determinants of demand

Demand and Supply Curves – Determinants of Demand

What is Demand?

Demand is the amount of a good or service that consumers are willing and able to buy at different prices. Think of a vending machine: the more you pay, the more snacks you can get, but at a higher price you might buy fewer snacks. 📉

Determinants of Demand

  • Income (I) – When people have more money, they buy more. If your allowance increases, you might buy more video games.

  • Tastes & Preferences (T) – Trends or new flavors can make a product suddenly popular. 🍦

  • Prices of Related Goods (Prelated) –

    • Substitutes: If the price of chocolate milk rises, you might buy chocolate milk instead.

    • Complements: If the price of pizza drops, you might buy more pizza and also more soda.

  • Expectations (E) – If you think the price will rise next month, you might buy now.

  • Number of Buyers (N) – More people in the market means higher demand.

The relationship can be written as:



\$Qd = f(P, I, T, P{related}, E, N)\$



where \$Q_d\$ is the quantity demanded and \$P\$ is the price of the good itself.

Exam Tip 🚀

When answering “Explain how a change in X affects demand”, always:

  1. Identify the determinant (e.g., income).

  2. State the direction of the shift (right or left).

  3. Explain the economic reasoning behind the shift.

  4. Use a diagram if possible, labeling the new demand curve.

Price ($)Quantity Demanded (units)
5120
1080
1550

Analogy: The Ice Cream Shop

Imagine an ice‑cream shop that sells vanilla scoops. If the shop raises the price from \$2 to \$3, fewer students will buy a scoop because it costs more. If a new flavour, like chocolate, becomes popular (tastes change), the shop might see more customers overall. If the price of milkshakes (a complement) falls, more people might pair a scoop with a milkshake, increasing demand for ice cream. 📈