for healthcare, while more young families raise demand for schools and baby products.
Expectations of future prices
If consumers expect a good's price to rise soon, they may buy more now, raising current demand. If they expect a price fall, they may delay buying, lowering current demand.
Examples in context
Example 1. Singapore's ageing population. As the share of older residents rises, demand for healthcare services, eldercare and certain medicines rises and shifts right, while demand for goods aimed at the young may fall. A change in the make-up of the population is a clear determinant of demand.
Example 2. Cars and petrol as complements. When the cost of owning a car in Singapore rises (for example through a higher certificate of entitlement price), fewer cars are bought, and because cars and petrol are complements, the demand for petrol also falls. The two goods move together.
Try this
Cue. Define a complement and give one example. A complement is a good used together with another, so a rise in the price of one lowers demand for the other. An example is cars and petrol.
Cue. Explain how a rise in income affects the demand for an inferior good. For an inferior good, demand falls as income rises, because consumers switch to preferred alternatives, so the demand curve shifts to the left.
Cue. State three determinants that can shift the demand curve. Any three of: income, the prices of substitutes or complements, tastes and preferences, population, and expectations of future prices.
Exam-style practice questions
Practice questions written in the style of SEAB exam questions on this dot point, with worked answer explainers. The year tag is the paper they imitate, not the source.
Original6 marksExplain, using examples, how a change in income and a change in the price of a substitute can each affect the demand for coffee.Show worked answer →
A 6 mark question rewards both factors explained with the correct direction of the shift and an example.
Income. Coffee is a normal good, so when consumer incomes rise, demand for coffee rises and the demand curve shifts to the right. For example, if wages increase, people buy more coffee at every price.
Price of a substitute. Tea is a substitute for coffee. If the price of tea rises, some consumers switch from tea to coffee, so the demand for coffee rises and its curve shifts right. If the price of tea falls instead, demand for coffee falls and its curve shifts left.
Markers reward the correct shift direction for each factor, the normal-good reasoning for income, and the substitute relationship explained clearly with an example.
Original4 marksDistinguish between a normal good and an inferior good, using the effect of a rise in income on demand.Show worked answer →
A 4 mark question rewards both definitions, contrasted through the income effect.
- Normal good
- A normal good is one whose demand rises as consumer income rises. Most goods are normal goods, such as restaurant meals or new clothes.
- Inferior good
- An inferior good is one whose demand falls as income rises, because consumers switch to better alternatives. An example is instant noodles: as people earn more, they buy fewer and switch to fresh meals.
- Key contrast
- The difference is the direction of the response to a rise in income: demand rises for a normal good but falls for an inferior good.
Markers reward both definitions and the clear contrast that income raises demand for a normal good but lowers it for an inferior good.
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